UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~July 3, 2021~~April 2, 2022


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

Commission File Number: 000-25121

SLEEP NUMBER CORPORATION

(Exact name of registrant as specified in its charter)


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

1001 Third Avenue South

Minneapolis,

Minnesota

55404

(Address of principal executive offices)

(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SNBR

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ NONo ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x☒ NONo ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~Yes ☐ NONo x☒

As of ~~July 3, 2021, 23,622,000~~April 2, 2022, 22,232,000 shares of the registrant’s Common Stock were outstanding.

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

INDEX

~~INDEX~~


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

Table of contents

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

July 3,
2021 January 2,
2021
Assets
Current assets:
Cash and cash equivalents $ 2,173 $ 4,243
Accounts receivable, net of allowances of $1,098 and $1,046, respectively 23,205 31,871
Inventories 88,577 81,362
Income taxes receivable 1,578 0
Prepaid expenses 28,900 20,839
Other current assets 42,564 43,489
Total current assets 186,997 181,804
Non-current assets:
Property and equipment, net 182,398 175,223
Operating lease right-of-use assets 344,423 314,226
Goodwill and intangible assets, net 71,669 72,871
Other non-current assets 69,009 56,012
Total assets $ 854,496 $ 800,136
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under credit facility $ 382,200 $ 244,200
Accounts payable 129,922 91,904
Customer prepayments 119,435 72,017
Accrued sales returns 21,217 24,765
Compensation and benefits 54,219 76,786
Taxes and withholding 13,779 23,339
Operating lease liabilities 67,648 62,077
Other current liabilities 57,708 60,856
Total current liabilities 846,128 655,944
Non-current liabilities:
Deferred income taxes 663 242
Operating lease liabilities 311,672 283,084
Other non-current liabilities 99,691 84,844
Total liabilities 1,258,154 1,024,114
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, 0 shares issued and outstanding 0 0
Common stock, $0.01 par value; 142,500 shares authorized, 23,622 and 25,390 shares issued and outstanding, respectively 236 254
Additional paid-in capital 0 0
Accumulated deficit (403,894) (224,232)
Total shareholders’ deficit (403,658) (223,978)
Total liabilities and shareholders’ deficit $ 854,496 $ 800,136


	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.


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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

Three Months Ended Six Months Ended
July 3,
2021 June 27,
2020 July 3,
2021 June 27,
2020
Net sales $ 484,316 $ 284,938 $ 1,052,572 $ 757,504
Cost of sales 191,465 121,928 403,803 292,363
Gross profit 292,851 163,010 648,769 465,141
Operating expenses:
Sales and marketing 205,994 130,165 429,611 337,909
General and administrative 41,220 36,716 83,812 67,788
Research and development 15,916 8,254 29,202 18,755
Total operating expenses 263,130 175,135 542,625 424,452
Operating income (loss) 29,721 (12,125) 106,144 40,689
Interest expense, net 1,607 3,940 2,584 6,284
Income (loss) before income taxes 28,114 (16,065) 103,560 34,405
Income tax expense (benefit) 5,864 (3,435) 14,676 7,895
Net income (loss) $ 22,250 $ (12,630) $ 88,884 $ 26,510
Basic net income (loss) per share:
Net income (loss) per share – basic $ 0.91 $ (0.45) $ 3.57 $ 0.95
Weighted-average shares – basic 24,371 27,923 24,874 27,890
Diluted net income (loss) per share:
Net income (loss) per share – diluted $ 0.88 $ (0.45) $ 3.44 $ 0.93
Weighted-average shares – diluted 25,194 27,923 25,869 28,523


	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

See accompanying notes to condensed consolidated financial statements.


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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of 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)


	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.

~~Table of contents~~

~~SLEEP NUMBER CORPORATION~~

~~AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Shareholders’ Deficit~~

~~(unaudited - in thousands)~~

Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Shares Amount
Balance at January 2, 2021 25,390 $ 254 $ 0 $ (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 $ 0 $ (332,895) $ (332,650)
Net income — — — 22,250 22,250
Exercise of common stock options 35 — 1,075 — 1,075
Stock-based compensation 22 0 5,969 — 5,969
Repurchases of common stock (899) (9) (7,044) (93,249) (100,302)
Balance at July 3, 2021 23,622 $ 236 $ 0 $ (403,894) $ (403,658)

Common Stock
Additional
Paid-in
Capital
Accumulated Deficit Total
Shares Amount
Balance at December 28, 2019 27,961 $ 280 $ 0 $ (159,711) $ (159,431)
Net income — — — 39,140 39,140
Exercise of common stock options 167 1 3,282 — 3,283
Stock-based compensation 396 4 2,047 — 2,051
Repurchases of common stock (888) (9) (5,329) (35,614) (40,952)
Balance at March 28, 2020 27,636 $ 276 $ 0 $ (156,185) $ (155,909)
Net loss — — — (12,630) (12,630)
Exercise of common stock options 33 — 817 — 817
Stock-based compensation 71 1 5,032 — 5,033
Repurchases of common stock (15) — (330) 1 (329)
Balance at June 27, 2020 27,725 $ 277 $ 5,519 $ (168,814) $ (163,018)

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


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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

Six Months Ended
July 3,
2021 June 27,
2020
Cash flows from operating activities:
Net income $ 88,884 $ 26,510
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 29,800 30,811
Stock-based compensation 12,385 7,084
Net loss on disposals and impairments of assets 78 224
Deferred income taxes 421 4,383
Changes in operating assets and liabilities:
Accounts receivable 8,666 4,224
Inventories (7,215) 5,391
Income taxes (11,625) 2,508
Prepaid expenses and other assets (13,407) 7,018
Accounts payable 23,232 (14,804)
Customer prepayments 47,418 16,987
Accrued compensation and benefits (22,387) (7,405)
Other taxes and withholding 487 (3,594)
Other accruals and liabilities 4,683 7,664
Net cash provided by operating activities 161,420 87,001
Cash flows from investing activities:
Purchases of property and equipment (32,012) (21,695)
Proceeds from sales of property and equipment 12 25
Purchase of intangible assets 0 (945)
Net cash used in investing activities (32,000) (22,615)
Cash flows from financing activities:
Repurchases of common stock (280,915) (41,774)
Net increase (decrease) in short-term borrowings 146,447 (26,364)
Proceeds from issuance of common stock 3,535 4,100
Debt issuance costs (557) (290)
Net cash used in financing activities (131,490) (64,328)
Net (decrease) increase in cash and cash equivalents (2,070) 58
Cash and cash equivalents, at beginning of period 4,243 1,593
Cash and cash equivalents, at end of period $ 2,173 $ 1,651


	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

See accompanying notes to condensed consolidated financial statements.


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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 six~~ months ended ~~July 3, 2021~~April 2, 2022 of Sleep Number Corporation and our 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 ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~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. ~~Additionally,~~In addition, based on the duration and severity of the current global situation involving the ~~novel coronavirus (COVID-19)~~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 ~~possible~~global supply chain disruptions, the extent to which ~~COVID-19~~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 January ~~2, 2021~~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 and could be material. Our critical accounting policies consist of stock-based compensation, 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.

2. Fair Value Measurements

At ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, we had ~~$17~~$18 million and ~~$12~~$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 ~~$17~~$18 million and ~~$12~~$19 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~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):~~
July 3,
2021 January 2,
2021
Raw materials $ 7,730 $ 12,599
Work in progress 98 103
Finished goods 80,749 68,660
$ 88,577 $ 81,362


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Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

3. Inventories

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 ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021.~~1, 2022. Indefinite-lived trade name/trademarks totaled $1.4 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021.~~1, 2022.

