Sleep Number (SNBR) 10-Q 3 May 18 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	3 Months Ended
	Mar. 31, 2018shares
Document and Entity Information [Abstract]
Entity Registrant Name	SLEEP NUMBER CORP
Entity Central Index Key	827,187
Current Fiscal Year End Date	--12-29
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding	36,943,000

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 30, 2017
Current assets:
Cash and cash equivalents	$ 2,335	$ 3,651
Accounts receivable, net of allowance for doubtful accounts of $548 and $714, respectively	21,798	19,312
Inventories	86,783	84,298
Prepaid expenses	9,339	17,565
Other current assets	22,126	27,665
Total current assets	142,381	152,491
Non-current assets:
Property and equipment, net	204,331	208,646
Goodwill and intangible assets, net	77,042	77,588
Deferred income taxes	1,441	2,625
Other non-current assets	33,506	30,484
Total assets	458,701	471,834
Current liabilities:
Borrowings under revolving credit facility	75,800	24,500
Accounts payable	116,142	129,194
Customer prepayments	30,179	27,767
Accrued sales returns	19,016	19,270
Compensation and benefits	27,307	34,602
Taxes and withholding	30,658	24,234
Other current liabilities	46,566	46,822
Total current liabilities	345,668	306,389
Non-current liabilities:
Other non-current liabilities	77,036	76,289
Total liabilities	422,704	382,678
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.01 par value; 142,500 shares authorized, 36,943 and 38,813 shares issued and outstanding, respectively	369	388
Additional paid-in capital	0	0
Retained earnings	35,628	88,768
Total shareholders’ equity	35,997	89,156
Total liabilities and shareholders’ equity	$ 458,701	$ 471,834

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 30, 2017
Current assets:
Allowance for doubtful accounts	$ 548
Shareholders’ equity:
Undesignated preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Undesignated preferred stock, shares issued (in shares)	0	0
Undesignated preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	142,500,000	142,500,000
Common stock, shares issued (in shares)	36,943,000	38,813,000
Common stock, shares outstanding (in shares)	36,943,000	38,813,000

Consolidated Statements of Oper

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Income Statement [Abstract]
Net sales	$ 388,633	$ 393,899
Cost of sales	151,156	147,440
Gross profit	237,477	246,459
Operating expenses:
Sales and marketing	171,917	169,266
General and administrative	31,734	33,769
Research and development	6,925	7,596
Total operating expenses	210,576	210,631
Operating income	26,901	35,828
Other expense, net	(525)	(138)
Income before income taxes	26,376	35,690
Income tax expense	5,828	11,229
Net income	$ 20,548	$ 24,461
Basic net income per share:
Net income per share – basic	$ 0.54	$ 0.57
Weighted-average shares – basic	38,244,000	42,750,000
Diluted net income per share:
Net income per share – diluted	$ 0.52	$ 0.56
Weighted-average shares – diluted	39,347,000	43,712,000

Consolidated Statement of Share

Consolidated Statement of Shareholders' Equity - 3 months ended Mar. 31, 2018 - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]
Balance (in shares) at Dec. 30, 2017	38,813,000	38,813,000
Balance at Dec. 30, 2017	$ 89,156	$ 388	$ 0	$ 88,768
Net income	20,548			20,548
Exercise of common stock options (in shares)		68,000
Exercise of common stock options	857	$ 1	856	0
Stock-based compensation (in shares)		211,000
Stock-based compensation	3,084	$ 2	3,082	0
Repurchases of common stock (in shares)		(2,149,000)
Repurchases of common stock	$ (77,648)	$ (22)	(3,938)	(73,688)
Balance (in shares) at Mar. 31, 2018	36,943,000	36,943,000
Balance at Mar. 31, 2018	$ 35,997	$ 369	$ 0	$ 35,628

