PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

September 30,
2017
December 31,
2016
Assets

Current assets:

Cash and cash equivalents $ 29,914

$ 11,609
Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively 21,107

19,705
Inventories 79,217

75,026
Prepaid expenses 10,208

8,705
Other current assets 23,803

23,282
Total current assets 164,249

138,327

Non-current assets:

Property and equipment, net 206,690

208,367
Goodwill and intangible assets, net 78,133

80,817
Deferred income taxes 938
4,667
Other non-current assets 28,898

24,988
Total assets $ 478,908

$ 457,166

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable $ 136,628

$ 105,375
Customer prepayments 39,929

26,207
Accrued sales returns 18,448
15,222
Compensation and benefits 34,683

19,455
Taxes and withholding 24,041

23,430
Other current liabilities 44,708

35,628
Total current liabilities 298,437

225,317

Non-current liabilities:

Other non-current liabilities 76,174

71,529
Total liabilities 374,611

296,846

Shareholders’ equity:

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

—
Common stock, $0.01 par value; 142,500 shares authorized, 39,819 and 43,569 shares issued and outstanding, respectively 398

436
Additional paid-in capital —

—
Retained earnings 103,899

159,884
Total shareholders’ equity 104,297

160,320
Total liabilities and shareholders’ equity $ 478,908

$ 457,166


	April 2, 2022		January 1, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,556	$	2,389
Accounts receivable, net of allowances of $1,047 and $924, respectively	24,502		25,718
Inventories	103,212		105,644

Prepaid expenses	22,001		18,953
Other current assets	40,624		54,917
Total current assets	191,895		207,621

Non-current assets:
Property and equipment, net	197,644		195,128
Operating lease right-of-use assets	374,650		371,133
Goodwill and intangible assets, net	69,867		70,468
Other non-current assets	78,529		75,190
Total assets	$	912,585	$	919,540

Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under revolving credit facility	$	413,200	$	382,500
Accounts payable	177,025		162,547
Customer prepayments	142,005		129,499
Accrued sales returns	20,277		22,368
Compensation and benefits	25,702		51,240
Taxes and withholding	26,293		22,087
Operating lease liabilities	74,046		72,360
Other current liabilities	59,390		64,177
Total current liabilities	937,938		906,778

Non-current liabilities:
Deferred income taxes	312		688
Operating lease liabilities	338,528		336,192
Other non-current liabilities	105,020		100,835
Total liabilities	1,381,798		1,344,493

Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 142,500 shares authorized, 22,232 and 22,683 shares issued and outstanding, respectively	222		227
Additional paid-in capital	—		3,971
Accumulated deficit	(469,435)		(429,151)
Total shareholders’ deficit	(469,213)		(424,953)
Total liabilities and shareholders’ deficit	$	912,585	$	919,540

See accompanying notes to condensed consolidated financial statements.

~~Index~~


1 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

~~SELECT COMFORT~~

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)


	Three Months Ended
	April 2, 2022		April 3, 2021
Net sales	$	527,130	$	568,256
Cost of sales	224,832		212,338
Gross profit	302,298		355,918

Operating expenses:
Sales and marketing	240,259		223,617
General and administrative	41,319		42,592
Research and development	16,305		13,286
Total operating expenses	297,883		279,495
Operating income	4,415		76,423
Interest expense, net	2,127		977
Income before income taxes	2,288		75,446
Income tax expense	214		8,812
Net income	$	2,074	$	66,634

Basic net income per share:
Net income per share – basic	$	0.09	$	2.63
Weighted-average shares – basic	22,760		25,377

Diluted net income per share:
Net income per share – diluted	$	0.09	$	2.51
Weighted-average shares – diluted	23,591		26,544

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net sales $ 402,646
$ 367,988
$ 1,081,218
$ 997,846
Cost of sales 149,181
135,645
404,675
385,168
Gross profit 253,465
232,343
676,543
612,678

Operating expenses:

Sales and marketing 174,800
158,024
488,564
443,477
General and administrative 32,645
28,278
95,233
86,202
Research and development 6,991
6,997
20,950
21,661
Total operating expenses 214,436
193,299
604,747
551,340
Operating income 39,029
39,044
71,796
61,338
Other expense, net (248 ) (255 ) (668 ) (581 )
Income before income taxes 38,781
38,789
71,128
60,757
Income tax expense 13,178
13,044
21,842
20,627
Net income $ 25,603
$ 25,745
$ 49,286
$ 40,130

Basic net income per share:

Net income per share – basic $ 0.63
$ 0.56
$ 1.18
$ 0.86
Weighted-average shares – basic 40,755
45,621
41,740
46,705
Diluted net income per share:

Net income per share – diluted $ 0.62
$ 0.56
$ 1.16
$ 0.85
Weighted-average shares – diluted 41,515
46,350
42,559
47,413

See accompanying notes to condensed consolidated financial statements.

~~Index~~


2 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

~~SELECT COMFORT~~

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Comprehensive Income~~Shareholders’ Deficit

(unaudited - in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance at January 1, 2022	22,683	$	227	$	3,971	$	(429,151)	$	(424,953)
Net income	—	—		—		2,074		2,074
Exercise of common stock options	21	—		531		—		531
Stock-based compensation	341	3		4,130		—		4,133
Repurchases of common stock	(813)	(8)		(8,632)		(42,358)		(50,998)










Balance at April 2, 2022	22,232	$	222	$	—	$	(469,435)	$	(469,213)

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 25,603
$ 25,745
$ 49,286
$ 40,130
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax —
—
—
14
Comprehensive income $ 25,603
$ 25,745
$ 49,286
$ 40,144


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total
	Shares	Amount
Balance at January 2, 2021	25,390	$	254	$	—	$	(224,232)	$	(223,978)
Net income	—	—		—		66,634		66,634
Exercise of common stock options	106	1		2,459		—		2,460
Stock-based compensation	314	3		6,413		—		6,416
Repurchases of common stock	(1,346)	(13)		(8,872)		(175,297)		(184,182)










Balance at April 3, 2021	24,464	$	245	$	—	$	(332,895)	$	(332,650)

See accompanying notes to condensed consolidated financial statements.

~~Index~~

~~SELECT COMFORT CORPORATION~~

~~AND SUBSIDIARIES~~

~~Condensed Consolidated Statement of Shareholders’ Equity~~

~~(unaudited - in thousands)~~

Common Stock
Additional
Paid-in
Capital

Retained
Earnings
Total
Shares Amount
Balance at December 31, 2016 43,569
$ 436
$ —
$ 159,884
$ 160,320
Net income —
—
—
49,286
49,286
Exercise of common stock options 212
2
3,038
—
3,040
Stock-based compensation 587
6
11,803
—
11,809
Repurchases of common stock (4,549 ) (46 ) (14,841 ) (105,271 ) (120,158 )
Balance at September 30, 2017 39,819
$ 398
$ —
$ 103,899
$ 104,297


3 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

~~See accompanying notes to condensed consolidated financial statements.~~

~~Index~~Table of contents

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)


	Three Months Ended
	April 2, 2022		April 3, 2021
Cash flows from operating activities:
Net income	$	2,074	$	66,634
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,870		14,638
Stock-based compensation	4,133		6,416
Net loss on disposals and impairments of assets	93		78
Deferred income taxes	(376)		1,515
Changes in operating assets and liabilities:
Accounts receivable	1,216		5,948
Inventories	2,432		(946)
Income taxes	1,102		6,847
Prepaid expenses and other assets	10,877		(3,113)
Accounts payable	2,073		12,390
Customer prepayments	12,506		20,552
Accrued compensation and benefits	(25,348)		(34,605)
Other taxes and withholding	3,104		8,912
Other accruals and liabilities	(5,198)		6,332
Net cash provided by operating activities	24,558		111,598

Cash flows from investing activities:
Purchases of property and equipment	(19,604)		(11,546)
Proceeds from sales of property and equipment	10		12

Net cash used in investing activities	(19,594)		(11,534)

Cash flows from financing activities:
Repurchases of common stock	(50,998)		(178,613)
Net increase in short-term borrowings	44,712		74,087
Proceeds from issuance of common stock	531		2,460
Debt issuance costs	(42)		(3)
Net cash used in financing activities	(5,797)		(102,069)

Net decrease in cash and cash equivalents	(833)		(2,005)
Cash and cash equivalents, at beginning of period	2,389		4,243
Cash and cash equivalents, at end of period	$	1,556	$	2,238

Nine Months Ended
September 30,
2017 October 1,
2016
Cash flows from operating activities:
Net income $ 49,286
$ 40,130
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 46,000
42,555
Stock-based compensation 11,809
9,272
Net loss on disposals and impairments of assets 229
9
Excess tax benefits from stock-based compensation —
(516 )
Deferred income taxes 3,729
(673 )
Changes in operating assets and liabilities:

Accounts receivable (1,402 ) 5,271
Inventories (4,191 ) 15,991
Income taxes (147 ) 30,386
Prepaid expenses and other assets (1,713 ) (3,458 )
Accounts payable 33,325
(1,043 )
Customer prepayments 13,722
(23,125 )
Accrued compensation and benefits 15,277
12,441
Other taxes and withholding 758
7,494
Other accruals and liabilities 9,372
10,527
Net cash provided by operating activities 176,054
145,261

Cash flows from investing activities:
Purchases of property and equipment (37,613 ) (38,769 )
Decrease in restricted cash 3,150
—
Proceeds from sales of property and equipment 36
67
Proceeds from marketable debt securities —
15,090
Investments in marketable debt securities —
(5,968 )
Net cash used in investing activities (34,427 ) (29,580 )

Cash flows from financing activities:

Repurchases of common stock (120,158 ) (96,410 )
Net (decrease) increase in short-term borrowings (6,194 ) 3,062
Proceeds from issuance of common stock 3,040
1,949
Debt issuance costs (10 ) (409 )
Excess tax benefits from stock-based compensation —
516
Net cash used in financing activities (123,322 ) (91,292 )

Net increase in cash and cash equivalents 18,305
24,389
Cash and cash equivalents, at beginning of period 11,609
20,994
Cash and cash equivalents, at end of period $ 29,914
$ 45,383

See accompanying notes to condensed consolidated financial statements.

