Business Wire | Apr 21, 2021 04:01PM EDT

Sleep Number Announces Record First Quarter 2021 Results

Apr. 21, 2021

MINNEAPOLIS--(BUSINESS WIRE)--Apr. 21, 2021--Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended April 3, 2021.

"Guided by our purpose to improve the health and wellbeing of society through higher quality sleep, Sleep Number is broadening our brand relevance and driving significant performance acceleration," said Shelly Ibach, President and CEO. "Our first-quarter demand growth of greater than 30% demonstrates consumers' enthusiastic response to our sleep science-based innovations, digital solutions and authentic mission-driven culture. Sleep Number is improving millions of lives through better quality sleep, while delivering exceptional value for all stakeholders."

First Quarter Overview

* Net sales increased 20% to $568 million with a 20% comparable store sales gain; more than $50 million of deliveries (two weeks) shifted out of the quarter due to temporary foam supply constraints * Gross profit increased 18% to a record $356 million or 62.6% of net sales * Operating income increased 45% to $76 million, or 13.4% of net sales, up 220 bp versus the prior-year's first quarter * Earnings per diluted share increased 85% to a record $2.51

Cash Flows and Liquidity Review

* Generated $112 million in net cash from operating activities in the first quarter, up 31% versus the prior year; invested $12 million in capital expenditures and $167 million in Sleep Number stock * Leverage ratio of 2.3x EBITDAR at the end of the first quarter, compared with 2.6x a year ago * Increased return on invested capital (ROIC) to 27.6% for the trailing twelve-month period, up 850 bp versus the prior-year comparable period * Amended revolving credit facility to expand the aggregate availability from $450 million to $600 million

Share Repurchase Authorization

The company also replenished its outstanding share repurchase authorization to $600 million, effective at the beginning of the fiscal second quarter. The company remains committed to its capital deployment priorities focused on performance drivers.

Financial Outlook

The company raised its 2021 earnings per diluted share outlook to at least $6.50, which is more than 40% greater than 2020 full-year results excluding the impact of the 53rd week. The outlook assumes an estimated effective income tax rate of 25% for the balance of the year. The company expects to generate approximately $300 million of operating cash flows in 2021 with capital expenditures of approximately $75 million.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company's results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days.

About Sleep Number Corporation

Individuality is our foundation at 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 360(r) smart beds provide each sleeper with adjustable, personalized comfort for proven quality sleep. We have improved over 13 million lives as we strive to improve society's wellbeing through higher quality sleep.

Sleep science and data are the core of our innovations. Our award-winning 360 smart beds benefit from our proprietary SleepIQ(r) technology - learning from over 9 billion hours of highly accurate sleep data - to provide effortless comfort and individualized sleep health insights, including your daily SleepIQ(r) score.

For life-changing sleep, visit SleepNumber.com or one of our more than 600 Sleep Number(r) stores. More information is available on our newsroom and investor relations sites.

Forward-looking Statements

Statements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future general and industry economic trends and consumer confidence; risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic and related consequences such as supply shortages, labor disruptions, and recommendations and/or mandates from federal, state and local authorities to close certain businesses or limit occupancy or operating hours; 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 rights to protect our products and brand from competitive or infringing activities; claims that our products, processes, advertising, or trademarks infringe the intellectual property rights of others or do not comply with laws or regulations; availability of attractive and cost-effective consumer credit options; our lean 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, such as the COVID-19 pandemic, strikes and the potential for shortages in supply; risks of disruption in the operation of any of our main manufacturing facilities or assembly and distribution facilities; increasing government regulation; pending or unforeseen litigation and the potential for adverse publicity associated with litigation; 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 cybersecurity; the costs and potential disruptions to our business related to enhancing, patching, upgrading 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 or accessibility of our systems, result in a data breach or disrupt our business; and our ability 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 in the company's filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESConsolidated Statements of Operations(unaudited - in thousands, except per share amounts) Three Months Ended

April 3, % of March 28, % of

2021 Net 2020 Net Sales Sales

Net sales $ 568,256 100.0 % $ 472,566 100.0 %

Cost of sales 212,338 37.4 % 170,435 36.1 %

Gross profit 355,918 62.6 % 302,131 63.9 %

Operating expenses:Sales and marketing 223,617 39.4 % 207,744 44.0 %

General and administrative 42,592 7.5 % 31,072 6.6 %

Research and development 13,286 2.3 % 10,501 2.2 %

Total operating expenses 279,495 49.2 % 249,317 52.8 %

Operating income 76,423 13.4 % 52,814 11.2 %

Interest expense, net 977 0.2 % 2,344 0.5 %

Income before income taxes 75,446 13.3 % 50,470 10.7 %

Income tax expense 8,812 1.6 % 11,330 2.4 %

Net income $ 66,634 11.7 % $ 39,140 8.3 %

Net income per share - basic $ 2.63 $ 1.40

Net income per share - diluted $ 2.51 $ 1.36

Reconciliation of weighted-averageshares outstanding:Basic weighted-average shares 25,377 27,858outstandingDilutive effect of stock-based awards 1,167 914