Definite-lived Intangible Assets

The gross carrying amount of our developed technologies was $19 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021.~~1, 2022. Accumulated amortization was ~~$14 million and $13~~$16 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021, respectively.~~1, 2022. Amortization expense for both the three months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ was $0.5 ~~million. Amortization expense for both the six months ended July 3, 2021 and June 27, 2020, was $1.1~~ million.

The gross carrying amount of our patents ~~which were acquired in June 2020,~~ was ~~$2.0~~$2 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021, respectively.~~1, 2022. Accumulated amortization was ~~$0.2~~$0.4 million and ~~$0.1~~$0.3 million at ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, respectively. Amortization expense for both the three ~~and six~~ months ended ~~July~~April 2, 2022 and April 3, 2021, was $55 ~~thousand and $0.1 million, respectively. Amortization expense for the three and six months ended June 27, 2020 was not significant.~~thousand.

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


2021 (excluding the six months ended July 3, 2021)		$	1,201
2022		2,403
2022 (excluding the three months ended April 2, 2022)				2022 (excluding the three months ended April 2, 2022)	$	1,802
2023	2023	1,431		2023	1,431
2024	2024	222		2024	222
2025	2025	226		2025	226
2026	2026	222		2026	222
2027				2027	222
Thereafter	Thereafter	522		Thereafter	300
Total future amortization for definite-lived intangible assets	Total future amortization for definite-lived intangible assets	$	6,227	Total future amortization for definite-lived intangible assets	$	4,425

5. Credit Agreement

~~Our~~As of April 2, 2022, our credit facility ~~as of July 3, 2021, has~~had a ~~net aggregate~~total commitment amount of ~~$600~~$825 million. The credit facility is for general corporate purposes, to meet our seasonal working capital requirements and to repurchase our stock. The credit agreement includes an accordion feature which allows us to increase the amount of the credit facility from $825 million to $1.2 billion, subject to lenders’ approval. 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 (3.0x). ~~The credit agreement includes an accordion feature which allows us to increase the amount of the credit facility from $600 million to $800 million, subject to lenders' approval.~~ 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 matures in December 2026. We were in compliance with all financial covenants as of ~~July 3, 2021. The credit facility matures in February 2024.~~

~~The following table summarizes our borrowings under the credit facility ($ in thousands):~~
July 3,
2021 January 2,
2021
Outstanding borrowings $ 382,200 $ 244,200
Outstanding letters of credit $ 3,997 $ 3,997
Additional borrowing capacity $ 213,803 $ 201,803
Weighted-average interest rate 1.6 % 1.5 %
April 2, 2022.


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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 ~~July 3, 2021,~~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				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Operating lease costs(1)	Operating lease costs(1)	$	24,352	$	22,357	$	47,991	$	45,303	Operating lease costs(1)	$	27,078	$	23,638
Variable lease costs	Variable lease costs	$	840	$	263	$	1,355	$	275	Variable lease costs	$	330	$	515

___________________________

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

~~The maturities of operating lease liabilities as of July 3, 2021, were as follows(1)~~ ~~(in thousands):~~
2021 (excluding the six months ended July 3, 2021) $ 45,819
2022 85,828
2023 75,838
2024 64,013
2025 54,458
2026 43,974
Thereafter 92,392
Total operating lease payments(2)
462,322
Less: Interest 82,942
Present value of operating lease liabilities(3)
$ 379,380

~~___________________________~~

~~(1)~~During 2020, we deferred certain cash lease payments to future periods. At July 3, 2021, we had deferred cash rent payments of $1.6 million which are excluded from this table and are included in Other current liabilities and Other non-current liabilities.

~~(2)Total operating lease payments exclude $78 million of legally binding minimum lease payments for leases signed but not yet commenced.~~

~~(3)Includes the current portion of $68 million for operating lease liabilities.~~


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Table of Contents

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:


		July 3, 2021		January 2, 2021			April 2, 2022		January 1, 2022
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)	6.4		6.3		Weighted-average remaining lease term (years)	6.3		6.4
Weighted-average discount rate	Weighted-average discount rate	6.5	%	6.9	%	Weighted-average discount rate	6.0	%	6.1	%

Six Months Ended
(in thousands) July 3,
2021 June 27,
2020
Cash paid for amounts included in present value of operating lease liabilities $ 43,414 $ 42,773
Right-of-use assets obtained in exchange for operating lease liabilities $ 50,667 $ 17,670


	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. Repurchases of Common Stock

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


		Three Months Ended				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Amount repurchased under Board-approved share repurchase program	Amount repurchased under Board-approved share repurchase program	$	100,015	$	0	$	267,433	$	38,111	Amount repurchased under Board-approved share repurchase program	$	42,308	$	167,418
Amount repurchased in connection with the vesting of employee restricted stock grants	Amount repurchased in connection with the vesting of employee restricted stock grants	287		329		17,051		3,170		Amount repurchased in connection with the vesting of employee restricted stock grants	8,690		16,764
Total amount repurchased (based on trade dates)	Total amount repurchased (based on trade dates)	$	100,302	$	329	$	284,484	$	41,281	Total amount repurchased (based on trade dates)	$	50,998	$	184,182

As of ~~July 3, 2021,~~April 2, 2022, the remaining authorization under the $600 million share repurchase program was ~~$500~~$361 million.


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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):


		July 3, 2021		January 2, 2021			April 2, 2022		January 1, 2022
Deferred Contract Assets included in:
Deferred contract assets included in:						Deferred contract assets included in:
Other current assets	Other current assets	$	25,293	$	26,593	Other current assets	$	26,926	$	28,048
Other non-current assets	Other non-current assets	45,998		37,976		Other non-current assets	53,244		49,343
		$	71,291	$	64,569		$	80,170	$	77,391


		July 3, 2021		January 2, 2021			April 2, 2022		January 1, 2022
Deferred Contract Liabilities included in:
Deferred contract liabilities included in:						Deferred contract liabilities included in:
Other current liabilities	Other current liabilities	$	33,228	$	35,288	Other current liabilities	$	34,999	$	36,490
Other non-current liabilities	Other non-current liabilities	59,813		49,689		Other non-current liabilities	68,657		63,680
		$	93,041	$	84,977		$	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 ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ we recognized revenue of $8$9 million and ~~$10~~$7 million, respectively, that were included in the deferred contract liability balances at the beginning of the respective periods. During the six months ended July 3, 2021 and June 27, 2020, we recognized revenue of $15 million and $18 million, respectively, that were included in the deferred contract liability balances at the beginning of the respective periods.

~~Table of Contents~~

~~SLEEP NUMBER CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Revenue from goods and services transferred to customers at a point in time accounted for approximately 98% of our revenues for the three ~~and six~~ months ended ~~July 3, 2021~~April 2, 2022 and ~~97%~~99% of our revenues for the three ~~and six~~ months ended ~~June 27, 2020.~~April 3, 2021.