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Document Period End Date	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 20,548	$ 24,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,680	16,205
Stock-based compensation	3,084	3,704
Net gain on disposals and impairments of assets	(70)	0
Deferred income taxes	1,184	5,663
Changes in operating assets and liabilities:
Accounts receivable	(2,486)	1,478
Inventories	(2,485)	8,168
Income taxes	4,762	5,541
Prepaid expenses and other assets	13,894	2,880
Accounts payable	123	(1,394)
Customer prepayments	2,412	4,443
Accrued compensation and benefits	(7,567)	11,693
Other taxes and withholding	1,662	(903)
Other accruals and liabilities	(1,485)	4,930
Net cash provided by operating activities	49,256	86,869
Cash flows from investing activities:
Purchases of property and equipment	(8,805)	(13,211)
Proceeds from sales of property and equipment	70	0
Net cash used in investing activities	(8,735)	(13,211)
Cash flows from financing activities:
Repurchases of common stock	(77,648)	(54,794)
Net increase in short-term borrowings	35,963	2,369
Proceeds from issuance of common stock	857	460
Debt issuance costs	(1,009)	0
Net cash used in financing activities	(41,837)	(51,965)
Net (decrease) increase in cash, cash equivalents and restricted cash	(1,316)	21,693
Cash, cash equivalents and restricted cash, at beginning of period	3,651	14,759
Cash, cash equivalents and restricted cash, at end of period	$ 2,335	$ 36,452

Basis of Presentation

Basis of Presentation	3 Months Ended
	Mar. 31, 2018
Accounting Policies [Abstract]
Basis of Presentation	Business and Summary of Significant Accounting Policies Business & Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three months ended March 31, 2018 of Sleep Number Corporation and 100%-owned subsidiaries (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 March 31, 2018 and December 30, 2017 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017 and other recent filings with the SEC. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition. The condensed consolidated financial statements include the accounts of Sleep Number Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. New Accounting Pronouncements Recently Adopted Accounting Guidance Adoption of ASC Topic 230, Restricted Cash Effective December 31, 2017, we adopted ASC Topic 230, Restricted Cash , which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. Amounts for prior periods have been retrospectively adjusted to conform to the current period presentation. Adoption of ASC Topic 606, Revenue from Contracts with Customers On December 31, 2017, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of December 30, 2017. Results for reporting periods beginning after December 30, 2017 are presented under the new guidance, while prior period amounts are not restated. The cumulative effect of the changes made to our consolidated balance sheet as of December 31, 2017 resulting from the adoption of the new revenue guidance was not material and did not impact opening retained earnings. The impact on the timing of net sales for the quarter ended March 31, 2018, as a result of applying the new guidance, was not material. Practical expedients and exemptions permissible under ASC Topic 606 that we elected are as follows: we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. See Note 2, Revenue Recognition, for further details regarding our revenue recognition policy. Accounting Guidance Issued but Not Yet Adopted as of March 31, 2018 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 permit us to utilize a prospective approach, with elective reliefs. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. We are the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. This new guidance is effective for us beginning December 30, 2018.