Diluted weighted-average shares 26,544 28,772outstandingSLEEP NUMBER CORPORATIONAND SUBSIDIARIESConsolidated Balance Sheets(unaudited - in thousands, except per share amounts)subject to reclassificationApril 3,January 2,2021

2021

AssetsCurrent assets:Cash and cash equivalents$

2,238

$

4,243

Accounts receivable, net of allowances of $1,028 and $1,046, respectively25,923

31,871

Inventories82,308

81,362

Prepaid expenses27,189

20,839

Other current assets33,844

43,489

Total current assets171,502

181,804

Non-current assets:Property and equipment, net182,113

175,223

Operating lease right-of-use assets329,714

314,226

Goodwill and intangible assets, net72,270

72,871

Other non-current assets66,610

56,012

Total assets$

822,209

$

800,136

Liabilities and Shareholders' DeficitCurrent liabilities:Borrowings under revolving credit facility$

314,900

$

244,200

Accounts payable122,098

91,904

Customer prepayments92,569

72,017

Accrued sales returns24,610

24,765

Compensation and benefits42,185

76,786

Taxes and withholding39,098

23,339

Operating lease liabilities64,076

62,077

Other current liabilities57,833

60,856

Total current liabilities757,369

655,944

Non-current liabilities:Deferred income taxes1,757

242

Operating lease liabilities298,475

283,084

Other non-current liabilities97,258

84,844

Total non-current liabilities397,490

368,170

Total liabilities1,154,859

1,024,114

Shareholders' deficit:Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding-

-

Common stock, $0.01 par value; 142,500 shares authorized, 24,464 and 25,390 shares issued and outstanding, respectively245

254

Additional paid-in capital-

-

Accumulated deficit(332,895

)

(224,232

)

Total shareholders' deficit(332,650

)

(223,978

)

Total liabilities and shareholders' deficit$

822,209

$

800,136

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESConsolidated Balance Sheets(unaudited - in thousands, except per share amounts)subject to reclassification April 3, January 2, 2021 2021

AssetsCurrent assets:Cash and cash equivalents $ 2,238 $ 4,243

Accounts receivable, net of allowances of $1,028 25,923 31,871 and $1,046, respectivelyInventories 82,308 81,362

Prepaid expenses 27,189 20,839

Other current assets 33,844 43,489

Total current assets 171,502 181,804

Non-current assets:Property and equipment, net 182,113 175,223

Operating lease right-of-use assets 329,714 314,226

Goodwill and intangible assets, net 72,270 72,871

Other non-current assets 66,610 56,012

Total assets $ 822,209 $ 800,136

Liabilities and Shareholders' DeficitCurrent liabilities:Borrowings under revolving credit facility $ 314,900 $ 244,200

Accounts payable 122,098 91,904

Customer prepayments 92,569 72,017

Accrued sales returns 24,610 24,765

Compensation and benefits 42,185 76,786

Taxes and withholding 39,098 23,339

Operating lease liabilities 64,076 62,077

Other current liabilities 57,833 60,856

Total current liabilities 757,369 655,944

Non-current liabilities:Deferred income taxes 1,757 242

Operating lease liabilities 298,475 283,084

Other non-current liabilities 97,258 84,844

Total non-current liabilities 397,490 368,170

Total liabilities 1,154,859 1,024,114

Shareholders' deficit:Undesignated preferred stock; 5,000 shares - - authorized, no shares issued and outstandingCommon stock, $0.01 par value; 142,500 shares 245 254 authorized, 24,464 and 25,390 shares issued andoutstanding, respectivelyAdditional paid-in capital - -

Accumulated deficit (332,895 ) (224,232 )

Total shareholders' deficit (332,650 ) (223,978 )

Total liabilities and shareholders' deficit $ 822,209 $ 800,136

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESConsolidated Statements of Cash Flows(unaudited - in thousands)subject to reclassificationThree Months EndedApril 3,March 28,2021

2020

Cash flows from operating activities:Net income$

66,634

$

39,140

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization14,638

15,371

Stock-based compensation6,416

2,051

Net loss (gain) on disposals and impairments of assets78

(22

)