Net sales were as follows (in thousands):


		Three Months Ended				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Retail stores	Retail stores	$	426,653	$	206,476	$	915,841	$	643,125	Retail stores	$	444,336	$	489,188
Online, phone, chat and other	Online, phone, chat and other	57,663		78,462		136,731		114,379		Online, phone, chat and other	82,794		79,068
Total Company	Total Company	$	484,316	$	284,938	$	1,052,572	$	757,504	Total Company	$	527,130	$	568,256

Obligation for Sales Returns

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


		Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Balance at beginning of year	Balance at beginning of year	$	24,765	$	19,809	Balance at beginning of year	$	22,368	$	24,765
Additions that reduce net sales	Additions that reduce net sales	42,272		30,901		Additions that reduce net sales	26,667		23,711
Deductions from reserves	Deductions from reserves	(45,820)		(33,514)		Deductions from reserves	(28,758)		(23,866)
Balance at end of period	Balance at end of period	$	21,217	$	17,196	Balance at end of period	$	20,277	$	24,610


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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				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Stock awards	Stock awards	$	5,218	$	4,440	11,027		$	5,846	Stock awards	$	3,274	$	5,808
Stock options	Stock options	750		593		1,358		1,238		Stock options	859		608
Total stock-based compensation expense (1)	Total stock-based compensation expense (1)	5,968		5,033		12,385		7,084		Total stock-based compensation expense (1)	4,133		6,416
Income tax benefit	Income tax benefit	1,473		1,218		3,071		1,714		Income tax benefit	1,033		1,598
Total stock-based compensation expense, net of tax	Total stock-based compensation expense, net of tax	$	4,495	$	3,815	$	9,314	$	5,370	Total stock-based compensation expense, net of tax	$	3,100	$	4,818

___________________________

(1) Changes in stock-based compensation expense reflect the cumulative impact of the change in the expected achievements of certain performance targets.

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 ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ our contributions, net of forfeitures, were ~~$1.8~~$2.8 million and ~~$0.5 million, respectively. During the six months ended July 3, 2021 and June 27, 2020, our contributions, net of forfeitures, were $3.7 million and $2.1~~$1.9 million, respectively.

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

For the three months ended April 2, 2022 and April 3, 2021, anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial.


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Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~11. Net Income (Loss) per Common Share~~

~~The components of basic and diluted net income (loss) per share were as follows (in thousands, except per share amounts):~~
Three Months Ended Six Months Ended
July 3,
2021 June 27,
2020 July 3,
2021 June 27,
2020
Net income (loss) $ 22,250 $ (12,630) $ 88,884 $ 26,510
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding 24,371 27,923 24,874 27,890
Dilutive effect of stock-based awards 823 0 995 633
Diluted weighted-average shares outstanding 25,194 27,923 25,869 28,523
Net income (loss) per share – basic $ 0.91 $ (0.45) $ 3.57 $ 0.95
Net income (loss) per share – diluted $ 0.88 $ (0.45) $ 3.44 $ 0.93

For the three and six months ended July 3, 2021 and the six months ended June 27, 2020, anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial. For the three months ended June 27, 2020, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.

12. Commitments and Contingencies

Warranty Liabilities

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


		Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Balance at beginning of year	Balance at beginning of year	$	12,152	$	11,345	Balance at beginning of year	$	10,069	$	12,152
Additions charged to costs and expenses for current-year sales	Additions charged to costs and expenses for current-year sales	7,863		4,965		Additions charged to costs and expenses for current-year sales	4,447		4,330
Deductions from reserves	Deductions from reserves	(9,235)		(4,789)		Deductions from reserves	(4,750)		(4,717)
Changes in liability for pre-existing warranties during the current year, including expirations	Changes in liability for pre-existing warranties during the current year, including expirations	(237)		(89)		Changes in liability for pre-existing warranties during the current year, including expirations	(31)		(156)
Balance at end of period	Balance at end of period	$	10,543	$	11,432	Balance at end of period	$	9,735	$	11,609

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, 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 material losses either because we believe that we have valid defenses to claims asserted against us, the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate, or the potential loss is not material. We currently do not expect the outcome of 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 ~~March 27, 2018, Level Sleep, LLC (Level Sleep)~~December 14, 2021, Steamfitters Local 449 Pension & Retirement Security Funds filed a ~~patent infringement lawsuit against Sleep Number~~putative class action complaint in the ~~Federal~~United States District Court for the ~~Eastern~~ District of ~~Texas. In its Complaint, Level Sleep claims that~~Minnesota on behalf of all purchasers of Sleep Number ~~infringed two patents owned by Level~~common stock between February 18, 2021 and July 20, 2021, inclusive, against Sleep ~~U.S. Patent Nos. 6,807,698~~Number, Shelly Ibach and ~~7,036,172 (the Patents), by,~~David Callen. Plaintiff alleges material misstatements and omissions in certain of Sleep Number’s public disclosures during the purported class period, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The complaint seeks, among other things, ~~making, using, offering for sale,~~unspecified monetary damages, reasonable costs and expenses and equitable/injunctive or ~~selling within~~other relief as deemed appropriate by the ~~United States, and/or importing into~~Court. We believe these claims are without merit and intend to vigorously defend the ~~United States, beds with sleep surfaces having foam with multiple zones in the longitudinal direction. Level Sleep has asserted that five non-360~~® ~~beds no longer sold and two current non-360 beds infringe the~~

~~Table of Contents~~

~~SLEEP NUMBER CORPORATION~~

~~AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Patents. Level Sleep seeks damages in the form of a reasonable royalty. Sleep Number has asserted that the Patents are invalid and that our products do not infringe the Patents. On January 14, 2020, the Court granted summary judgment in favor of Sleep Number, finding that Sleep Number’s products do not infringe the Patents. Level Sleep filed an appeal of the Court’s summary judgment order to the Federal Circuit Court of Appeals which issued a decision on July 13, 2021, affirming the Court's summary judgment order and dismissal of Level Sleep's claims.matter.

13. COVID-19 Pandemic

AtThe COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the ~~onset~~first quarter of 2021, even with the COVID-19 ~~pandemic in mid-March 2020, government restrictions resulted in~~challenges, we generated strong demand and financial performance. In the ~~temporary closure of most of our retail stores, with 47% of our stores closed on average during the second~~first quarter of ~~2020. While prioritizing~~2022, our financial performance was impacted by: (i) the ~~safety~~disruptive flow of semiconductor chips which affected our ~~team, serving~~ability to deliver products to our customers and ~~ensuring business continuity, we swiftly took decisive actions to strengthen~~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 ~~liquidity, cash flows~~long- and ~~financial position,~~near-term innovations and ~~mitigate the~~demand drivers, partly offset by cost containment actions. The pandemic's future ~~impact~~effects on our ~~operations and financial performance.~~

~~The COVID-19 pandemic mainly impacted our second quarter of 2020 financial performance, as we generated strong financial performance during the full-year of 2020~~global supply chain and the ~~first six months~~potential for supply disruption (e.g., the lack or slowing of ~~2021. However, the pandemic's future effect~~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 ~~See~~Part II, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~of this Quarterly Report on Form 10-Q~~ and Part I:II: Item 1A. Risk Factors in ~~our Annual Report on Form 10-K for the fiscal year ended January 2, 2021,~~ for additional discussion on the COVID-19 pandemic and the impact on our business.


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Index

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 eight sections:

•Forward-Looking Statements and Risk Factors

•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~~Forward-looking Statements and Risk Factors

The discussion in 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 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;

•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 manufacturing processes 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 providers of services;

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

•~~Risks inherent in global sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, strikes and the potential for shortages in supply;~~

•~~Risks of disruption in the operation of any of our main manufacturing facilities or assembly 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 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 information systems;

•The vulnerability of our 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 team members, including qualified retail sales professionals and managers.

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.