~~Index~~


4 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

~~SELECT COMFORT~~

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Business and Summary of Significant Accounting Policies

Business & Basis of Presentation

We prepared the condensed consolidated financial statements as of and for the three ~~and nine~~ months ended ~~September 30, 2017~~April 2, 2022 of ~~Select Comfort~~Sleep Number Corporation and our 100%-owned subsidiaries ~~(Select Comfort~~(Sleep Number or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position as of ~~September 30, 2017~~April 2, 2022 and ~~December 31, 2016~~,January 1, 2022, and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. In addition, based on the duration and severity of the current global situation involving the COVID-19 pandemic, the war in Ukraine and other external factors, including but not limited to general economic conditions, inflation, consumer confidence, store restrictions mandated by federal, state or local authorities and global supply chain disruptions, the extent to which these external factors will impact our business and our consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~January 1, 2022 and other recent filings with the SEC.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. In addition, during the current environment involving external factors such as COVID-19 and the war in Ukraine, predicting future events will be especially challenging for management. Changes in these estimates will be reflected in the consolidated financial statements in future ~~periods.~~periods and could be material. Our critical accounting policies consist of stock-based compensation, ~~goodwill and indefinite-lived intangible assets,~~ warranty liabilities and revenue recognition.

The condensed consolidated financial statements include the accounts of ~~Select Comfort~~Sleep Number Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.

~~Revenue Recognition~~

At September 30, 2017 and December 31, 2016, we had deferred revenue totaling $71 million and $61 million, of which $28 million and $21 million are included in other current liabilities, respectively, and $43 million and $40 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $41 million and $33 million, of which $16 million and $11 million are included in other current assets, respectively, and $25 million and $22 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years.

~~New Accounting Pronouncements~~

~~Adopted~~

In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three and nine months ended September 30, 2017, excess tax benefits of $0.2 million and $1.4 million, respectively, were recognized as a reduction of income tax expense, rather than in additional paid-in capital.

In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $0.2 million and $2.3 million for the three and nine months ended September 30, 2017, respectively. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted.

~~SELECT COMFORT CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~We have also elected to continue to estimate the number of stock-based awards expected to vest, as permitted by the new guidance, rather than electing to account for forfeitures as they occur.~~

~~Not Yet Adopted~~

In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance will be effective for us beginning January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. When we adopt this new guidance, we expect to use the modified retrospective approach which will result in an adjustment to opening retained earnings, but would not restate prior periods' financial statements. Based on our analysis thus far, we believe the impact of adopting the new guidance will not be material to our consolidated financial statements. As interpretations of the new rules continue to evolve in the fourth quarter of fiscal 2017, we will monitor developments and will finalize our conclusions on our revenue recognition policy, disclosure requirements and changes that may be necessary to our internal controls over financial reporting.

In February 2016, the FASB issued new guidance on accounting for leases that generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018. The provisions of this new guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the new guidance for all periods presented. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. This new guidance is effective for us beginning December 30, 2018.

2. Fair Value Measurements

At ~~September 30, 2017~~April 2, 2022 and ~~December 31, 2016,~~January 1, 2022, we had ~~$3.4~~$18 million and ~~$2.3~~$19 million, respectively, of debt and equity securities that fund our deferred compensation plan and are classified in other non-current assets. We also had corresponding deferred compensation plan liabilities of ~~$3.4~~$18 million and ~~$2.3~~$19 million at ~~September 30, 2017~~April 2, 2022 and ~~December 31, 2016,~~January 1, 2022, respectively, which are included in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities.

~~3. Inventories~~

~~Inventories consisted of the following (in thousands):~~

September 30,
2017 December 31,
2016
Raw materials $ 4,292
$ 7,973
Work in progress 223
72
Finished goods 74,702
66,981
$ 79,217
$ 75,026


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~~4. Goodwill and Intangible Assets, Net~~

~~Goodwill and Indefinite-Lived Intangible Assets~~

~~Goodwill was $64.0 million at September 30, 2017 and December 31, 2016. Indefinite-lived trade name/trademarks totaled $1.4 million at September 30, 2017 and December 31, 2016.~~

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

3. Inventories

~~Definite-Lived~~

Inventories consisted of the following (in thousands):


	April 2, 2022		January 1, 2022
Raw materials	$	11,257	$	11,752
Work in progress	68		83
Finished goods	91,887		93,809
	$	103,212	$	105,644

4. Goodwill and Intangible Assets, Net

Goodwill and Indefinite-lived Intangible Assets

Goodwill was $64 million at April 2, 2022 and January 1, 2022. Indefinite-lived trade name/trademarks totaled $1.4 million at April 2, 2022 and January 1, 2022.

Definite-lived Intangible Assets

The ~~following table provides the~~ gross carrying amount ~~and related accumulated amortization~~ of our ~~definite-lived intangible assets (in thousands):~~

September 30, 2017 December 31, 2016

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization
Developed technologies $ 18,851
$ 6,160
$ 18,851
$ 4,524
Customer relationships 2,413
2,413
2,413
1,365
Trade names/trademarks 101
101
101
101
$ 21,365
$ 8,674
$ 21,365
$ 5,990

developed technologies was $19 million at April 2, 2022 and January 1, 2022. Accumulated amortization was $16 million at April 2, 2022 and January 1, 2022. Amortization expense for both the three months ended ~~September 30, 2017~~April 2, 2022 and ~~October 1, 2016,~~April 3, 2021, was $0.5 million.

The gross carrying amount of our patents was $2 million at April 2, 2022 and January 1, 2022. Accumulated amortization was $0.4 million and ~~$0.6~~$0.3 million at April 2, 2022 and January 1, 2022, respectively. Amortization expense for both the ~~nine~~three months ended ~~September 30, 2017~~April 2, 2022 and ~~October 1, 2016,~~April 3, 2021, was ~~$2.7 million and $1.9 million, respectively.~~$55 thousand.

Annual amortization for definite-lived intangible assets for subsequent years are as follows (in thousands):


2022 (excluding the three months ended April 2, 2022)	$	1,802
2023	1,431
2024	222
2025	226
2026	222
2027	222
Thereafter	300
Total future amortization for definite-lived intangible assets	$	4,425

5. Credit Agreement

~~In March 2017, we amended~~As of April 2, 2022, our ~~revolving~~ credit facility had a total commitment amount of $825 million. The credit facility is for general corporate purposes, to ~~increase~~meet our ~~net aggregate availability from $150 million~~seasonal working capital requirements and to ~~$153 million. We maintained the~~repurchase our stock. The credit agreement includes an accordion feature which allows us to increase the amount of the credit facility from ~~$153~~$825 million to ~~$200 million,~~$1.2 billion, subject to ~~lenders'~~lenders’ approval. ~~There were no other changes to the credit agreement's terms and conditions.~~

~~The credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. The credit facility matures in February 2021.~~ The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio (4.5x) and a minimum interest coverage ~~ratio.~~ratio (3.0x). Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio.

~~As of September 30, 2017, we had no outstanding borrowings and $3.15 million~~ The credit agreement matures in ~~outstanding letters of credit. Our borrowing capacity was $150 million.~~December 2026. We were in compliance with all financial ~~covenants.~~covenants as of April 2, 2022.

~~6. Repurchase of Common Stock~~

~~Repurchases of our common stock were as follows (in thousands):~~

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Amount repurchased under Board-approved share repurchase program $ 40,000
$ 25,000
$ 115,000
$ 95,000
Amount repurchased in connection with the vesting of employee restricted stock grants 64
259
5,158
1,410
Total amount repurchased $ 40,064
$ 25,259
$ 120,158
$ 96,410


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Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million. There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.~~The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.~~

~~SELECT COMFORT~~SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes our borrowings under the credit facility ($ in thousands):


	April 2, 2022			January 1, 2022
Outstanding borrowings	$	413,200		$	382,500
Outstanding letters of credit	$	5,947		$	3,997
Additional borrowing capacity	$	405,853		$	438,503
Weighted-average interest rate	2.2		%	1.6		%

6. Leases

We lease our retail, office and manufacturing space under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. While our local market development approach generally results in long-term participation in given markets, our retail store leases generally provide for an initial lease term of five to 10 years. Our office and manufacturing leases provide for an initial lease term of up to 15 years. In addition, our mall-based retail store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at our sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. Our lease agreements do not contain any material residual value guarantees. We also lease vehicles and certain equipment under operating leases with an initial lease term of three to five years.

Our operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease commencement date or the date we take possession of the property. During lease renewal negotiations that extend beyond the original lease term, we estimate straight-line rent expense based on current market conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated. Future payments for real estate taxes and certain building operating expenses for which we are obligated are not included in operating lease costs.

At April 2, 2022, our finance right-of-use assets and lease liabilities were not significant.