Revenue Recognition

Revenue Recognition	3 Months Ended
	Mar. 31, 2018
Revenue Recognition [Abstract]
Revenue Recognition, Policy [Policy Text Block]	Revenue Recognition We recognize revenue when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenue recognized excludes sales taxes. Amounts billed to customers for delivery and setup are included in net sales. For most products, we require payment before the products or services are delivered to the customer. Our beds sold with SleepIQ ® technology contain multiple-performance obligations including the bed and SleepIQ’s hardware and software. We analyze our multiple-performance obligation(s) to determine whether they are distinct and can be separated or whether they must be accounted for as a single performance obligation. We determined that the beds sold with the SleepIQ technology have two performance obligations consisting of: (i) the bed; and (ii) SleepIQ's hardware and software. SleepIQ’s hardware and software are not separable as the hardware and related software are not sold separately and the software is integral to the hardware’s functionality. We determine the transaction price for multiple performance obligations based on their relative standalone selling prices. The performance obligation related to the bed is satisfied at a point in time. The performance obligation related to SleepIQ technology is satisfied over time based on the ongoing access and usage by the customer of software essential to the functionality of SleepIQ technology. The deferred revenue and costs related to SleepIQ technology are recognized on a straight-line basis over the product’s estimated life of four years because our inputs are generally expended evenly throughout the performance period. 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 March 31, 2018. Net sales from each of our channels was as follows (in thousands): Three Months Ended March 31, Retail $ 356,069 Online and phone 27,967 Company-Controlled channel 384,036 Wholesale/Other channel 4,597 Total $ 388,633 At March 31, 2018 and December 30, 2017 , we had deferred contract liabilities of $73 million and $73 million , of which $31 million and $30 million are included in other current liabilities, respectively, and $42 million and $43 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also had deferred contract assets of $45 million and $43 million , of which $18 million and $17 million are included in other current assets, respectively, and $27 million and $26 million are included in other non-current assets, respectively, in our consolidated balance sheets. During the three months ended March 31, 2018 , we recognized revenue of $8 million that was included in the deferred contract liability balance at the beginning of the period. Obligation for Sales Returns We accept sales returns during a 100-night trial period. Accrued sales returns represents a refund liability for the amount of consideration that we do not expect to be entitled to because it will be refunded to customers. The refund liability estimate is based on historical return rates and is adjusted for any current trends as appropriate. Each reporting period we remeasure the liability to reflect changes in the estimate, with a corresponding adjustment to net sales. The activity in the sales returns liability account was as follows (in thousands): Three Months Ended March 31, April 1, Balance at beginning of year $ 19,270 $ 15,222 Additions that reduce net sales 20,651 21,184 Deductions from reserves (20,905 ) (18,205 ) Balance at end of period $ 19,016 $ 18,201

Fair Value Measurements

Fair Value Measurements	3 Months Ended
	Mar. 31, 2018
Fair Value Disclosures [Abstract]
Fair Value Measurements	Fair Value Measurements At March 31, 2018 and December 30, 2017 , we had $5 million and $4 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 $5 million and $4 million at March 31, 2018 and December 30, 2017 , respectively, which are included in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities.

Inventories

Inventories	3 Months Ended
	Mar. 31, 2018
Inventory Disclosure [Abstract]
Inventories	Inventories Inventories consisted of the following (in thousands): March 31, December 30, Raw materials $ 4,582 $ 6,577 Work in progress 215 170 Finished goods 81,986 77,551 $ 86,783 $ 84,298

Goodwill and Intangible Assets

Goodwill and Intangible Assets	3 Months Ended
	Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and Intangible Assets	Goodwill and Intangible Assets, Net Goodwill and Indefinite-Lived Intangible Assets Goodwill was $64 million at March 31, 2018 and December 30, 2017 . Indefinite-lived trade name/trademarks totaled $1.4 million at March 31, 2018 and December 30, 2017 . Definite-Lived Intangible Assets The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): March 31, 2018 December 30, 2017 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 7,251 $ 18,851 $ 6,705 Trade names/trademarks 101 101 101 101 $ 18,952 $ 7,352 $ 18,952 $ 6,806 Amortization expense for the three months ended March 31, 2018 and April 1, 2017 , was $0.5 million and $1.6 million , respectively.

Credit Agreement

Credit Agreement	3 Months Ended
	Mar. 31, 2018
Debt Disclosure [Abstract]
Debt	Credit Agreement Our $300 million credit facility is for general corporate purposes and is also utilized to meet our seasonal working capital requirements. The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio and a minimum interest coverage ratio. Under the terms of the credit agreement we pay a variable rate of interest and a commitment fee based on our leverage ratio. The credit agreement includes an accordion feature which allows us to increase the amount of the credit facility from $300 million to $450 million , subject to lenders' approval. The credit agreement matures in February 2023 . We were in compliance with all financial covenants as of March 31, 2018 . The following tables summarizes our borrowings under the credit facility (in thousands): Three Months Ended March 31, December 30, Outstanding borrowings $ 75,800 $ 24,500 Outstanding letters of credit $ 3,450 $ 3,150 Additional borrowing capacity $ 220,750 $ 125,500 Weighted-average interest rate 3.0 % 3.1 %

Repurchase of Common Stock

Repurchase of Common Stock	3 Months Ended
	Mar. 31, 2018
Repurchase of Common Stock [Abstract]
Repurchase of Common Stock	Repurchase of Common Stock Repurchases of our common stock were as follows (in thousands): Three Months Ended March 31, April 1, Amount repurchased under Board-approved share repurchase program $ 75,000 $ 50,000 Amount repurchased in connection with the vesting of employee restricted stock grants 2,648 4,794 Total amount repurchased $ 77,648 $ 54,794 As of March 31, 2018 , the remaining authorization under our Board-approved share repurchase program was $390 million . There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.