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

Business Overview

~~Individuality~~At Sleep Number, our purpose is ~~core~~ to Sleep Number. Our purpose driven Company is comprised of over 5,000 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. Our award-winning 360 smart beds provide each sleeper with effortlessly adjustable, individualized comfort for proven-quality sleep. With a purpose of improvingimprove the health and wellbeing of society through ~~higher-quality sleep, we have already improved over 13 million lives.~~higher quality sleep. We are

~~Sleep science and data are the foundation of our innovations. Our 360smart beds benefit from our proprietary SleepIQ technology, which leverages and learns from nearly 11 billion hours' worth of highly-accurate sleep data. This enables our 360 smart beds~~committed to ~~provide effortless comfort and sleep health insights for each sleeper, including their daily SleepIQ score.~~

~~Sleep Number is a leader in sleep innovation. By pairing our data and innovations with meaningful collaborations including world-leading partners in sleep, we are~~ leveraging the ~~potential~~power of ~~our research and technology to advance~~ sleep, ~~health~~ and sleep science, ~~develop new products, services~~to improve lives and ~~synergistic interactions. Our~~create a healthier, kinder, more

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

execution of our vertically integrated business model and ~~role as~~differentiated strategy, Sleep Number is at the forefront of

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

beds ~~allows us~~and SleepIQ® technology, Sleep Number is uniquely equipped to offer ~~consumers~~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, 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 we have

anticipated since the 2012 inception of our consumer innovation strategy and which were accelerated by the global

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

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

We are committed to delivering superior shareholder value by: (1) increasing consumer demand; (2) leveraging our business model; and (3) deploying capital efficiently.

COVID-19 Pandemic - Impact on our Business

AtThe COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the ~~onset~~first quarter of 2021, even with the COVID-19 ~~pandemic in mid-March 2020, government restrictions resulted in~~challenges, we generated strong demand and financial performance. In the ~~temporary closure of most of our retail stores, with 47% of our stores closed on average during the second~~first quarter of ~~2020. While prioritizing~~2022, our financial performance was impacted by: (i) the ~~safety~~disruptive flow of semiconductor chips which affected our ~~team, serving~~ability to deliver products to our customers and ~~ensuring business continuity, we swiftly took decisive actions to strengthen~~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 ~~liquidity, cash flows~~long- and ~~financial position,~~near-term innovations and ~~mitigate the future impact on our operations and financial performance.~~

demand drivers, partly offset by cost containment actions. The COVID-19 pandemic mainly impacted our second quarter of 2020 financial performance, as we generated strong financial performance during the full-year of 2020 and the first six months of 2021. However, 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 ~~See~~ Part I:II, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~of this Quarterly Report on Form 10-Q~~ and Part I:II: Item 1A. Risk Factors in ~~our Annual Report on Form 10-K for the fiscal year ended January 2, 2021~~, for additional discussion on the COVID-19 pandemic and the impact on our 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, 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, timing of new product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity costs, 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 ~~condensed~~ consolidated financial results ~~are impacted~~ 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 three months ended ~~July 3, 2021~~April 2, 2022 were as follows:

•Net sales for the three months ended ~~July 3, 2021 increased 70%~~April 2, 2022 decreased 7% to ~~$484~~$527 million, compared with ~~$285 million for the COVID-19 affected period in 2020. Net sales for the current quarter increased 36% compared with $356~~$568 million for the three months ended ~~June 29, 2019. Supply~~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 ~~late in the second quarter limited 2021~~continued to impact our delivered net sales for the three months ended ~~July 3, 2021.~~April 2, 2022.

•The ~~70%~~7% net sales ~~increase~~decrease consisted of ~~a 65%~~an 11% comparable sales ~~increase~~decline in Total Retail ~~and~~offset by sales from 2346 net new stores opened in the past 12 months that added 54 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page ~~15.~~15.

•Sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a trailing ~~twelve-months~~twelve-month basis for the period ended ~~July 3, 2021~~April 2, 2022 totaled $3.5 million, ~~25%~~9% higher than the same period last year.

•Operating income for the three months ended ~~July 3, 2021~~April 2, 2022 was ~~$30 million, an increase of $42~~$4 million, compared with ~~the $12~~$76 million ~~operating loss~~ in the prior-year period. The ~~$42~~$72 million ~~increase~~decrease in operating income was driven by the ~~70% increase~~7% decrease in net sales constrained by semiconductor chip supply, a ~~3.3~~7.3 ppt. ~~improvement in the gross profit rate and a 7.2 ppt. reduction~~increase in our operating expenses ~~rate. Operating income for the current quarter increased 310% compared with $7 million for the same period~~rate, and a 5.3 ppt. decrease in our gross profit rate that was negatively affected by cost pressures and an unfavorable mix of ~~2019.~~smart bed deliveries as constrained by semiconductor chip supply.

•The ~~3.3~~5.3 ppt. gross profit rate ~~improvement~~decrease was primarily ~~resulted from the leveraging impact of the 70% net sales increase and a more favorable sales mix of higher-margin products, partially offset by $13 million of~~due to incremental costs from labor and material inflation, and ~~expediting costs.~~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 ~~7.2~~7.3 ppt. ~~reduction~~increase in our operating expenses rate was ~~mainly~~partially due to the ~~leveraging~~deleveraging impact of the ~~70%~~7% net sales ~~increase and digitally-led operating efficiencies. During the three months ended July 3, 2021,~~decline. In addition, we continued to prioritize investments in near- and long-term growth drivers, including $16 million of R&D expenses ~~93%~~during the three months ended April 2, 2022, 23% more than the same period one year ago.

•Net income for the three months ended ~~July 3, 2021 increased~~April 2, 2022 decreased to ~~$22~~$2 million, compared with ~~a net loss of $13~~$67 million for the same period one year ago. Net income per diluted share was ~~$0.88,~~$0.09, compared with ~~a net loss per diluted share of $0.45~~$2.51 last year.

•We achieved a return on invested capital (ROIC) of ~~33%~~20.5% on a trailing twelve-month basis for the period ended ~~July 3, 2021,~~April 2, 2022, compared with ~~17%~~27.6% for the comparable period one year ago.

•Cash provided by operating activities for the ~~six~~three months ended ~~July 3, 2021 increased by $74 million, or 86%,~~April 2, 2022 decreased to ~~$161~~$25 million, compared with ~~$87~~$112 million for the same period one year ago.

•~~At July 3, 2021,~~As of April 2, 2022, we had ~~$382~~$413 million of borrowings under our revolving credit ~~facility.~~ ~~Net~~facility and available net liquidity ~~available under our revolving credit facility was $214 million at~~ ~~July 3, 2021~~.of $406 million.

•
On April 21, 2021, we amended our revolving credit facility to expand the aggregate availability from $450 million to $600 million. We also replenished our outstanding share repurchase authorization to $600 million effective at the beginning of the fiscal second quarter, April 4, 2021. We remain committed to our capital deployment priorities focused on performance drivers.