Lease costs were as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Operating lease costs(1)	$	27,078	$	23,638
Variable lease costs	$	330	$	515

___________________________

(1)Includes short-term lease costs which are not significant.


7 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The maturities of operating lease liabilities as of April 2, 2022, were as follows(1) (in thousands):


2022 (excluding the three months ended April 2, 2022)	$	72,962
2023	89,790
2024	77,978
2025	68,001
2026	56,694
2027	41,517
Thereafter	86,958
Total operating lease payments(2)	493,900
Less: Interest	81,326
Present value of operating lease liabilities	$	412,574

___________________________

(1)Total operating lease payments exclude $102 million of legally binding minimum lease payments for leases signed but not yet commenced.

(2)Includes the current portion of $74 million for operating lease liabilities.

Other information related to operating leases was as follows:


	April 2, 2022		January 1, 2022
Weighted-average remaining lease term (years)	6.3		6.4
Weighted-average discount rate	6.0	%	6.1	%


	Three Months Ended
(in thousands)	April 2, 2022		April 3, 2021
Cash paid for amounts included in present value of operating lease liabilities	$	24,209	$	21,386
Right-of-use assets obtained in exchange for operating lease liabilities	$	17,564	$	29,454

7. ~~Stock-Based~~Repurchases of Common Stock

Repurchases of our common stock were as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Amount repurchased under Board-approved share repurchase program	$	42,308	$	167,418
Amount repurchased in connection with the vesting of employee restricted stock grants	8,690		16,764
Total amount repurchased (based on trade dates)	$	50,998	$	184,182

As of April 2, 2022, the remaining authorization under the $600 million share repurchase program was $361 million.


8 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

8. Revenue Recognition

Deferred contract assets and deferred contract liabilities are included in our condensed consolidated balance sheets as follows (in thousands):


	April 2, 2022		January 1, 2022
Deferred contract assets included in:
Other current assets	$	26,926	$	28,048
Other non-current assets	53,244		49,343
	$	80,170	$	77,391


	April 2, 2022		January 1, 2022
Deferred contract liabilities included in:
Other current liabilities	$	34,999	$	36,490
Other non-current liabilities	68,657		63,680
	$	103,656	$	100,170

The deferred revenue and costs related to SleepIQ® technology are currently recognized on a straight-line basis over the product's estimated life of 4.5 to 5.0 years because our inputs are generally expended evenly throughout the performance period. During the three months ended April 2, 2022 and April 3, 2021, we recognized revenue of $9 million and $7 million, respectively, that were included in the deferred contract liability balances at the beginning of the respective periods.

Revenue from goods and services transferred to customers at a point in time accounted for approximately 98% of our revenues for the three months ended April 2, 2022 and 99% of our revenues for the three months ended April 3, 2021.

Net sales were as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Retail stores	$	444,336	$	489,188
Online, phone, chat and other	82,794		79,068
Total Company	$	527,130	$	568,256

Obligation for Sales Returns

The activity in the sales returns liability account was as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Balance at beginning of year	$	22,368	$	24,765
Additions that reduce net sales	26,667		23,711
Deductions from reserves	(28,758)		(23,866)
Balance at end of period	$	20,277	$	24,610


9 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

9. Stock-based Compensation Expense

Total stock-based compensation expense was as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Stock awards	$	3,274	$	5,808
Stock options	859		608
Total stock-based compensation expense (1)	4,133		6,416
Income tax benefit	1,033		1,598
Total stock-based compensation expense, net of tax	$	3,100	$	4,818

___________________________

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Stock awards $ 3,339
$ 1,121
$ 10,059
$ 7,533
Stock options 594
545
1,750
1,739
Total stock-based compensation expense 3,933
1,666
11,809
9,272
Income tax benefit 1,314
556
3,968
3,180
Total stock-based compensation expense, net of tax $ 2,619
$ 1,110
$ 7,841
$ 6,092

~~In addition to the income tax benefit related to~~(1) Changes in stock-based compensation expense reflect the cumulative impact of the change in the ~~table above, excess tax benefits~~expected achievements of $0.2 million and $1.4 million were recognized as reductions of income tax expense during the three and nine months ended September 30, 2017, respectively. There were no excess tax benefits recognized in income tax expense during the three and nine months ended October 1, 2016. See Note 1, ~~New Accounting Pronouncements, for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017.~~certain performance targets.

8.10. Profit Sharing and 401(k) Plan

Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended~~September 30, 2017~~ April 2, 2022 and ~~October 1, 2016~~,April 3, 2021, our contributions, net of forfeitures, were ~~$1.4 million~~ ~~and~~ ~~$1.1 million, respectively. During the nine months ended September 30, 2017 and October 1, 2016, our contributions, net of forfeitures, were $3.9~~$2.8 million and ~~$3.4~~$1.9 million, respectively.

~~9. Other Expense, Net~~

~~Other expense, net, consisted of the following (in thousands):~~

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 )
Interest income 30
12
80
43
Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 )

~~SELECT COMFORT CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~10.~~11. Net Income per Common Share

The components of basic and diluted net income per share were as follows (in thousands, except per share amounts):


	Three Months Ended
	April 2, 2022		April 3, 2021
Net income	$	2,074	$	66,634
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	22,760		25,377
Dilutive effect of stock-based awards	831		1,167
Diluted weighted-average shares outstanding	23,591		26,544
Net income per share – basic	$	0.09	$	2.63
Net income per share – diluted	$	0.09	$	2.51

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 25,603
$ 25,745
$ 49,286
$ 40,130

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding 40,755
45,621
41,740
46,705
Dilutive effect of stock-based awards 760
729
819
708
Diluted weighted-average shares outstanding 41,515
46,350
42,559
47,413

Net income per share – basic $ 0.63
$ 0.56
$ 1.18
$ 0.86
Net income per share – diluted $ 0.62
$ 0.56
$ 1.16
$ 0.85

For the three ~~and nine~~ months ended ~~September 30, 2017~~April 2, 2022 and ~~October 1, 2016,~~April 3, 2021, anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial.

~~11.~~


10 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

12. Commitments and Contingencies

~~Sales Returns~~

~~The activity in the sales returns liability account was as follows (in thousands):~~

Nine Months Ended
September 30,
2017 October 1,
2016
Balance at beginning of year $ 15,222
$ 20,562
Additions that reduce net sales 55,720
54,588
Deductions from reserves (52,494 ) (57,112 )
Balance at end of period $ 18,448
$ 18,038

Warranty Liabilities

The activity in the accrued warranty liabilities account was as follows (in thousands):


	Three Months Ended
	April 2, 2022		April 3, 2021
Balance at beginning of year	$	10,069	$	12,152
Additions charged to costs and expenses for current-year sales	4,447		4,330
Deductions from reserves	(4,750)		(4,717)
Changes in liability for pre-existing warranties during the current year, including expirations	(31)		(156)
Balance at end of period	$	9,735	$	11,609

Nine Months Ended
September 30,
2017 October 1,
2016
Balance at beginning of year $ 8,633
$ 10,028
Additions charged to costs and expenses for current-year sales 8,627
7,014
Deductions from reserves (6,625 ) (7,976 )
Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 )
Balance at end of period $ 9,927
$ 8,090

~~SELECT COMFORT CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Legal Proceedings

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S. generally accepted accounting principles, ~~in the United States,~~ we record a liability in our consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If a material loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible ~~additional~~material losses either because we believe that we have valid defenses to claims asserted against us, or the proceeding has not advanced to a stage of discovery that would enable us to establish an ~~estimate.~~estimate, or the potential loss is not material. We currently do not expect the outcome of ~~these matters~~pending legal proceedings to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred.

On ~~January 12, 2015, Plaintiffs David and Katina Spade commenced~~December 14, 2021, Steamfitters Local 449 Pension & Retirement Security Funds filed a ~~purported~~putative class action ~~lawsuit~~complaint in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of ~~New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to~~Minnesota on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen. Plaintiff alleges material misstatements and omissions in certain of Sleep Number’s public disclosures during the ~~United States Court~~purported class period, in violation of ~~Appeals for~~Section 10(b) and 20(a) of the ~~Third Circuit, which has certified two questions~~Securities Exchange Act of ~~law to~~1934, as amended. The complaint seeks, among other things, unspecified monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by the ~~New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court has accepted the certified questions and oral arguments~~Court. We believe these claims are ~~expected to be heard in the near future. As the United States District Court for the District of New Jersey determined, we believe that the case is~~ without merit and intend to vigorously defend the ~~order~~matter.

13. COVID-19 Pandemic

The COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the first quarter of ~~dismissal should be affirmed.~~2021, even with the COVID-19 challenges, we generated strong demand and financial performance. In the first quarter of 2022, our financial performance was impacted by: (i) the disruptive flow of semiconductor chips which affected our ability to deliver products to our customers and suppressed consumer confidence; (ii) incremental costs from labor and material inflation, and expediting costs resulting from current-period global supply chain shortages; and (iii) increased investments in our long- and near-term innovations and demand drivers, partly offset by cost containment actions. The pandemic's future effects on our global supply chain and the potential for supply disruption (e.g., the lack or slowing of critical components caused by labor shortages or government-mandated work closures), effects on consumer demand and effects on our ongoing financial performance remains uncertain. See Part II, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II: Item 1A. Risk Factors for additional discussion on the COVID-19 pandemic and the impact on our business.