Stock-Based Compensation

Stock-Based Compensation	3 Months Ended
	Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	Stock-Based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended March 31, April 1, Stock awards $ 2,493 $ 3,136 Stock options 591 568 Total stock-based compensation expense 3,084 3,704 Income tax benefit 756 1,248 Total stock-based compensation expense, net of tax $ 2,328 $ 2,456

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan	3 Months Ended
	Mar. 31, 2018
Profit Sharing and 401 (k) Plan [Abstract]
Profit Sharing and 401(k) Plan	Profit Sharing and 401(k) Plan Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended March 31, 2018 and April 1, 2017 , our contributions, net of forfeitures, were $1.4 million and $1.3 million , respectively.

Other (Expense) Income, Net

Other (Expense) Income, Net	3 Months Ended
	Mar. 31, 2018
Other Income and Expenses [Abstract]
Other (Expense) Income, Net	Other Expense, Net Other expense, net, consisted of the following (in thousands): Three Months Ended March 31, April 1, Interest expense $ (527 ) $ (182 ) Interest income 2 44 Other expense, net $ (525 ) $ (138 )

Net Income Per Common Share

Net Income Per Common Share	3 Months Ended
	Mar. 31, 2018
Earnings Per Share [Abstract]
Net Income per Common Share	Net Income per Common Share The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended March 31, April 1, Net income $ 20,548 $ 24,461 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 38,244 42,750 Dilutive effect of stock-based awards 1,103 962 Diluted weighted-average shares outstanding 39,347 43,712 Net income per share – basic $ 0.54 $ 0.57 Net income per share – diluted $ 0.52 $ 0.56 For the three months ended March 31, 2018 and April 1, 2017 , anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial.

Income Taxes

Income Taxes	3 Months Ended
	Mar. 31, 2018
Income Taxes [Abstract]
Income Tax Disclosure [Text Block]	Income Taxes As a result of the enactment of the Tax Cuts and Jobs Act (TCJA), we recorded a provisional tax benefit of $1.7 million in the fourth quarter of 2017 based on our initial analysis of the TCJA using the best information and estimates available. Due to the significant complexity of the TCJA, anticipated further guidance from the U.S. Treasury, the potential for additional guidance from the SEC/ FASB, or other additional information becoming available, our provisional tax benefit may be adjusted during 2018. Our provisional estimate is expected to be finalized no later than the fourth quarter of 2018. Further guidance and additional information regarding the TCJA may also impact our 2018 effective income tax rate, exclusive of any adjustment to the provisional tax benefit.

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended March 31, April 1, Balance at beginning of year $ 9,320 $ 8,633 Additions charged to costs and expenses for current-year sales 3,500 2,718 Deductions from reserves (3,271 ) (2,049 ) Changes in liability for pre-existing warranties during the current year, including expirations (77 ) (57 ) Balance at end of period $ 9,472 $ 9,245 Legal Proceedings We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with generally accepted accounting principles in the United States, we record a liability in our consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred. On January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Sleep Number alleging that Sleep Number 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 Sleep Number beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Sleep Number removed the case to the United States District Court for the District of New Jersey, which subsequently granted Sleep Number’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which 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 accepted the certified questions and on April 16, 2018, ruled in our favor on one of the two questions, holding that a consumer only has standing to bring a claim under the relevant statute if the consumer has been harmed by the defendant's conduct. As a result, we expect that the Third Circuit will uphold the lower Court's dismissal of the case.