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								Six Months Ended									Three Months Ended
		July 3, 2021				June 27, 2020				July 3, 2021				June 27, 2020					April 2, 2022				April 3, 2021
Net sales	Net sales	$	484.3	100.0	%	$	284.9	100.0	%	$	1,052.6	100.0	%	$	757.5	100.0	%	Net sales	$	527.1	100.0	%	$	568.3	100.0	%
Cost of sales	Cost of sales	191.5		39.5	%	121.9		42.8	%	403.8		38.4	%	292.4		38.6	%	Cost of sales	224.8		42.7	%	212.3		37.4	%
Gross profit	Gross profit	292.9		60.5	%	163.0		57.2	%	648.8		61.6	%	465.1		61.4	%	Gross profit	302.3		57.3	%	355.9		62.6	%
Operating expenses:	Operating expenses:																	Operating expenses:
Sales and marketing	Sales and marketing	206.0		42.5	%	130.2		45.7	%	429.6		40.8	%	337.9		44.6	%	Sales and marketing	240.3		45.6	%	223.6		39.4	%
General and administrative	General and administrative	41.2		8.5	%	36.7		12.9	%	83.8		8.0	%	67.8		8.9	%	General and administrative	41.3		7.8	%	42.6		7.5	%
Research and development	Research and development	15.9		3.3	%	8.3		2.9	%	29.2		2.8	%	18.8		2.5	%	Research and development	16.3		3.1	%	13.3		2.3	%
Total operating expenses	Total operating expenses	263.1		54.3	%	175.1		61.5	%	542.6		51.6	%	424.5		56.0	%	Total operating expenses	297.9		56.5	%	279.5		49.2	%
Operating income (loss)		29.7		6.1	%	(12.1)		(4.3	%)	106.1		10.1	%	40.7		5.4	%
Operating income																		Operating income	4.4		0.8	%	76.4		13.4	%
Interest expense, net	Interest expense, net	1.6		0.3	%	3.9		1.4	%	2.6		0.2	%	6.3		0.8	%	Interest expense, net	2.1		0.4	%	1.0		0.2	%
Income (loss) before income taxes		28.1		5.8	%	(16.1)		(5.6	%)	103.6		9.8	%	34.4		4.5	%
Income tax expense (benefit)		5.9		1.2	%	(3.4)		(1.2	%)	14.7		1.4	%	7.9		1.0	%
Net income (loss)		$	22.3	4.6	%	$	(12.6)	(4.4	%)	$	88.9	8.4	%	$	26.5	3.5	%
Income before income taxes																		Income before income taxes	2.3		0.4	%	75.4		13.3	%
Income tax expense																		Income tax expense	0.2		—	%	8.8		1.6	%
Net income																		Net income	$	2.1	0.4	%	$	66.6	11.7	%

Net income (loss) per share:
Net income per share:																		Net income per share:
Basic	Basic	$	0.91			$	(0.45)			$	3.57			$	0.95			Basic	$	0.09			$	2.63
Diluted	Diluted	$	0.88			$	(0.45)			$	3.44			$	0.93			Diluted	$	0.09			$	2.51

Weighted-average number of common shares:	Weighted-average number of common shares:																	Weighted-average number of common shares:
Basic	Basic	24.4				27.9				24.9				27.9				Basic	22.8				25.4
Diluted	Diluted	25.2				27.9				25.9				28.5				Diluted	23.6				26.5

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


		Three Months Ended				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Retail stores	Retail stores	88.1	%	72.2	%	87.0	%	84.6	%	Retail stores	84.3	%	86.1	%
Online, phone, chat and other	Online, phone, chat and other	11.9	%	27.8	%	13.0	%	15.4	%	Online, phone, chat and other	15.7	%	13.9	%
Total Company	Total Company	100.0	%	100.0	%	100.0	%	100.0	%	Total Company	100.0	%	100.0	%

The components of total net sales change, including comparable net sales changes, were as follows:


		Three Months Ended				Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Sales change rates:	Sales change rates:									Sales change rates:
Retail comparable-store sales (1)	Retail comparable-store sales (1)	102	%	(40	%)	41	%	(14	%)	Retail comparable-store sales (1)	(14	%)	12	%
Online, phone and chat	Online, phone and chat	(28	%)	209	%	17	%	107	%	Online, phone and chat	5	%	116	%
Total Retail comparable sales change (1)	Total Retail comparable sales change (1)	65	%	(21	%)	37	%	(5	%)	Total Retail comparable sales change (1)	(11	%)	20	%
Net opened/closed stores and other	Net opened/closed stores and other	5	%	1	%	2	%	2	%	Net opened/closed stores and other	4	%	—	%
Total Company	Total Company	70	%	(20	%)	39	%	(3	%)	Total Company	(7	%)	20	%

___________________________

(1)Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base.


15 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Other sales metrics were as follows:


		Three Months Ended						Six Months Ended					Three Months Ended
		July 3, 2021			June 27, 2020			July 3, 2021		June 27, 2020			April 2, 2022			April 3, 2021
Average sales per store (1)(4) ($ in thousands)		$	3,542		$	2,830
Average sales per store (1) (in thousands)												Average sales per store (1) (in thousands)	$	3,487		$	3,196
Average sales per square foot ~~(4)~~(1)	Average sales per square foot ~~(4)~~(1)	$	1,203		$	988						Average sales per square foot ~~(4)~~(1)	$	1,167		$	1,095
Stores > $2 million in net sales ~~(4)~~(2)	Stores > $2 million in net sales ~~(4)~~(2)	82		%	63		%					Stores > $2 million in net sales ~~(4)~~(2)	82		%	71		%
Stores > $3 million in net sales ~~(4)~~(2)	Stores > $3 million in net sales ~~(4)~~(2)	47		%	25		%					Stores > $3 million in net sales ~~(4)~~(2)	46		%	33		%
Average revenue per mattress unit (3)		$	5,094		$	4,767		$	5,059	$	4,839
Average revenue per smart bed unit (3)												Average revenue per smart bed unit (3)	$	4,905		$	5,030

___________________________

(1)Trailing-twelve months Total Retail comparable sales per store open at least one year.

(2)Trailing-twelve months for stores open at least one year (excludes online, phone and chat sales).

(3)Represents Total Retail ~~(stores, online, phone and chat)~~ net sales divided by Total Retail ~~mattress~~smart bed units.

~~(4)~~
Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2021 and 2019. The additional week in 2020 was in the fiscal fourth quarter. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week on those metrics.

The number of retail stores operating was as follows:


		Three Months Ended		Six Months Ended			Three Months Ended
		July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020		April 2, 2022	April 3, 2021
Beginning of period	Beginning of period	607	611	602	611	Beginning of period	648	602
Opened	Opened	26	6	37	14	Opened	13	11
Closed	Closed	(12)	(19)	(18)	(27)	Closed	(8)	(6)
End of period	End of period	621	598	621	598	End of period	653	607


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

Comparison of Three Months Ended ~~July 3, 2021~~April 2, 2022 with Three Months Ended ~~June 27, 2020~~April 3, 2021

Net sales

Net sales for the three months ended ~~July 3, 2021 increased~~April 2, 2022 decreased by ~~$199~~$41 million, or ~~70%~~7%, to ~~$484~~$527 million, compared with ~~$285~~$568 million for the same period one year ~~ago, which~~ago. Demand was negatively impacted by acute macro factors including the COVID-19 ~~pandemic, ensuing government restrictions~~variant in January and ~~temporary closure of 47% of~~war in Ukraine in March. Global supply constraints negatively impacted our retail stores on average. Net sales for the current quarter increased 36% compared with $356 million for the three months ended June 29, 2019. Supply constraints late in the second quarter limited 2021 delivered net sales for the three months ended ~~July 3, 2021.~~April 2, 2022.

The ~~70%~~7% net sales ~~increase~~decrease consisted primarily of ~~a 65%~~an 11% comparable sales ~~increase~~decline in Total Retail ~~and~~offset by sales from 2346 net new stores opened in the past 12 months that added 54 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page ~~15.~~15.

The ~~$199~~$41 million net sales ~~increase~~decline compared with the same period one year ago was comprised of the following: (i) a ~~$178~~$59 million ~~increase~~decrease in our Total Retail comparable net sales; and (ii) ~~a $21~~an $18 million increase from net store openings. Total Retail ~~mattress~~smart bed unit sales ~~increased 59%~~decreased 5% compared with the prior year. Total Retail average revenue per ~~mattress~~smart bed unit ~~increased~~decreased by 7%2% to ~~$5,094,~~$4,905, compared with ~~$4,767~~$5,030 in the prior-year ~~period.~~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 product line.

Gross profit

Gross profit of ~~$293~~$302 million ~~increased~~for the three months ended April 2, 2022 decreased by ~~$130~~$54 million, or ~~80%~~15%, compared with ~~$163~~$356 million for the same period one year ago. The gross profit rate ~~improved~~declined to ~~60.5%~~57.3% of net sales for the three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~57.2%~~62.6% for the prior-year comparable period.