~~Index~~


11 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index



~~ITEM 2.~~	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 condensed consolidated 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 ~~seven~~eight sections:

•Forward-Looking Statements and Risk Factors

~~Company~~•Business Overview

•COVID-19 Pandemic - Impact on our Business

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Data Reconciliations

•Off-Balance-Sheet Arrangements and Contractual Obligations

•Critical Accounting Policies

Forward-looking Statements and Risk Factors

The ~~following~~ discussion ~~and analysis should be read~~ in ~~conjunction with the Condensed Consolidated Financial Statements and the Notes thereto included herein. This quarterly report on Form 10-Q~~this Quarterly Report contains certain forward-looking statements that relate to future plans, events, financial results or performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “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.

These risks and uncertainties include, among others:

•Current and future general and industry economic trends and consumer confidence;

•Risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic;

•Risks inherent in global-sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, geo-political turmoil, acts of terrorism, global conflicts or war (such as the current war in Ukraine), strikes, labor shortages, government-mandated work closures, and the potential for shortages in supply or disruption or delay of production and delivery of materials and products in our global supply chain;

•Risks of disruption in the operation of any of our main manufacturing, distribution, logistics, home delivery, product development, or customer service facilities or operations;

•Our manufacturing processes operate with minimal levels of inventory, which may leave us vulnerable to shortages in supply;

•Our dependence on significant suppliers and third parties and our ability to maintain relationships with key suppliers or third parties, including several sole-source suppliers or service providers;

•Rising commodity costs and other inflationary pressures;

•The effectiveness of our marketing messages;

•The efficiency of our advertising and promotional efforts;

•Our ability to execute our ~~Company-Controlled~~Total Retail distribution strategy;

•Our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates;

•Our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image;

•Industry competition, the emergence of additional competitive products and the adequacy of our ~~intellectual property~~intellectual-property rights to protect our products and brand from competitive or infringing activities;

~~The potential for claims~~•Claims that our products, processes, advertising or trademarks infringe the ~~intellectual property~~intellectual-property rights of others;

•Availability of attractive and cost-effective consumer credit options;

~~Our “just-in-time” manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply;~~

~~Our dependence on significant suppliers and our ability to maintain relationships with key suppliers, including several sole-source suppliers;~~

~~Rising commodity costs and other inflationary pressures;~~

~~Risks inherent in global sourcing activities, including the potential for shortages in supply;~~

~~Risks of disruption in the operation of either of our two main manufacturing facilities;~~

•Increasing government regulation;

•Pending or unforeseen litigation and the potential for adverse publicity associated with litigation;


12 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

•The adequacy of our ~~management~~and third-party information systems to meet the evolving needs of our business and existing and evolving risks and regulatory standards applicable to data privacy and ~~security;~~cybersecurity;

•The costs and potential disruptions to our business related to upgrading or maintaining our ~~management~~ information systems;

•The vulnerability of our ~~management~~and third-party information systems to attacks by hackers or other cyber threats that could compromise the security of our systems, result in a data breach or disrupt our business;

•Environmental risks, including increasing environmental regulation and the broader impacts of climate change such as from weather-related events; and

•Our ability, and the ability of our suppliers and vendors, to attract, retain and motivate qualified management, executive and other key ~~employees,~~team members, including qualified retail sales professionals and ~~managers; and~~managers.

~~Uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events.~~

Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk Factors” below in Part II: Item 1A of this Quarterly Report on Form 10-Q and under the same caption in our Annual Report on Form 10-K.

~~Index~~

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

~~Company~~Business Overview

At Sleep Number, our purpose is to improve the health and wellbeing of society through higher quality sleep. We are ~~executing~~

committed to leveraging the power of sleep, and sleep science, to improve lives and create a ~~consumer innovation strategy with three significant competitive advantages~~healthier, kinder, more

inclusive world. And because our more than 5,500 team members are dedicated to our mission as ~~we work toward~~well as the disciplined

execution of our ambitious vision to become one of the world's most beloved brands by delivering an unparalleled sleep experience. We offer consumers high-quality, individualized sleep solutions and services, which include a complete line of Sleep Number^® ~~beds, bases and bedding accessories. Our competitive advantages are: proprietary sleep innovations, exclusive distribution and lifelong customer relationships.~~

~~We are a~~ vertically integrated ~~brand~~business model and differentiated strategy, Sleep Number is at the ~~developer,~~forefront of

sleep innovation. As the exclusive designer, manufacturer, marketer, retailer and servicer of ~~a complete line of~~ Sleep Number 360 smart

beds and ~~related technology. We are also the pioneer in biometric sleep tracking and adjustability. Only the~~SleepIQ® technology, Sleep Number ~~bed offers SleepIQ~~^®is uniquely equipped to offer the life-changing benefit of high-quality,

individualized sleep solutions and services. To date, we have improved over 14 million lives.

With our enterprise-wide investments in innovation, technology, ~~- proprietary sensor technology~~logistics, marketing and customer service, Sleep

Number has created a highly relevant, competitively advantaged strategy and has become a beloved brand built on a

foundation of individuality and wellbeing. Together with our expertise in sleep research, commitment to data science

and analytics, and deep understanding of consumers – including structural shifts in their behavior that ~~works directly with~~we have

anticipated since the bed’s DualAir™ system to track each individual’s sleep. SleepIQ technology communicates how you slept and what adjustments you can make to optimize your sleep and improve your daily life. Our bed assortment is complemented with proprietary FlextFit™ adjustable bases, and Sleep Number^® ~~pillows, sheets and other bedding products. In May 2017, we began selling certain models~~2012 inception of our ~~Sleep Number 360™ smart bed line.~~consumer innovation strategy and which were accelerated by the global

pandemic – we are driving profitable growth and delivering superior value for all our stakeholders.

~~Our differentiated products are sold exclusively at more than 550 Sleep Number~~^® stores located in 49 states, online at SleepNumber.com or via phone. We offer consumers a unique, value-added store and digital experience through our team of over 3,800 individuals who are dedicated to our mission of improving lives by individualizing sleep experiences. This experience, combined with the advantages of our vertical business model and SleepIQ technology, enable a lifelong relationship with our customers.

We generate revenue by marketing ~~and selling products~~our innovations directly to new and existing ~~customers.~~customers, and selling products through our Stores, Online, Phone, Chat (Total Retail) and Other.

We expect our business transformation over the past five years to result in improved profitability through the productivity and service advancements associated with our integrated ERP platform, smart bed design, more efficient manufacturing and supply chain network. In 2017, we began evolving our supply chain including the transition of more than 20 suppliers with whom we are partnering with to support our innovations and profitability goals. Changes to the supply chain also include in-hub assembly of our new 360 smart beds and optimization of our outbound logistics network. These multi-year initiatives, coupled with our innovations, are expected to drive accelerated profits and cash flows over time.

We are committed to delivering superior shareholder value ~~through three primary drivers of earnings per share growth:~~by: (1) increasing consumer ~~demand,~~demand; (2) leveraging ~~the~~our business ~~model~~model; and (3) deploying capital efficiently.

COVID-19 Pandemic - Impact on our Business

The COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the first quarter of 2021, even with the COVID-19 challenges, we generated strong demand and financial performance. In the first quarter of 2022, our financial performance was impacted by: (i) the disruptive flow of semiconductor chips which affected our ability to deliver products to our customers and suppressed consumer confidence; (ii) incremental costs from labor and material inflation, and expediting costs resulting from current-period global supply chain shortages; and (iii) increased investments ~~we have made~~ in ~~R&D, technology, digital~~our long- and near-term innovations and demand drivers, partly offset by cost containment actions. The pandemic's future effects on our ~~store experience have strengthened~~global supply chain and the potential for supply disruption (e.g., the lack or slowing of critical components caused by labor shortages or government-mandated work closures), effects on consumer demand and effects on our ~~competitive advantages~~ongoing financial performance remains uncertain. See Part II, Item 2. Management's Discussion and ~~established~~Analysis of Financial Condition and Results of Operations and Part II: Item 1A. Risk Factors for additional discussion on the COVID-19 pandemic and the impact on our ~~innovation leadership. We have a long-term orientation and are focused on delivering sustainable, profitable growth.~~business.


13 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Results of Operations

Quarterly and Year-to-Date Results

Quarterly and year-to-date 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, changes in sales return rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/closings and related expenses, changes in net sales resulting from changes in our store base, ~~the~~ timing of new product introductions ~~the~~and related expenses, timing of promotional offerings, competitive factors, changes in commodity costs, ~~any~~ disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales, consumer confidence and general economic conditions. In addition, based on the duration and severity of the current global situation involving the COVID-19 pandemic, the war in Ukraine and other external factors, including but not limited to general economic conditions, inflation, consumer confidence, store restrictions mandated by federal, state or local authorities and global supply chain disruptions, the extent to which these external factors will impact our business and our consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted. Therefore, our historical results of operations may not be indicative of the results that may be achieved for any future period.

Highlights

Financial highlights for the ~~period~~three months ended ~~September 30, 2017~~April 2, 2022 were as follows:

•Net sales for the three months ended ~~September 30, 2017 increased 9%~~April 2, 2022 decreased 7% to ~~$403~~$527 million, compared with ~~$368~~$568 million for the three months ended April 3, 2021. Demand was negatively impacted by acute macro factors including the COVID-19 variant in January and the war in Ukraine in March. Global supply constraints continued to impact our delivered net sales for the three months ended April 2, 2022.

•The 7% net sales decrease consisted of an 11% comparable sales decline in Total Retail offset by sales from 46 net new stores opened in the past 12 months that added 4 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page 15.

•Sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a trailing twelve-month basis for the period ended April 2, 2022 totaled $3.5 million, 9% higher than the same period last year.

•Operating income for the three months ended April 2, 2022 was $4 million, compared with $76 million in the prior-year period. The $72 million decrease in operating income was driven by the 7% decrease in net sales constrained by semiconductor chip supply, a 7.3 ppt. increase in our operating expenses rate, and a 5.3 ppt. decrease in our gross profit rate that was negatively affected by cost pressures and an unfavorable mix of smart bed deliveries as constrained by semiconductor chip supply.

•The 5.3 ppt. gross profit rate decrease was primarily due to incremental costs from labor and material inflation, and inefficiencies resulting from current-period global supply chain shortages, in addition to the deleveraging impact of the 7% net sales decline and a less favorable sales mix of lower-margin products. See the Gross profit discussion on page 17 for additional details.

•The 7.3 ppt. increase in our operating expenses rate was partially due to the deleveraging impact of the 7% net sales decline. In addition, we continued to prioritize investments in near- and long-term growth drivers, including $16 million of R&D expenses during the three months ended April 2, 2022, 23% more than the same period one year ago.

•Net income for the three months ended April 2, 2022 decreased to $2 million, compared with $67 million for the same period one year ago. Net ~~sales for the three months ended September 30, 2017 were affected by: (i) an approximately $25 million shift in sales from our second quarter to our third quarter as~~income per diluted share was $0.09, compared with $2.51 last year.

•We achieved a ~~result~~return on invested capital (ROIC) of a delay in deliveries and shipments related to an inventory shortage from one of our new suppliers (this delay has been resolved and we don't expect a shortage in the future), and (ii) temporary disruptions from hurricanes during our Labor Day sales event that reduced third quarter net sales by an estimated $12 to $15 million.

~~Index~~

The 9% sales increase was driven by 6 percentage points (ppt.) of growth from sales generated by 26 net new stores opened in the past 12 months and a 5% comparable sales increase in our Company-Controlled channel, partially offset by a decrease in our Wholesale/Other channel sales.

~~Sales per store (for stores open at least one year)~~20.5% on a trailing twelve-month basis for the period ended ~~September 30, 2017 were $2.4 million, up 5% from $2.2 million in the prior-year comparable period.~~

In May 2017, we began selling our Sleep Number 360™ i7 and i10 smart beds. The Sleep Number 360 smart bed won 13 awards at CES, including being named the Best of Innovation Honoree in the Home Appliance category. We plan to launch a third smart bed model (the p6) in the fourth quarter, and remain on track to complete the phased implementation of our 360 smart bed line by the first half of next year.

~~Operating income~~April 2, 2022, compared with 27.6% for the ~~quarter totaled $39 million, consistent with the same~~comparable period one year ago. Our operating income rate decreased to 9.7% of net sales, compared with 10.6% of net sales for the same period last year. The decrease in operating income rate primarily resulted from transition costs associated with the launch of our Sleep Number 360 smart beds and the evolution of our supply chain.

~~Net income for the quarter was $25.6 million, or $0.62 per diluted share, compared with $25.7 million, or $0.56 per diluted share, for the same period one year ago.~~

•Cash provided by operating activities ~~totaled $176 million~~ for the ~~nine~~three months ended ~~September 30, 2017,~~April 2, 2022 decreased to $25 million, compared with ~~$145~~$112 million for the same period one year ago. ~~Investing activities for the current-year period included $38~~

•As of April 2, 2022, we had $413 million of ~~property and equipment purchases, compared with $39 million for the same period last year.~~

~~At September 30, 2017, cash and cash equivalents totaled $30 million and we ended the quarter with no~~ borrowings under our ~~$153 million~~ revolving credit ~~facility. We utilize our credit~~ facility ~~to meet our seasonal working capital requirements.~~and available net liquidity of $406 million.

In the third quarter of 2017, we repurchased 1.3 million shares of our common stock under our Board-approved share repurchase program at a cost of $40 million (an average of $31.18 per share). Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million.


14 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

The following table sets forth 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
	April 2, 2022				April 3, 2021
Net sales	$	527.1	100.0	%	$	568.3	100.0	%
Cost of sales	224.8		42.7	%	212.3		37.4	%
Gross profit	302.3		57.3	%	355.9		62.6	%
Operating expenses:
Sales and marketing	240.3		45.6	%	223.6		39.4	%
General and administrative	41.3		7.8	%	42.6		7.5	%
Research and development	16.3		3.1	%	13.3		2.3	%
Total operating expenses	297.9		56.5	%	279.5		49.2	%
Operating income	4.4		0.8	%	76.4		13.4	%
Interest expense, net	2.1		0.4	%	1.0		0.2	%
Income before income taxes	2.3		0.4	%	75.4		13.3	%
Income tax expense	0.2		—	%	8.8		1.6	%
Net income	$	2.1	0.4	%	$	66.6	11.7	%

Net income per share:
Basic	$	0.09			$	2.63
Diluted	$	0.09			$	2.51

Weighted-average number of common shares:
Basic	22.8				25.4
Diluted	23.6				26.5

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Beginning of period 549
506
540
488
Opened 6
24
30
57
Closed (2 ) (3 ) (17 ) (18 )
End of period 553
527
553
527


16 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

~~Index~~

Comparison of Three Months Ended ~~September 30, 2017~~April 2, 2022 with Three Months Ended ~~October 1, 2016~~April 3, 2021

Net sales

Net sales ~~increased 9% to $403 million~~ for the three months ended ~~September 30, 2017,~~April 2, 2022 decreased by $41 million, or 7%, to $527 million, compared with ~~$368~~$568 million for the same period one year ago. ~~Net~~Demand was negatively impacted by acute macro factors including the COVID-19 variant in January and war in Ukraine in March. Global supply constraints negatively impacted our delivered net sales for the three months ended ~~September 30, 2017 were affected by: (i)~~April 2, 2022.

The 7% net sales decrease consisted primarily of an ~~approximately $25 million shift~~11% comparable sales decline in Total Retail offset by sales from our second quarter to our third quarter as a result of a delay in deliveries and shipments related to an inventory shortage from one of our new suppliers (this delay has been resolved and we don't expect a shortage in the future); and (ii) temporary disruptions from hurricanes during our Labor Day sales event that reduced third quarter net sales by an estimated $12 to $15 million. The 9% sales increase was driven by 6 percentage points (ppt.) of growth from sales generated by 2646 net new stores opened in the past 12 months ~~and a 5% comparable~~that added 4 percentage points (ppt.) of growth. For additional details, see the components of total net sales ~~increase in our Company-Controlled channel; partially offset by a decrease in our Wholesale/Other channel sales.~~change on page 15.

The ~~$35~~$41 million net sales ~~increase~~decline compared with the same period one year ago was comprised of the following: (i) a ~~$23~~$59 million decrease in our Total Retail comparable net sales; and (ii) an $18 million increase ~~resulting~~ from net store openings; and (ii) a $17 million increase in sales from our Company-Controlled comparable sales; partially offset by (iii) a $5 million decrease in Wholesale/Other channel sales. Company-Controlled mattressopenings. Total Retail smart bed unit sales ~~were in line~~decreased 5% compared with the prior year. ~~Average~~Total Retail average revenue per ~~mattress~~smart bed unit decreased by 2% to $4,905, compared with $5,030 in the prior-year period and was negatively impacted by a less favorable sales mix due to supply constraints impacting smart bed deliveries at the higher end of our ~~Company-Controlled channel increased by 11% to $4,385.~~product line.

Gross profit

Gross profit of ~~$253~~$302 million ~~increased~~for the three months ended April 2, 2022 decreased by ~~$21~~$54 million, or 9%15%, compared with ~~$232~~$356 million for the same period one year ago. The gross profit rate ~~was 62.9%~~declined to 57.3% of net sales for the three months ended ~~September 30, 2017,~~April 2, 2022, compared with ~~63.1%~~62.6% for the prior-year comparable period.

The current-year gross profit rate ~~decline~~decrease of ~~0.2~~5.3 ppt. was ~~primarily~~mainly due to: (i) incremental costs from labor and material inflation and inefficiencies resulting from current-period global supply chain shortages (4.2 ppt.); (ii) the deleverage from the 7% net sales decrease; and (iii) a less favorable sales mix of lower-margin products due to ~~margin~~supply constraints impacting smart bed deliveries at the higher end of our product line. These pressures ~~from weather-related excess freight and handling costs, and supplier transition costs,~~were partially offset by ~~a favorable product mix of Sleep Number 360™ smart beds and operating lean initiatives.~~pricing actions taken over the past twelve months (1.7 ppt.). In addition, our gross profit rate ~~can~~will fluctuate from quarter to quarter due to a variety of other factors, including ~~warranty expenses,~~ return and exchange costs, and changes in performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the three months ended ~~September 30, 2017 increased to $175~~April 2, 2022 were $240 million, or ~~43.4%~~45.6% of net sales, compared with ~~$158~~$224 million, or ~~42.9%~~39.4% of net sales, for the same period one year ago. The ~~0.5 ppt. increase in the~~current-year sales and marketing ~~expense~~expenses rate increase of 6.2 ppt. was ~~mainly~~primarily due ~~to an~~to: (i) the deleveraging impact of the 7% net sales decrease as constrained by semiconductor chip supply; (ii) addition of 46 net new stores; and (iii) increased marketing expenses resulting from a 9% increase in ~~customer financing expenses, as a larger percentage of our customers took advantage of promotional financing offers, partially offset by 0.6 ppt. of leverage from~~ media ~~spending, which increased by 5% compared with the prior year, while net sales increased by 9%.~~expenses.