Basis of Presentation (Policies

Basis of Presentation (Policies)	3 Months Ended
	Mar. 31, 2018
Accounting Policies [Abstract]
Business and Basis of Presentation, Policy	We prepared the condensed consolidated financial statements as of and for the three months ended March 31, 2018 of Sleep Number Corporation and 100%-owned subsidiaries (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 March 31, 2018 and December 30, 2017 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017 and other recent filings with the SEC.
Use of Estimates, Policy	The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition.
Consolidation, Policy	The condensed consolidated financial statements include the accounts of Sleep Number Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.
New Accounting Pronouncements, Policy	New Accounting Pronouncements Recently Adopted Accounting Guidance Adoption of ASC Topic 230, Restricted Cash Effective December 31, 2017, we adopted ASC Topic 230, Restricted Cash , which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. Amounts for prior periods have been retrospectively adjusted to conform to the current period presentation. Adoption of ASC Topic 606, Revenue from Contracts with Customers On December 31, 2017, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of December 30, 2017. Results for reporting periods beginning after December 30, 2017 are presented under the new guidance, while prior period amounts are not restated. The cumulative effect of the changes made to our consolidated balance sheet as of December 31, 2017 resulting from the adoption of the new revenue guidance was not material and did not impact opening retained earnings. The impact on the timing of net sales for the quarter ended March 31, 2018, as a result of applying the new guidance, was not material. Practical expedients and exemptions permissible under ASC Topic 606 that we elected are as follows: we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. See Note 2, Revenue Recognition, for further details regarding our revenue recognition policy. Accounting Guidance Issued but Not Yet Adopted as of March 31, 2018 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 permit us to utilize a prospective approach, with elective reliefs. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. We are the lessee under various agreements for facilities and equipment that are currently accounted for as operating leases. This new guidance is effective for us beginning December 30, 2018.
Stockholders' Equity, Policy	There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.
Profit Sharing and 401(k) Plan Policy	Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution.

Revenue Recogntion (Tables)

Revenue Recogntion (Tables)	3 Months Ended
	Mar. 31, 2018
Contract Assets & Liabilities [Abstract]
Disaggregation of Revenue [Table Text Block]	Net sales from each of our channels was as follows (in thousands): Three Months Ended March 31, Retail $ 356,069 Online and phone 27,967 Company-Controlled channel 384,036 Wholesale/Other channel 4,597 Total $ 388,633
Contract with Customer, Asset and Liability [Table Text Block]
Schedule of Sales Return Liability [Table Text Block]	The activity in the sales returns liability account was as follows (in thousands): Three Months Ended March 31, April 1, Balance at beginning of year $ 19,270 $ 15,222 Additions that reduce net sales 20,651 21,184 Deductions from reserves (20,905 ) (18,205 ) Balance at end of period $ 19,016 $ 18,201

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Mar. 31, 2018
Inventory Disclosure [Abstract]
Inventories	Inventories consisted of the following (in thousands): March 31, December 30, Raw materials $ 4,582 $ 6,577 Work in progress 215 170 Finished goods 81,986 77,551 $ 86,783 $ 84,298

Goodwill and Intangible Assets

Goodwill and Intangible Assets (Tables)	3 Months Ended
	Mar. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Definite-Lived Intangible Assets	The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): March 31, 2018 December 30, 2017 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 7,251 $ 18,851 $ 6,705 Trade names/trademarks 101 101 101 101 $ 18,952 $ 7,352 $ 18,952 $ 6,806

Credit Agreement Credit Agreeme

Credit Agreement Credit Agreement (Tables)	3 Months Ended
	Mar. 31, 2018
Short-term Debt [Line Items]
Schedule of Short-term Debt [Table Text Block]	The following tables summarizes our borrowings under the credit facility (in thousands): Three Months Ended March 31, December 30, Outstanding borrowings $ 75,800 $ 24,500 Outstanding letters of credit $ 3,450 $ 3,150 Additional borrowing capacity $ 220,750 $ 125,500 Weighted-average interest rate 3.0 % 3.1 %