The current-year gross profit rate ~~improvement~~decrease of ~~3.3~~5.3 ppt. was mainly due to: (i) ~~leverage from the 70% net sales increase, combined with a more favorable sales mix of higher-margin products (3.8 ppt.), partially offset by $13 million of~~ incremental costs from labor and material inflation and ~~expediting costs. The prior-year's gross profit rate was impacted by COVID-19 related~~ inefficiencies ~~including~~resulting from current-period global supply chain shortages (4.2 ppt.); (ii) the ~~lower~~deleverage from the 7% net sales ~~volumes. Our prior-year's~~decrease; and (iii) a less favorable sales mix ~~was negatively impacted by temporary store closures~~of lower-margin products due to supply constraints impacting smart bed deliveries at the ~~pandemic;~~higher end of our product line. These pressures were partially offset by ~~(ii) inflationary cost pressures and higher supply chain costs associated with current-year temporary supply constraints (0.7~~pricing actions taken over the past twelve months (1.7 ppt.). In addition, our gross profit rate will fluctuate from quarter to quarter due to a variety of other factors, including return and exchange costs, and changes in performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the three months ended ~~July 3, 2021~~April 2, 2022 were ~~$206~~$240 million, or ~~42.5%~~45.6% of net sales, compared with ~~$130~~$224 million, or ~~45.7%~~39.4% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate ~~decrease~~increase of ~~3.2~~6.2 ppt. was primarily due to: (i) the ~~leveraging~~deleveraging impact of the ~~70%~~7% net sales ~~increase;~~decrease as constrained by semiconductor chip supply; (ii) addition of 46 net new stores; and ~~(ii) efficiency gains through our digital ecosystem and operating initiatives. Efficiency gains and operating initiatives included improved store operating productivity.~~(iii) increased marketing expenses resulting from a 9% increase in media expenses.

General and administrative expenses

General and administrative (G&A) expenses totaled $41 million, or ~~8.5%~~7.8% of net sales, for the three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~$37~~$43 million, or ~~12.9%~~7.5% of net sales, in the prior-year period. The ~~$4.5~~$1.3 million ~~increase~~decrease in G&A expenses consisted ~~primarily~~mainly of: (i) a ~~$2.2~~$6.7 million ~~increase~~decrease in employee compensation primarily resulting from ~~the growth of our business (prior year included the temporary and permanent elimination of certain roles due to changing business needs based on the COVID-19 pandemic);~~a year-over-year decrease in Company-wide performance-based incentive compensation; offset by (ii) a ~~$1.8~~$5.4 million ~~increase in professional and consulting expenses; and (iii) a $0.5 million net~~ increase in other miscellaneous ~~expenses.~~expenses, including technology investments and travel expenses (minimal travel in the prior year due to the pandemic). The G&A expenses rate ~~decreased~~increased by ~~4.4~~0.3 ppt. in the current-year period, compared with the same period one year ago due to ~~leveraging~~the deleveraging impact of the ~~70%~~7% net sales ~~increase, partially offset by~~decrease, in addition to the items discussed above.

Research and development expenses

Research and development (R&D) expenses increased by ~~93%~~23% to $16 million for the three months ended ~~July 3, 2021,~~April 2, 2022, compared with $8$13 million for the same period last year as we continued to prioritize our long-term innovation initiatives.


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

Interest expense ~~net~~

Interest expense, net ~~decreased~~increased to ~~$1.6~~$2 million for the three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~$3.9~~$1 million for the same period one year ago. The ~~$2.3~~$1 million ~~decrease~~increase was mainly driven by a ~~reduction in the weighted-average interest rate on borrowings and a lower~~higher level of outstanding borrowings during the three months ended ~~July 3,~~April 2, 2022 compared with the same period in 2021, and a higher weighted-average interest rate compared with the same period one year ago. ~~In March 2020, we fully drew down our credit line and secured a $75 million term loan to increase liquidity and preserve financial flexibility during the COVID-19 disruption.~~

Income tax expense

Income tax expense totaled ~~$5.9~~$0.2 million for the three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~a $3.4~~$8.8 million ~~tax benefit~~ last year. The effective income tax rate for the three months ended ~~July 3, 2021 decreased to 20.9%~~April 2, 2022 was 9.4%, compared with ~~21.4%~~11.7% for the comparable period last ~~year, reflecting greater~~year. Discrete tax benefits, primarily stock-based compensation excess tax benefits, ~~in the current-year three-month period.~~

~~Comparison of Six Months Ended July 3, 2021 with Six Months Ended June 27, 2020~~

~~Net sales~~

~~Net sales for the six months ended July 3, 2021 increased by $295 million, or 39%, to $1.1 billion, compared with $758~~were $0.4 million for the same period one year ago, which were impacted by the COVID-19 pandemic, ensuing government restrictions and temporary closure of 47% of our retail stores on average. Net sales for the current year-to-date period increased 35%three months ended April 2, 2022, compared with ~~$782~~$10.0 million ~~for the same period of 2019. Supply constraints late~~ in ~~the second quarter limited 2021 delivered net sales for the six months ended July 3, 2021.~~

The 39% net sales increase consisted of a 37% comparable sales increase in Total Retail in addition to 2 percentage points (ppt.) of sales growth from net new stores opened in the past 12 months. For additional details, see the components of total net sales change on page 15.

The $295 million net sales increase compared with the same period one year ago was comprised of the following: (i) a $249 million increase in our Total Retail comparable net sales; (ii) a $26 million increase resulting from net store openings; and (iii) a $20 million increase in phone, online, chat and other sales. Total Retail mattress unit sales increased 33%, compared with the prior year. Average revenue per mattress unit in Total Retail increased by 5% to $5,059, compared with $4,839 in the prior-year period.

~~Gross profit~~

Gross profit of $649 million increased by $184 million, or 39%, compared with $465 million for the same period one year ago. The gross profit rate improved to 61.6% of net sales for the six months ended July 3, 2021, compared with 61.4% for the prior-year comparable period. The current-year gross profit rate improvement of 0.2 ppt. was mainly due to: (i) leverage from the 39% net sales increase combined with a more favorable sales mix of higher-margin products (1.1 ppt.), partially offset by $13 million of incremental costs from labor and material inflation, and expediting costs in the secondlast year’s first quarter. Our prior-year's sales mix was negatively impacted by temporary store closures due to the pandemic; partially offset by (ii) inflationary cost pressures and higher supply chain costs associated with current-year temporary supply constraints (0.7 ppt.). In addition, our gross profit rate will fluctuate from quarter to quarter due to a variety of other factors, including return and exchange costs, and changes in performance-based incentive compensation.

~~Sales and marketing expenses~~

Sales and marketing expenses for the six months ended July 3, 2021 were $430 million, or 40.8% of net sales, compared with $338 million, or 44.6% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate decrease of 3.8 ppt. was primarily due to: (i) the leveraging impact of the 39% net sales increase; and (ii) efficiency gains through our digital ecosystem and operating initiatives. Efficiency gains and operating initiatives included improved store operating productivity.

~~General and administrative expenses~~

General and administrative (G&A) expenses totaled $84 million, or 8.0% of net sales, for the six months ended July 3, 2021, compared with $68 million, or 8.9% of net sales, in the prior-year period. The $16 million increase in G&A expenses consisted of: (i) a $9 million year-over-year increase in company-wide performance-based incentive compensation; (ii) a $7 million increase in employee compensation resulting from the growth of our business (prior year included the temporary and permanent elimination of certain roles due to changing business needs based on the COVID-19 pandemic); and (iii) $2 million of higher professional and consulting fees; partially offset by (iv) a $2 million reduction in travel expenses and other miscellaneous expenses. The G&A expenses

rate decreased by 0.9 ppt. in the current-year period, compared with the same period one year ago due to the leveraging impact of the 39% net sales increase, partially offset by the items discussed above.