General and administrative expenses

General and administrative (G&A) expenses totaled ~~$33~~$41 million, or ~~8.1%~~7.8% of net sales, for the three months ended ~~September 30, 2017,~~April 2, 2022, compared with ~~$28~~$43 million, or ~~7.7%~~7.5% of net sales, in the prior-year period. The ~~$4.4~~$1.3 million ~~increase~~decrease in G&A expenses consisted ~~primarily of the following:~~mainly of: (i) a ~~$3.1~~$6.7 million decrease in employee compensation primarily resulting from a year-over-year decrease in Company-wide performance-based incentive compensation; offset by (ii) a $5.4 million increase in ~~employee compensation,~~other miscellaneous expenses, including ~~a year-over-year increase~~technology investments and travel expenses (minimal travel in performance-based incentive compensation, enhanced digital marketing capabilities, and salary and wage rate increases that were in line with inflation; and (ii) a $1.3 million net increase in miscellaneous other expenses.the prior year due to the pandemic). The G&A ~~expense~~expenses rate increased by ~~0.4~~0.3 ppt. in the current-year period, compared with the same period one year ago due to the ~~increase in expenses discussed above, partially offset by the leveraging~~deleveraging impact of the 9%7% net sales ~~increase.~~decrease, in addition to the items discussed above.

Research and development expenses

Research and development (R&D) expenses increased by 23% to $16 million for the three months ended September 30, 2017 were $7 million consistent with the same period one year ago, but decreased to 1.7% of net sales from 1.9% of net sales, for the same period one year ago due to the leveraging effect of the 9% net sales increase. For the three months ended September 30, 2017, the investment in product innovations is consistent with our current-year and long-term consumer innovation strategy.

~~Index~~

~~Comparison of Nine Months Ended September 30, 2017 with Nine Months Ended October 1, 2016~~

~~Net sales~~

~~Net sales increased 8% to $1.08 billion for the nine months ended September 30, 2017,~~April 2, 2022, compared with ~~$998~~$13 million for the same period ~~one~~last year ~~ago. The sales change was comprised of 8 percentage points (ppt.) of growth from sales generated by 26~~as we continued to prioritize our long-term innovation initiatives.


17 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Interest expense

Interest expense, net ~~new stores opened in the past 12 months and a 2% comparable sales increase in our Company-Controlled channel, partially offset by a decrease in Wholesale/Other channel sales.~~

The $83 million net sales increase compared with the same period one year ago was comprised of the following: (i) a $76 million increase resulting from net store openings; and (ii) a $17 million increase in sales from our Company-Controlled comparable sales; partially offset by (iii) a $10 million decrease in Wholesale/Other channel sales. Company-Controlled mattress units increased ~~4% compared~~ to ~~the prior-year period. Average revenue per mattress unit in our Company-Controlled channel increased by 5%.~~

~~Gross profit~~

~~Gross profit of $677~~$2 million for the ~~nine~~three months ended ~~September 30, 2017 increased by $64 million, or 10%,~~April 2, 2022, compared with the same period one year ago. The gross profit rate increased to 62.6% of net sales for the first nine months of 2017, compared with 61.4% for the prior-year period. The prior-year gross profit rate was negatively impacted by actions taken to manage operating issues associated with our ERP implementation during the first six months of 2016. The current-year gross profit rate improvement of 1.2 ppt. was primarily due to manufacturing and supply chain efficiencies, including lean initiatives, and lower sales return and exchange costs compared with the same period one year ago. In addition, our gross profit rate can fluctuate from quarter to quarter due to a variety of other factors, including warranty expenses, product mix changes and performance-based incentive compensation.

~~Sales and marketing expenses~~

~~Sales and marketing expenses for the nine months ended September 30, 2017 increased to $489~~$1 million compared with $443 million for the same period one year ago, and increased to 45.2% of net sales compared with 44.4% of net sales last year. The 0.8 ppt. increase in the sales and marketing expense rate was mainly due to an increase in customer financing expenses, as a larger percentage of our customers took advantage of promotional financing offers, and an increase in selling compensation expense, including performance-based incentive compensation. These increases were partially offset by leverage from media spending, which increased by 4% compared with the prior year, while net sales increased by 8%.

~~General and administrative expenses~~

General and administrative (G&A) expenses totaled $95 million, or 8.8% of net sales, for the nine months ended September 30, 2017, compared with $86 million, or 8.6% of net sales, in the prior-year period. The $9 million increase in G&A expenses consisted primarily of the following: (i) a $4.0 million increase in employee compensation, including a year-over-year increase in company-wide performance-based incentive compensation, enhanced digital marketing capabilities, and salary and wage rate increases that were in line with inflation; (ii) $2.3 million of additional depreciation and amortization expense, including incremental depreciation expense from capital expenditures that support the growth of our business; and (iii) a $2.7 million net increase in miscellaneous other expenses. The G&A expense rate increased by 0.2 ppt. in the current-year period compared with the same period one year ago due to the increase in expenses discussed above, partially offset by the leveraging impact of the 8% sales increase.

~~Research and development expenses~~

~~Research and development (R&D) expenses for the nine months ended September 30, 2017 were $21 million, or 1.9% of net sales, compared with $22 million, or 2.2% of net sales,~~ for the same period one year ago. The $1 million ~~decrease in R&D expenses~~increase was ~~due to~~mainly driven by a higher level of outstanding borrowings during the ~~timing of our investments to support product innovations. The investment spending year-to-date is consistent with our current-year and long-term consumer innovation strategy.~~

~~Income tax expense~~

~~Income tax expense was $22 million for the nine~~three months ended ~~September 30, 2017,~~April 2, 2022 compared with ~~$21 million for~~the same period in 2021, and a higher weighted-average interest rate compared with the same period one year ago.

Income tax expense

Income tax expense totaled $0.2 million for the three months ended April 2, 2022, compared with $8.8 million last year. The effective income tax rate for the ~~nine~~three months ended ~~September 30, 2017~~April 2, 2022 was ~~30.7%~~9.4%, compared with ~~33.9%~~11.7% for the ~~prior-year period. The effective~~comparable period last year. Discrete tax ~~rate for the current-year period benefited from: (i)~~benefits, primarily stock-based compensation excess tax benefits, were $0.4 million for the three months ended April 2, 2022, compared with $10.0 million in accordance with new Financial Accounting Standards Board (FASB) guidance effective for us beginning in 2017; and (ii) the recognition of additional tax credits. Under previous FASB guidance, excess tax benefits or deficiencies were recognized in additional paid-in capital in our consolidated balance sheet. See Note 1, ~~New Accounting Pronouncements,~~ ~~in the Notes to the Condensed Consolidated Financial Statements for additional details.~~last year’s first quarter.

~~Index~~

Liquidity and Capital Resources

Managing our liquidity and capital resources is an important part of our commitment to deliver superior shareholder ~~value. Our business model, which can operate with minimal working capital, does not require additional capital from external sources to fund operations or organic growth.~~value over time. Our primary sources of liquidity are cash flows provided by operating activities and cash available under our ~~$153~~$825 million revolving credit facility. As of April 2, 2022, we do not have any off-balance sheet financing other than our $6 million in outstanding letters of credit. The cash generated from ongoing operations and cash available under our revolving credit facility are expected to be adequate to maintain operations, and fund anticipated expansion, ~~and~~ strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail stores for the foreseeable future.

~~As of~~ ~~September 30, 2017~~,Changes in cash and cash equivalents ~~totaled~~ ~~$30 million~~ ~~compared with~~ ~~$12 million~~ asduring the three months ended April 2, 2022 primarily consisted of ~~December 31, 2016. The~~ ~~$18 millionincrease~~ ~~was primarily due to $176~~$25 million of cash provided by operating activities ~~which was partially~~and a $45 million net increase in short-term borrowings, offset by ~~$38~~$20 million of cash used to purchase property and equipment, and ~~$120~~$51 million of cash used to repurchase our common stock ~~($115~~(based on settlement, $42 million under our Board-approved share repurchase program and $5$9 million in connection with the vesting of employee restricted stock grants).

The following table summarizes our cash flows ~~(dollars in~~(in millions). Amounts may not add due to rounding differences:


	Three Months Ended
	April 2, 2022		April 3, 2021
Total cash provided by (used in):
Operating activities	$	24.6	$	111.6
Investing activities	(19.6)		(11.5)
Financing activities	(5.8)		(102.1)
Net decrease in cash and cash equivalents	$	(0.8)	$	(2.0)

Nine Months Ended
September 30,
2017 October 1,
2016
Total cash provided by (used in):
Operating activities $ 176.1
$ 145.3
Investing activities (34.4 ) (29.6 )
Financing activities (123.3 ) (91.3 )
Net increase in cash and cash equivalents $ 18.3
$ 24.4

Cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2017~~April 2, 2022 was ~~$176~~$25 million, compared with ~~$145~~$112 million for the ~~nine~~three months ended ~~October 1, 2016.~~April 3, 2021. Significant components of the year-over-year change in cash provided by operating activities included: (i) a $9$65 million ~~increase~~decrease in net income for the ~~nine~~three months ended ~~September 30, 2017,~~April 2, 2022, compared with the same period one year ago; (ii) a ~~$37~~$14 million fluctuation in ~~customer prepayments resulting from higher than normal customer prepayments at January 2, 2016 (due~~prepaid expenses and other assets due to ~~ERP implementation issues);~~both periods being impacted by the timing of rent payments and a reduction in business activities due to the pandemic; (iii) a ~~$31~~$12 million change in other accruals and liabilities due to the timing of payments; (iv) a $10 million fluctuation in income taxes based on a $15 million income taxes receivable at January 2, 2016 (income taxes payable for comparable period); and (iv) the ERP implementation issues we experienced in our plants and supply chain during the fourth quarter of 2015 that resulted in increased accounts receivables, higher inventories, higher accounts payable with both periods impacted by business changes and ~~lower other taxes~~timing of payments; and ~~withholding at~~(v) a $9 million fluctuation in the ~~end~~amount of ~~2015.~~compensation and benefits accrued and timing of the related payments resulting from year-over-year changes in Company-wide performance-based incentive compensation.