Deferred income taxes1,515

5,334

Changes in operating assets and liabilities:Accounts receivable5,948

12,808

Inventories(946

)

5,044

Income taxes6,847

5,798

Prepaid expenses and other assets(3,113

)

7,478

Accounts payable12,390

11,282

Customer prepayments20,552

(8,432

)

Accrued compensation and benefits(34,605

)

(13,157

)

Other taxes and withholding8,912

(479

)

Other accruals and liabilities6,332

2,725

Net cash provided by operating activities111,598

84,941

Cash flows from investing activities:Purchases of property and equipment(11,546

)

(10,351

)

Proceeds from sales of property and equipment12

25

Net cash used in investing activities(11,534

)

(10,326

)

Cash flows from financing activities:Net increase in short-term borrowings74,087

201,170

Repurchases of common stock(178,613

)

(41,445

)

Proceeds from issuance of common stock2,460

3,283

Debt issuance costs(3

)

(3

)

Net cash (used in) provided by financing activities(102,069

)

163,005

Net (decrease) increase in cash and cash equivalents(2,005

)

237,620

Cash and cash equivalents, at beginning of period4,243

1,593

Cash and cash equivalents, at end of period$

2,238

$

239,213

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESConsolidated Statements of Cash Flows(unaudited - in thousands)subject to reclassification Three Months Ended April 3, March 28, 2021 2020

Cash flows from operating activities:Net income $ 66,634 $ 39,140

Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization 14,638 15,371

Stock-based compensation 6,416 2,051

Net loss (gain) on disposals and impairments of assets 78 (22 )

Deferred income taxes 1,515 5,334

Changes in operating assets and liabilities:Accounts receivable 5,948 12,808

Inventories (946 ) 5,044

Income taxes 6,847 5,798

Prepaid expenses and other assets (3,113 ) 7,478

Accounts payable 12,390 11,282

Customer prepayments 20,552 (8,432 )

Accrued compensation and benefits (34,605 ) (13,157 )

Other taxes and withholding 8,912 (479 )

Other accruals and liabilities 6,332 2,725

Net cash provided by operating activities 111,598 84,941

Cash flows from investing activities:Purchases of property and equipment (11,546 ) (10,351 )

Proceeds from sales of property and equipment 12 25

Net cash used in investing activities (11,534 ) (10,326 )

Cash flows from financing activities:Net increase in short-term borrowings 74,087 201,170

Repurchases of common stock (178,613 ) (41,445 )

Proceeds from issuance of common stock 2,460 3,283

Debt issuance costs (3 ) (3 )

Net cash (used in) provided by financing activities (102,069 ) 163,005

Net (decrease) increase in cash and cash equivalents (2,005 ) 237,620

Cash and cash equivalents, at beginning of period 4,243 1,593

Cash and cash equivalents, at end of period $ 2,238 $ 239,213

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESSupplemental Financial Information(unaudited)Three Months EndedApril 3,March 28,2021

2020

Percent of sales:Retail stores86.1

%

92.1

%

Online, phone, chat and other13.9

%

7.9%

Total Company100.0

%

100.0

%

Sales change rates:Retail comparable-store sales12

%

6

%

Online, phone and chat116

%

21

%

Total Retail comparable sales change20

%

7

%

Net opened/closed stores and other0

%

4

%

Total Company20

%

11

%

Stores open:Beginning of period602

611

Opened11

8

Closed(6

)

(8

)

End of period607

611

Other metrics:Average sales per store ($ in 000's) 1, 4$

3,196

$

2,932

Average sales per square foot 1, 4$

1,095

$

1,040

Stores > $2 million net sales 2, 471

%

71

%

Stores > $3 million net sales 2, 433

%

32

%

Average revenue per mattress unit 3$

5,030

$

4,884

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 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.

SLEEP NUMBER CORPORATIONAND SUBSIDIARIESSupplemental Financial Information(unaudited) Three Months Ended April 3, March 28, 2021 2020

Percent of sales:Retail stores 86.1 % 92.1 %

Online, phone, chat and other 13.9 % 7.9 %

Total Company 100.0 % 100.0 %

Sales change rates:Retail comparable-store sales^ 12 % 6 %

Online, phone and chat 116 % 21 %

Total Retail comparable sales change 20 % 7 %

Net opened/closed stores and other 0 % 4 %

Total Company 20 % 11 %

Stores open:Beginning of period 602 611

Opened 11 8

Closed (6 ) (8 )

End of period 607 611

Other metrics:Average sales per store ($ in 000's) ^1, 4 $ 3,196 $ 2,932

Average sales per square foot ^1, 4 $ 1,095 $ 1,040

Stores > $2 million net sales ^2, 4 71 % 71 %

Stores > $3 million net sales ^2, 4 33 % 32 %

Average revenue per mattress unit ^3 $ 5,030 $ 4,884

^1 Trailing twelve months Total Retail comparable sales per store open atleast 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 dividedby Total Retail mattress units.