~~Research and development expenses~~

Research and development (R&D) expenses increased by 56% to $29 million for the six months ended July 3, 2021, compared with $19 million for the same period one year ago. The R&D expense rate for the six months ended July 3, 2021 increased to 2.8% of net sales, compared with 2.5% of net sales for the prior year. The spending level increase supports our ongoing consumer innovation strategy.

~~Interest expense, net~~

Interest expense, net decreased to $2.6 million for the six months ended July 3, 2021, compared with $6.3 million for the same period one year ago. The $3.7 million decrease was mainly driven by a reduction in the weighted-average interest rate on borrowings and a lower level of outstanding borrowings during the six months ended July 3, 2021, compared with the same period one year ago. In March 2020, we fully drew down our credit line and secured a $75 million term loan to increase liquidity and preserve financial flexibility during the COVID-19 disruption.

~~Income tax expense~~

Income tax expense totaled $15 million for the six months ended July 3, 2021, compared with $8 million last year. The effective income tax rate for the six months ended July 3, 2021 decreased to 14.2%, compared with 22.9% for the comparable period last year, reflecting higher stock-based compensation excess tax benefits in the current-year six-month period.

Liquidity and Capital Resources

Managing our liquidity and capital resources is an important part of our commitment to deliver superior shareholder value over time. Our primary sources of liquidity are cash flows provided by operating activities and cash available under our ~~$600~~$825 million revolving credit ~~facility (increased from $450 million to $600 million as~~facility. As of April ~~21, 2021).~~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.

Changes in cash and cash equivalents during the ~~six~~three months ended ~~July 3, 2021~~April 2, 2022 primarily consisted of ~~$161~~$25 million of cash provided by operating activities and a ~~$146~~$45 million net increase in short-term borrowings, offset by ~~$32~~$20 million of cash used to purchase property and equipment, and ~~$281~~$51 million of cash used to repurchase our common stock (based on settlement, ~~$264~~$42 million under our Board-approved share repurchase program and ~~$17~~$9 million in connection with the vesting of employee restricted stock grants).

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


		Six Months Ended					Three Months Ended
		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021
Total cash provided by (used in):	Total cash provided by (used in):					Total cash provided by (used in):
Operating activities	Operating activities	$	161.4	$	87.0	Operating activities	$	24.6	$	111.6
Investing activities	Investing activities	(32.0)		(22.6)		Investing activities	(19.6)		(11.5)
Financing activities	Financing activities	(131.5)		(64.3)		Financing activities	(5.8)		(102.1)
Net (decrease) increase in cash and cash equivalents		$	(2.1)	$	0.1
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	$	(0.8)	$	(2.0)

Cash provided by operating activities for the ~~six~~three months ended ~~July 3, 2021~~April 2, 2022 was ~~$161~~$25 million, compared with ~~$87~~$112 million for the ~~six~~three months ended ~~June 27, 2020.~~April 3, 2021. Significant components of the year-over-year change in cash provided by operating activities included: (i) a ~~$62~~$65 million ~~increase~~decrease in net income for the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, compared with the same period one year ago; (ii) a $38 million change in accounts payable due to higher business activity in the current-year period and timing of vendor payments; (iii) a $30 million fluctuation in customer prepayments due to strong customer demand and temporary supply constraints which extended customer delivery timelines during the current-year period; (iv) a $20$14 million fluctuation in prepaid expenses and other assets due to both periods being impacted by the timing of rent payments and ~~prior-year's~~a reduction in business activities due to the pandemic; (iii) a $12 million change in other accruals and liabilities due to the timing of payments; (iv) a $10 million fluctuation in accounts payable with both periods impacted by business changes and timing of payments; and (v) a ~~$15~~$9 million fluctuation in the amount of 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 ~~$32~~$20 million for the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~$22~~$12 million for the same period one year ago. The year-over-year increase was primarily due to ~~higher~~the timing of cash flows associated with new and remodeled stores’ property and equipment, ~~purchases for new~~ and ~~remodeled stores. Prior-year property and equipment purchases reflect actions taken to temporarily reduce capital spending based on the economic uncertainties associated with the pandemic.~~investments in information technology.

Net cash used in financing activities was ~~$131~~$6 million for the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, compared with ~~$64~~$102 million for the same period last year. During the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, we repurchased ~~$281~~$51 million of


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

our stock (based on settlement dates, ~~$264~~$42 million under our Board-approved share repurchase program and ~~$17~~$9 million in connection with the vesting of employee restricted stock awards), compared with ~~$42~~$179 million during the same period one year ago. ~~Based on the uncertainty surrounding the impact of COVID-19, in March 2020 we temporarily suspended share repurchases.~~ Short-term borrowings increased by ~~$146~~$45 million during the current-year period due to a ~~$138~~$31 million increase in borrowings under our revolving credit facility to ~~$382~~$413 million and a $8$14 million increase in book overdrafts which are included in the net change in short-term borrowings. Short-term borrowings ~~decreased~~increased by ~~$26~~$74 million during the prior-year period due to a $4$71 million ~~decrease~~increase in borrowings under our credit facility to ~~$227~~$315 million and a ~~decrease~~$3 million increase in book ~~overdrafts which are included in the net change in short-term borrowings.~~overdrafts.

Under our Board-approved share repurchase program, we repurchased ~~2.1~~0.7 million shares at a cost of ~~$267~~$42 million (based on trade dates, an average of ~~$125.86~~$63.95 per share) during the ~~six~~three months ended ~~July 3, 2021.~~April 2, 2022. During the ~~six~~three months ended ~~June 27, 2020,~~April 3, 2021, we repurchased ~~0.8~~1.2 million shares at a cost of ~~$38~~$167 million (based on trade dates, an average of ~~$49.42~~$136.27 per share). There is no expiration date governing the period over which we can repurchase shares. ~~Effective as of~~At April ~~4, 2021,~~2, 2022, there is $361 million remaining authorization under our ~~Board approved an increase in our total remaining~~Board-approved $600 million share repurchase ~~authorization to $600 million.~~program.

As of ~~July 3, 2021,~~April 2, 2022, we had ~~$382~~$413 million of borrowings under our revolving credit facility. We also had $4$6 million in outstanding letters of credit. Net liquidity available under our credit facility was ~~$214~~$406 million at ~~July 3, 2021~~.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 (3.0x). Our leverage ratio as defined in our credit agreement was ~~2.2x~~3.4x as of ~~July 3, 2021~~. 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 ~~July 3, 2021,~~April 2, 2022, the weighted-average interest rate on borrowings under the credit facility was ~~1.6%~~2.2% and we were in compliance with all financial covenants.

On April 21, 2021, we amended our revolving credit facility to increase our net aggregate availability from $450 million to $600 million. We maintain the accordion feature which allows us to increase the amount of the credit facility from $600 million to $800 million, subject to lenders’ approval. The amended credit facility matures in February 2024. There were no other significant changes to the credit facility’s terms and conditions.