Net cash used in investing activities to purchase property and equipment was ~~$34~~$20 million for the ~~nine~~three months ended ~~September 30, 2017,~~April 2, 2022, compared with ~~$30~~$12 million ~~of net cash used in investing activities~~ for the same period one year ago. ~~Investing activities for~~The year-over-year increase was primarily due to the ~~current-year period included $38 million~~timing of cash flows associated with new and remodeled stores’ property and equipment, ~~purchases, compared with $39 million for the same period last year. We decreased our~~and investments in marketable debt securities by $9 million during the nine months ended October 1, 2016. We did not hold any investments in marketable debt securities as of December 31, 2016 or during the nine months ended September 30, 2017.information technology.

Net cash used in financing activities was ~~$123~~$6 million for the ~~nine~~three months ended ~~September 30, 2017,~~April 2, 2022, compared with ~~$91~~$102 million for the same period ~~one year ago.~~last year. During the ~~nine~~three months ended ~~September 30, 2017,~~April 2, 2022, we repurchased ~~$120~~$51 million of


18 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

our stock ~~($115~~(based on settlement dates, $42 million under our Board-approved share repurchase program and $5$9 million in connection with the vesting of employee restricted stock awards), compared with ~~$96~~$179 million ~~($95 million under our Board-approved share repurchase program and $1.4 million in connection with the vesting of employee restricted stock awards)~~ during the same period one year ago. Short-term borrowings ~~declined~~increased by $6$45 million during the current-year period ~~primarily~~ due to a ~~decrease~~$31 million increase in borrowings under our revolving credit facility to $413 million and a $14 million increase in book overdrafts which are included in the net change in short-term borrowings. Short-term borrowings increased by $74 million during the prior-year period due to a $71 million increase in borrowings under our credit facility to $315 million and a $3 million increase in book overdrafts.

Under our Board-approved share repurchase program, we repurchased ~~4.3~~0.7 million shares at a cost of ~~$115~~$42 million ~~(an~~(based on trade dates, an average of ~~$26.52~~$63.95 per share) during the ~~nine~~three months ended ~~September 30, 2017.~~April 2, 2022. During the ~~nine~~three months ended ~~October 1, 2016,~~April 3, 2021, we repurchased ~~4.6~~1.2 million shares at a cost of ~~$95~~$167 million ~~(an~~(based on trade dates, an average of ~~$20.78~~$136.27 per share). ~~Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million.~~ There is no expiration date governing the period over which we can repurchase shares. At April 2, 2022, there is $361 million remaining authorization under our Board-approved $600 million share repurchase program.

~~In March 2017,~~As of April 2, 2022, we ~~amended~~had $413 million of borrowings under our revolving credit ~~facility to increase~~facility. We also had $6 million in outstanding letters of credit. Net liquidity available under our ~~net aggregate availability from $150 million to $153 million. We maintained the accordion feature which allows us to increase the amount of the~~ credit facility ~~from $153~~was $406 million ~~to $200 million, subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions.~~

~~Index~~

~~The credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. The credit facility matures in February 2021.~~at April 2, 2022. The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio (4.5x) and a minimum interest coverage ~~ratio.~~ratio (3.0x). Our leverage ratio as defined in our credit agreement was 3.4x as of April 2, 2022. Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio.

The credit agreement is for general corporate purposes, to meet our seasonal working capital requirements and to repurchase our stock. As of ~~September 30, 2017, we had $3.15 million in outstanding letters of credit and no~~April 2, 2022, the weighted-average interest rate on borrowings under the credit ~~facility. Our available borrowing capacity~~facility was ~~$150 million. We~~2.2% and we were in compliance with all financial covenants.

We have an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance their purchases from us (Synchrony Agreement). The Synchrony Agreement contains ~~certain~~ financial covenants consistent with our credit facility, including a maximum leverage ratio and a minimum interest coverage ratio. As of ~~September 30, 2017,~~April 2, 2022, we were in compliance with all financial covenants.

Under the terms of the Synchrony Agreement, Synchrony Bank sets the minimum acceptable credit ratings, the interest rates, fees and all other terms and conditions of the customer accounts, including collection policies and procedures, and is the owner of the accounts. As the accounts are owned by Synchrony Bank, at no time are the accounts purchased or acquired from us. We are not liable to Synchrony Bank for our customers’ credit defaults.


19 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

Non-GAAP Data Reconciliations

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

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

Our Adjusted EBITDA calculations are as follows ~~(dollars in~~(in thousands):


	Three Months Ended				Trailing-Twelve Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Net income	$	2,074	$	66,634	$	89,186	$	166,683
Income tax expense	214		8,812		24,947		34,265
Interest expense	2,127		978		7,394		7,642
Depreciation and amortization	15,683		14,519		60,943		60,049
Stock-based compensation	4,133		6,417		20,930		26,179
Asset impairments	103		89		186		388
Adjusted EBITDA	$	24,334	$	97,449	$	203,586	$	295,206

Three Months Ended
Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income $ 25,603
$ 25,745
$ 60,573
$ 18,958
Income tax expense 13,178
13,044
25,731
11,112
Interest expense 278
267
935
721
Depreciation and amortization 14,770
14,536
60,404
56,154
Stock-based compensation 3,933
1,666
14,498
10,609
Asset impairments 222
2
267
51
Adjusted EBITDA $ 57,984
$ 55,260
$ 162,408
$ 97,605

Free Cash Flow

Our “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operating activities,” or GAAP financial data. However, we are providing this information as we believe it facilitates analysis for investors and financial analysts.

The following table summarizes our free cash flow calculations ~~(dollars in~~(in thousands):


	Three Months Ended				Trailing-Twelve Months Ended
	April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Net cash provided by operating activities	$	24,558	$	111,598	$	212,970	$	306,318
Subtract: Purchases of property and equipment	19,604		11,546		74,958		38,295
Free cash flow	$	4,954	$	100,052	$	138,012	$	268,023

Nine Months Ended
Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net cash provided by operating activities $ 176,054
$ 145,261
$ 182,438
$ 121,616
Subtract: Purchases of property and equipment 37,613
38,769
56,696
62,920
Free cash flow $ 138,441
$ 106,492
$ 125,742
$ 58,696


20 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

Non-GAAP Data Reconciliations (continued)

Return on Invested Capital (ROIC)

(dollars in thousands)

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


	Trailing-Twelve Months Ended
	April 2, 2022			April 3, 2021
Net operating profit after taxes (NOPAT)
Operating income	$	121,527		$	208,506
Add: Rent expense (1)	104,937			92,650
Add: Interest income	—			84
Less: Depreciation on capitalized operating leases (2)	(26,311)			(24,258)
Less: Income taxes (3)	(47,503)			(66,118)
NOPAT	$	152,650		$	210,864

Average invested capital
Total deficit	$	(469,213)		$	(332,650)

Add: Long-term debt (4)	413,709			315,522
Add: Capitalized operating lease obligations (5)	839,496			741,200
Total invested capital at end of period	$	783,992		$	724,072

Average invested capital (6)	$	746,167		$	763,227

Return on invested capital (ROIC) (7)	20.5		%	27.6		%

___________________________

Trailing-Twelve
Months Ended
September 30,
2017 October 1,
2016
Net operating profit after taxes (NOPAT)
Operating income $ 87,108
$ 30,681
Add: Rent expense⁽¹⁾
72,260
64,994
Add: Interest income 129
109
Less: Depreciation on capitalized operating leases⁽²⁾
(18,384 ) (16,953 )
Less: Income taxes⁽³⁾
(46,004 ) (29,805 )
NOPAT $ 95,109
$ 49,026

Average invested capital
Total equity $ 104,297
$ 176,512
Less: Cash greater than target⁽⁴⁾
—
—
Add: Long-term debt⁽⁵⁾
—
—
Add: Capitalized operating lease obligations⁽⁶⁾
578,080
519,952
Total invested capital at end of period $ 682,377
$ 696,464
Average invested capital⁽⁷⁾
$ 689,467
$ 714,956
Return on invested capital (ROIC)⁽⁸⁾
13.8 % 6.9 %

~~___________________~~

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

⁽²⁾Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6)5) for the respective reporting periods with an assumed thirty-year useful life. This life assumption is based on our long-term participation in given markets though specific retail location lease commitments are generally 5 to 10 years at inception. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.

⁽³⁾Reflects annual effective income tax rates, before discrete adjustments, of ~~32.6%~~23.7% and ~~37.8%~~23.9% for ~~2017~~2022 and ~~2016,~~2021, respectively.

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

⁽⁵⁾Long-term debt includes existing ~~capital~~finance lease ~~obligations, if applicable.~~liabilities.

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

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

⁽⁸⁾(7)ROIC equals NOPAT divided by average invested capital.