Repurchase of Common Stock (Tab

Repurchase of Common Stock (Tables)	3 Months Ended
	Mar. 31, 2018
Repurchase of Common Stock [Abstract]
Repurchase of Common Stock	Repurchases of our common stock were as follows (in thousands): Three Months Ended March 31, April 1, Amount repurchased under Board-approved share repurchase program $ 75,000 $ 50,000 Amount repurchased in connection with the vesting of employee restricted stock grants 2,648 4,794 Total amount repurchased $ 77,648 $ 54,794

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	3 Months Ended
	Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	Total stock-based compensation expense was as follows (in thousands): Three Months Ended March 31, April 1, Stock awards $ 2,493 $ 3,136 Stock options 591 568 Total stock-based compensation expense 3,084 3,704 Income tax benefit 756 1,248 Total stock-based compensation expense, net of tax $ 2,328 $ 2,456

Other (Expense) Income, Net (Ta

Other (Expense) Income, Net (Tables)	3 Months Ended
	Mar. 31, 2018
Other Income and Expenses [Abstract]
Other (Expense) Income, Net	Other expense, net, consisted of the following (in thousands): Three Months Ended March 31, April 1, Interest expense $ (527 ) $ (182 ) Interest income 2 44 Other expense, net $ (525 ) $ (138 )

Net Income Per Common Share (Ta

Net Income Per Common Share (Tables)	3 Months Ended
	Mar. 31, 2018
Earnings Per Share [Abstract]
Net Income per Common Share	The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended March 31, April 1, Net income $ 20,548 $ 24,461 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 38,244 42,750 Dilutive effect of stock-based awards 1,103 962 Diluted weighted-average shares outstanding 39,347 43,712 Net income per share – basic $ 0.54 $ 0.57 Net income per share – diluted $ 0.52 $ 0.56

Commitments and Contingencies (

Commitments and Contingencies (Tables)	3 Months Ended
	Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]
Warranty Liabilities	The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended March 31, April 1, Balance at beginning of year $ 9,320 $ 8,633 Additions charged to costs and expenses for current-year sales 3,500 2,718 Deductions from reserves (3,271 ) (2,049 ) Changes in liability for pre-existing warranties during the current year, including expirations (77 ) (57 ) Balance at end of period $ 9,472 $ 9,245

Revenue Recognition (Details)

Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017	Dec. 30, 2017
Deferred Revenue Arrangement [Line Items]
Net Sales	$ 388,633
Deferred Revenue	73,000		$ 73,000
Deferred Costs	45,000		43,000
Contract with Customer, Liability, Revenue Recognized	8,000
Sales Return Liability [Roll Forward]
Balance at beginning of year	19,270	$ 15,222
Additions that reduce net sales	20,651	21,184
Deductions from reserves	(20,905)	(18,205)
Balance at end of period	$ 19,016	$ 18,201
Nonsoftware Service, Support and Maintenance Arrangement [Member]
Deferred Revenue Arrangement [Line Items]
Product's Estimated Life	4 years
Other Current Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Current	$ 18,000		17,000
Other Noncurrent Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Noncurrent	27,000		26,000
Other Current Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Current	31,000		30,000
Other Noncurrent Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Noncurrent	42,000		$ 43,000
Retail Site [Member]
Deferred Revenue Arrangement [Line Items]
Net Sales	356,069
Online and phone [Member]
Deferred Revenue Arrangement [Line Items]
Net Sales	27,967
Company-Controlled channel [Member]
Deferred Revenue Arrangement [Line Items]
Net Sales	384,036
Wholesale/Other channel [Member]
Deferred Revenue Arrangement [Line Items]
Net Sales	$ 4,597
Transferred at Point in Time [Member]
Deferred Revenue Arrangement [Line Items]
Revenue Percent	98.00%

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Recurring [Member] - Level 1 [Member] - USD ($) $ in Millions	Mar. 31, 2018	Dec. 30, 2017
Other Assets [Member] | Available-for-sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities assets funding the deferred compensation plan	$ 5	$ 4
Other Noncurrent Liabilities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred compensation plan liability	$ 5	$ 4

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 30, 2017
Inventory Disclosure [Abstract]
Raw materials	$ 4,582	$ 6,577
Work in progress	215	170
Finished goods	81,986	77,551
Inventories	$ 86,783	$ 84,298