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 financial covenants consistent with our credit facility, including a maximum leverage ratio and a minimum interest coverage ~~ratio consistent with our credit agreement.~~ratio. As of ~~July 3, 2021,~~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 (in thousands):


						Three Months Ended						Trailing-Twelve Months Ended
		Three Months Ended					Fifty-Three Weeks Ended		Fifty-Two Weeks Ended			April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
		July 3, 2021		June 27, 2020			July 3, 2021		June 27, 2020
Net income (loss)		$	22,250	$	(12,630)		$	201,563	$	78,657
Income tax expense (benefit)		5,864		(3,435)			43,564		22,141
Net income											Net income	$	2,074	$	66,634	$	89,186	$	166,683
Income tax expense											Income tax expense	214		8,812		24,947		34,265
Interest expense	Interest expense	1,607		4,022			5,227		12,131		Interest expense	2,127		978		7,394		7,642
Depreciation and amortization	Depreciation and amortization	15,006		15,253			59,802		60,951		Depreciation and amortization	15,683		14,519		60,943		60,049
Stock-based compensation	Stock-based compensation	5,968		5,033			27,114		15,853		Stock-based compensation	4,133		6,417		20,930		26,179
Asset impairments	Asset impairments	—		246			142		294		Asset impairments	103		89		186		388
Adjusted EBITDA	Adjusted EBITDA	$	50,695	$	8,489		$	337,412	$	190,027	Adjusted EBITDA	$	24,334	$	97,449	$	203,586	$	295,206

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 (in thousands):


		Six Months Ended				Fifty-Three Weeks Ended		Fifty-Two Weeks Ended			Three Months Ended				Trailing-Twelve Months Ended
		July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			April 2, 2022		April 3, 2021		April 2, 2022		April 3, 2021
Net cash provided by operating activities	Net cash provided by operating activities	$	161,420	$	87,001	$	354,080	$	205,814	Net cash provided by operating activities	$	24,558	$	111,598	$	212,970	$	306,318
Subtract: Purchases of property and equipment	Subtract: Purchases of property and equipment	32,012		21,695		47,417		47,038		Subtract: Purchases of property and equipment	19,604		11,546		74,958		38,295
Free cash flow	Free cash flow	$	129,408	$	65,306	$	306,663	$	158,776	Free cash flow	$	4,954	$	100,052	$	138,012	$	268,023


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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:


		Fifty-Three Weeks Ended			Fifty-Two Weeks Ended				Trailing-Twelve Months Ended
		July 3, 2021			June 27, 2020				April 2, 2022			April 3, 2021
Net operating profit after taxes (NOPAT)	Net operating profit after taxes (NOPAT)							Net operating profit after taxes (NOPAT)
Operating income	Operating income	$	250,352		$	112,831		Operating income	$	121,527		$	208,506
Add: Rent expense (1)	Add: Rent expense (1)	95,226			90,349			Add: Rent expense (1)	104,937			92,650
Add: Interest income	Add: Interest income	2			97			Add: Interest income	—			84
Less: Depreciation on capitalized operating leases (2)	Less: Depreciation on capitalized operating leases (2)	(24,577)			(23,331)			Less: Depreciation on capitalized operating leases (2)	(26,311)			(24,258)
Less: Income taxes (3)	Less: Income taxes (3)	(76,939)			(42,735)			Less: Income taxes (3)	(47,503)			(66,118)
NOPAT	NOPAT	$	244,064		$	137,211		NOPAT	$	152,650		$	210,864

Average invested capital	Average invested capital							Average invested capital
Total deficit	Total deficit	$	(403,658)		$	(163,018)		Total deficit	$	(469,213)		$	(332,650)

Add: Long-term debt (4)	Add: Long-term debt (4)	382,794			227,944			Add: Long-term debt (4)	413,709			315,522
Add: Capitalized operating lease obligations (5)	Add: Capitalized operating lease obligations (5)	761,808			722,792			Add: Capitalized operating lease obligations (5)	839,496			741,200
Total invested capital at end of period	Total invested capital at end of period	$	740,944		$	787,718		Total invested capital at end of period	$	783,992		$	724,072

Average invested capital (6)	Average invested capital (6)	$	733,151		$	797,862		Average invested capital (6)	$	746,167		$	763,227

Return on invested capital (ROIC) (7)	Return on invested capital (ROIC) (7)	33.3		%	17.2		%	Return on invested capital (ROIC) (7)	20.5		%	27.6		%

___________________________

(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 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 ~~24.0%~~23.7% and ~~23.7%~~23.9% for ~~2021~~2022 and ~~2020,~~2021, respectively.

(4)Long-term debt includes existing finance lease liabilities.

(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.

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

(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.


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Index

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

As of ~~July 3, 2021,~~April 2, 2022, we were not involved in any unconsolidated special purpose entity transactions. Other than our $4$6 million in outstanding letters of credit, we do not have any off-balance-sheet financing.

There have been no material changes in our contractual obligations ~~other than the amendments to our credit agreement,~~ since the end of fiscal ~~2020.~~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 January ~~2, 2021~~1, 2022 for additional information regarding our other contractual obligations.

Critical Accounting Policies

We discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January ~~2, 2021.~~1, 2022. There were no significant changes in our critical accounting policies since the end of fiscal ~~2020.~~2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to changes in market-based short-term interest rates that will impact our net interest expense. If overall interest rates were one percentage point higher than current rates, our annual net income would decrease by ~~$2.9~~$3.1 million based on the ~~$382~~$413 million of borrowings under our credit facility at ~~July 3, 2021.~~April 2, 2022. We do not manage the interest-rate volatility risk of borrowings under our credit facility through the use of derivative instruments.

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 Control

There were no changes in our internal control over financial reporting during the fiscal quarter ended ~~July 3, 2021,~~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

Our legal proceedings are discussed in Note 12, Commitments and Contingencies, Legal Proceedings, in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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)
April 4, 2021 through May 1, 2021 182,833 $ 118.52 181,923 $ 578,438,000
May 2, 2021 through May 29, 2021 329,735 $ 108.23 329,468 $ 542,779,000
May 30, 2021 through July 3, 2021 386,128 $ 111.20 384,840 $ 499,985,000
Total 898,696 $ 111.59 896,231 $ 499,985,000


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 ~~0.9~~0.7 million shares of our common stock at a cost of ~~$100~~$42 million (based on trade dates) during the three months ended ~~July 3, 2021.~~April 2, 2022.

(2)In connection with the vesting of employee restricted stock grants, we repurchased ~~2,465~~151,815 shares of our common stock at a cost of ~~$0.3~~$8.7 million during the three months ended ~~July 3, 2021.~~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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.


23 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

ITEM 6. EXHIBITS


Exhibit Number						Description
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
31.2*						Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2*						Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101.INS*						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the 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 Exhibit 101)

* Filed Herewith


24 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION

Index

SIGNATURES

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


		SLEEP NUMBER CORPORATION
		(Registrant)

Dated:	~~July 30, 2021~~April 29, 2022	By:	/s/ Shelly R. Ibach
			Shelly R. Ibach
			Chief Executive Officer
			(principal executive officer)

		By:	/s/ ~~Robert~~Joel J. ~~Poirier~~Laing
			~~Robert~~Joel J. ~~Poirier~~Laing
			Chief Accounting Officer
			(principal accounting officer)


25 \| 1Q 2022 FORM 10-Q						SLEEP NUMBER CORPORATION


		Page

PART I: FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Shareholders' Deficit	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2322
Item 4.	Controls and Procedures	2322

PART II: OTHER INFORMATION		2423

Item 1.	Legal Proceedings	2423
Item 1A.	Risk Factors	2423
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2423
Item 3.	Defaults Upon Senior Securities	2423
Item 4.	Mine Safety Disclosures	2423
Item 5.	Other Information	2423
Item 6.	Exhibits	2524
SIGNATURES		2625


2021 (excluding the six months ended July 3, 2021)	$	45,819
2022	85,828
2023	75,838
2024	64,013
2025	54,458
2026	43,974
Thereafter	92,392
Total operating lease payments(2)	462,322
Less: Interest	82,942
Present value of operating lease liabilities(3)	$	379,380