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

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


21 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

Off-Balance-Sheet Arrangements ~~and Contractual Obligations~~

As of ~~September 30, 2017~~,April 2, 2022, we were not involved in any unconsolidated special purpose entity transactions. Other than our ~~operating leases and a $3.15~~$6 million in outstanding ~~letter~~letters of credit, we do not have any off-balance-sheet financing.

There ~~has~~have been no material changes in our contractual obligations ~~other than in the ordinary course of business,~~ since the end of fiscal ~~2016~~.2021. See Note 5, Credit Agreement,, of the Notes to our Condensed Consolidated Financial Statements for information regarding our credit agreement. See our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~January 1, 2022 for additional information regarding our other contractual obligations.

Critical Accounting Policies

We discuss our critical accounting policies and estimates inManagement’s Discussion and Analysis of Financial Condition and Results of Operationsin our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~.January 1, 2022. There were no significant changes in our critical accounting policies since the end of fiscal ~~2016~~.2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Changes~~We are exposed to changes in ~~the overall level of~~market-based short-term interest rates ~~affect~~that will impact our net interest ~~income generated from cash and cash equivalents.~~expense. If overall interest rates were one percentage point ~~lower~~higher than current rates, our annual ~~interest~~net income would ~~not change~~decrease by ~~a significant amount~~$3.1 million based on the $413 million of borrowings under our ~~cash and cash equivalents as of September 30, 2017, and the current low interest-rate environment.~~credit facility at April 2, 2022. We do not manage ~~our investment~~the interest-rate volatility risk of borrowings under our credit facility through the use of derivative instruments.

~~As of September 30, 2017, we had no borrowings under our revolving credit facility.~~

ITEM 4. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, 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 the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal ~~Controls~~Control

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~September 30, 2017~~,April 2, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


22 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are involved from time to time in various~~Our legal proceedings ~~arising~~are discussed in Note 12,Commitments and Contingencies, Legal Proceedings, in the ~~ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with generally accepted accounting principles~~Notes to Condensed Consolidated Financial Statements in the United States, we record a liability in our consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effectthis Quarterly Report on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred.Form 10-Q.

On January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which has certified two questions of law to the New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court has accepted the certified questions and oral arguments are expected to be heard in the near future. As the United States District Court for the District of New Jersey determined, we believe that the case is without merit and the order of dismissal should be affirmed.

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.

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

(a) – (b) Not applicable.


Period	Total Number of Shares Purchased(1)(2)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3)
January 2, 2022 through January 29, 2022	396	$	86.60	—	$	402,939,000
January 30, 2022 through February 26, 2022	59,272	$	81.41	58,487	$	399,093,000
February 27, 2022 through April 2, 2022	753,687	$	77.47	603,053	$	360,631,000
Total	813,355	$	82.82	661,540	$	360,631,000

___________________________

(1)Under our Board-approved $600 million share repurchase program (effective April 4, 2021), we repurchased 0.7 million shares of our common stock at a cost of $42 million (based on trade dates) during the three months ended April 2, 2022.

(2)In connection with the vesting of employee restricted stock grants, we repurchased 151,815 shares of our common stock at a cost of $8.7 million during the three months ended April 2, 2022.

(3)There is no expiration date governing the period over which we can repurchase shares under our Board-approved share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.



Minnesota						41-1597886
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


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


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


				Page
PART I: FINANCIAL INFORMATION				1

Item 1.			~~Page~~ Financial Statements (unaudited)	1

~~PART I: FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~ ~~(unaudited)~~
	Condensed Consolidated Balance Sheets	21
			Condensed Consolidated Statements of Operations	32
			Condensed Consolidated Statements of ~~Comprehensive Income~~Shareholders' Deficit	43
			~~Condensed Consolidated Statement of Shareholders’ Equity~~	5
	Condensed Consolidated Statements of Cash Flows	64
			Notes to Condensed Consolidated Financial Statements	75
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1312
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.			Controls and Procedures	22

PART II: OTHER INFORMATION				23

Item 1.			Legal Proceedings	23
Item 1A.			Risk Factors	23
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.			Defaults Upon Senior Securities	2423
Item 4.			Mine Safety Disclosures	2423
~~Item 5.~~	~~Other Information~~	24
~~Item 6.~~	~~Exhibits~~	25
~~SIGNATURES~~Item 5.			26Other Information	23
Item 6.			Exhibits	24
SIGNATURES				25



	September 30, 2017		December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	29,914	$	11,609
Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively	21,107		19,705
Inventories	79,217		75,026
Prepaid expenses	10,208		8,705
Other current assets	23,803		23,282
Total current assets	164,249		138,327

Non-current assets:
Property and equipment, net	206,690		208,367
Goodwill and intangible assets, net	78,133		80,817
Deferred income taxes	938		4,667
Other non-current assets	28,898		24,988
Total assets	$	478,908	$	457,166

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	136,628	$	105,375
Customer prepayments	39,929		26,207
Accrued sales returns	18,448		15,222
Compensation and benefits	34,683		19,455
Taxes and withholding	24,041		23,430
Other current liabilities	44,708		35,628
Total current liabilities	298,437		225,317

Non-current liabilities:
Other non-current liabilities	76,174		71,529
Total liabilities	374,611		296,846

Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 142,500 shares authorized, 39,819 and 43,569 shares issued and outstanding, respectively	398		436
Additional paid-in capital	—		—
Retained earnings	103,899		159,884
Total shareholders’ equity	104,297		160,320
Total liabilities and shareholders’ equity	$	478,908	$	457,166



	Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016
Net sales	$	402,646		$	367,988		$	1,081,218		$	997,846
Cost of sales	149,181			135,645			404,675			385,168
Gross profit	253,465			232,343			676,543			612,678

Operating expenses:
Sales and marketing	174,800			158,024			488,564			443,477
General and administrative	32,645			28,278			95,233			86,202
Research and development	6,991			6,997			20,950			21,661
Total operating expenses	214,436			193,299			604,747			551,340
Operating income	39,029			39,044			71,796			61,338
Other expense, net	(248		)	(255		)	(668		)	(581		)
Income before income taxes	38,781			38,789			71,128			60,757
Income tax expense	13,178			13,044			21,842			20,627
Net income	$	25,603		$	25,745		$	49,286		$	40,130

Basic net income per share:
Net income per share – basic	$	0.63		$	0.56		$	1.18		$	0.86
Weighted-average shares – basic	40,755			45,621			41,740			46,705
Diluted net income per share:
Net income per share – diluted	$	0.62		$	0.56		$	1.16		$	0.85
Weighted-average shares – diluted	41,515			46,350			42,559			47,413



	Common Stock					Additional Paid-in Capital			Retained Earnings			Total
	Shares		Amount			Additional Paid-in Capital			Retained Earnings			Total
Balance at December 31, 2016	43,569		$	436		$	—		$	159,884		$	160,320
Net income	—		—			—			49,286			49,286
Exercise of common stock options	212		2			3,038			—			3,040
Stock-based compensation	587		6			11,803			—			11,809
Repurchases of common stock	(4,549	)	(46		)	(14,841		)	(105,271		)	(120,158		)
Balance at September 30, 2017	39,819		$	398		$	—		$	103,899		$	104,297



	September 30, 2017				December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	6,160	$	18,851	$	4,524
Customer relationships	2,413		2,413		2,413		1,365
Trade names/trademarks	101		101		101		101
	$	21,365	$	8,674	$	21,365	$	5,990



~~(a) – (b)~~	~~Not applicable.~~
~~(c)~~	~~Issuer Purchases of Equity Securities~~



Fiscal Period	Total Number of Shares Purchased⁽¹⁾⁽²⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽³⁾
July 2, 2017 through July 29, 2017	363,219	$	32.17	362,370	$	158,342,000
July 30, 2017 through August 26, 2017	384,548	32.31		384,237	145,926,000
August 27, 2017 through September 30, 2017	537,000	29.71		536,119	130,000,000
Total	1,284,767	$	31.18	1,282,726	$	130,000,000


⁽¹⁾	Under the then current Board-approved $300 million share repurchase program, we repurchased 1,282,726 shares of our common stock at a cost of $40 million (based on trade dates) during the three months ended ~~September 30, 2017~~.


⁽²⁾	~~In connection with the vesting of employee restricted stock grants, we also repurchased 2,041 shares of our common stock at a cost of $64 thousand during the three months ended September 30, 2017.~~



Exhibit Number	Description	~~Method of Filing~~
~~31.1~~10.1	Seventh Amendment to Amended and Restated Credit and Security Agreement (incorporated by reference to Exhibit 10.36 contained in Sleep Number’s Annual Report on Form 10-K filed March 1, 2022 (File No. 000-25121))
31.1*	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	~~Filed herewith~~
~~31.2~~31.2*	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	~~Filed herewith~~
~~32.1~~32.1*	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	~~Furnished herewith~~
~~32.2~~32.2*	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	~~Furnished herewith~~
~~101~~101.INS*	~~The following financial information from~~Inline XBRL Instance Document – the ~~Company's Quarterly Report on Form 10-Q for~~instance document does not appear in the ~~period ended September 30, 2017, filed with~~Interactive Data File because its XBRL tags are embedded within the ~~SEC on October 27, 2017, formatted~~Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as inline XBRL and contained in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and October 1, 2016; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and October 1, 2016; (iv) Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2017; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and October 1, 2016; and (vi) Notes to Condensed Consolidated Financial Statements.	~~Filed herewith~~Exhibit 101)