Goodwill and Indefinite-Lived I

Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Mar. 31, 2018	Dec. 30, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 64	$ 64
Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived trade name/trademarks	$ 1.4	$ 1.4

Goodwill and Intangible Asset34

Goodwill and Intangible Assets Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	$ 18,952	$ 18,952
Finite-Lived Intangible Assets, Accumulated Amortization	7,352	6,806
Developed Technology Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	18,851	18,851
Finite-Lived Intangible Assets, Accumulated Amortization	7,251	6,705
Trademarks and Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	101	101
Finite-Lived Intangible Assets, Accumulated Amortization	$ 101	$ 101

Goodwill and Intangible Asset35

Goodwill and Intangible Assets Amortization Expense (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Finite-Lived Intangible Assets [Line Items]
Amortization expense definite-lived intangible assets	$ 0.5	$ 1.6

Credit Agreement (Details)

Credit Agreement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 30, 2017
Line of Credit Facility [Line Items]
Borrowings under revolving credit facility	$ 75,800	$ 24,500
February 2018 Amendment [Member]
Line of Credit Facility [Line Items]
Current borrowing capacity	300,000
Maximum Borrowing Capacity	$ 450,000
Expiration Date	Feb. 14, 2023
Borrowings under revolving credit facility	$ 75,800
Letters of Credit Outstanding	3,450
Remaining Borrowing Capacity	$ 220,750
Line of Credit Facility, Interest Rate at Period End	3.00%
March 2017 Amendment [Member]
Line of Credit Facility [Line Items]
Borrowings under revolving credit facility		24,500
Letters of Credit Outstanding		3,150
Remaining Borrowing Capacity		$ 125,500
Line of Credit Facility, Interest Rate at Period End		3.10%

Repurchase of Common Stock (Det

Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Repurchase of Common Stock [Abstract]
Amount repurchased under Board-approved share repurchase program	$ 75,000	$ 50,000
Amount repurchased in connection with the vesting of employee restricted stock grants	2,648	4,794
Total amount repurchased	77,648	$ 54,794
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 390,000

Stock-Based Compensation (Detai

Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Total stock-based compensation expense	$ 3,084	$ 3,704
Income tax benefit	756	1,248
Total stock-based compensation expense, net of tax	2,328	2,456
Stock awards [Member]
Total stock-based compensation expense	2,493	3,136
Stock Options [Member]
Total stock-based compensation expense	$ 591	$ 568

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Defined Contribution Plan Disclosure [Line Items]
Employee compensation deferral (in hundredths)	50.00%
Employer Contributions	$ 1.4	$ 1.3

Other (Expense) Income, Net (De

Other (Expense) Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Other Income and Expenses [Abstract]
Interest expense	$ (527)	$ (182)
Interest income	2	44
Other expense, net	$ (525)	$ (138)

Net Income per Common Share (De

Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Net Income per Common Share [Abstract]
Net income	$ 20,548	$ 24,461
Basic weighted-average shares outstanding	38,244,000	42,750,000
Dilutive effect of stock-based awards	1,103,000	962,000
Diluted weighted-average shares outstanding	39,347,000	43,712,000
Net income per share – basic (in USD per share)	$ 0.54	$ 0.57
Net income per share – diluted (in USD per share)	$ 0.52	$ 0.56

Income Taxes (Details)

Income Taxes (Details) $ in Millions	12 Months Ended
	Dec. 30, 2017USD ($)
Income Taxes [Abstract]
TaxCutsAndJobsActOf2017IncompleteAccounting ProvisionalIncomeTaxExpenseBenefit	$ 1.7

Commitments and Contingencies W

Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Apr. 01, 2017
Warranty Liabilities [Roll Forward]
Balance at beginning of year	$ 9,320	$ 8,633
Additions charged to costs and expenses for current-year sales	3,500	2,718
Deductions from reserves	(3,271)	(2,049)
Changes in liability for pre-existing warranties during the current year, including expirations	(77)	(57)
Balance at end of period	$ 9,472	$ 9,245