^4 Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2021 and2019. The additional week in 2020 was in the fiscal fourth quarter. TotalRetail comparable sales have been adjusted to remove the estimated impact ofthe additional week on those metrics.

SLEEP NUMBER CORPORATION AND SUBSIDIARIES

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

(in thousands)

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:Fifty-ThreeFifty-TwoThree Months EndedWeeks EndedWeeks EndedApril 3,

March 28,

April 3,

March 28,

2021

2020

2021

2020

Net income$

66,634

$

39,140

$

166,683

$

95,567

Income tax expense8,812

11,330

34,265

25,313

Interest expense978

2,357

7,642

11,338

Depreciation and amortization14,519

15,253

60,049

61,026

Stock-based compensation6,417

2,051

26,179

15,070

Asset impairments89

3

388

49

Adjusted EBITDA$

97,449

$

70,134

$

295,206

$

208,363

Free Cash Flow(in thousands)Fifty-ThreeFifty-TwoThree Months EndedWeeks EndedWeeks EndedApril 3,

March 28,

April 3,

March 28,

2021

2020

2021

2020

Net cash provided by operating activities$

111,598

$

84,941

$

306,318

$

205,965

Subtract: Purchases of property and equipment11,546

10,351

38,295

49,847

Free cash flow$

100,052

$

74,590

$

268,023

$

156,118

SLEEP NUMBER CORPORATION AND SUBSIDIARIES

Earnings before Interest, Taxes, Depreciation and Amortization (AdjustedEBITDA)

(in thousands)

We define earnings before interest, taxes, depreciation and amortization(Adjusted EBITDA) as net income plus: income tax expense, interest expense,depreciation and amortization, stock-based compensation and asset impairments.Management believes Adjusted EBITDA is a useful indicator of our financialperformance and our ability to generate cash from operating activities. Ourdefinition of Adjusted EBITDA may not be comparable to similarly titleddefinitions used by other companies. The table below reconciles AdjustedEBITDA, which is a non-GAAP financial measure, to the comparable GAAP financialmeasure: Fifty-Three Fifty-Two Three Months Ended Weeks Ended Weeks Ended April 3, March 28, April 3, March 28,

2021 2020 2021 2020

Net income $ 66,634 $ 39,140 $ 166,683 $ 95,567

Income tax expense 8,812 11,330 34,265 25,313

Interest expense 978 2,357 7,642 11,338

Depreciation and amortization 14,519 15,253 60,049 61,026

Stock-based compensation 6,417 2,051 26,179 15,070

Asset impairments 89 3 388 49

Adjusted EBITDA $ 97,449 $ 70,134 $ 295,206 $ 208,363

Free Cash Flow(in thousands) Fifty-Three Fifty-Two Three Months Ended Weeks Ended Weeks Ended April 3, March 28, April 3, March 28,

2021 2020 2021 2020

Net cash provided by $ 111,598 $ 84,941 $ 306,318 $ 205,965operating activitiesSubtract: Purchases of 11,546 10,351 38,295 49,847property and equipment Free cash flow $ 100,052 $ 74,590 $ 268,023 $ 156,118

Calculation of Net Leverage Ratio under Revolving Credit Facility(in thousands)Fifty-Three

Fifty-Two

Weeks Ended

Weeks Ended

April 3,

March 28,

2021

2020

Borrowings under revolving credit facility$

314,900

$

446,003

Outstanding letters of credit3,997

3,997

Finance lease obligations622

730

Consolidated funded indebtedness$

319,519

$

450,730

Capitalized operating lease obligations1555,903

535,425

Aggregate unrestricted cash-on-hand and cash equivalents in excess of $40,000,000-

(199,213

)

Total debt including capitalized operating lease obligations (a)$

875,422

$

786,942

Adjusted EBITDA (see above)$

295,206

$

208,363

Consolidated rent expense92,650

89,237

Consolidated EBITDAR (b)$

387,856

$

297,600

Net Leverage Ratio under revolving credit facility (a divided by b)2.3 to 1.0

2.6 to 1.0

1 A multiple of six times annual rent expense is used as an estimate for capitalizing our operating lease obligations in accordance with our credit facility.Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data and Calculation of Net Leverage Ratio under Revolving Credit Facility are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

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

Calculation of Net Leverage Ratio under Revolving Credit Facility(in thousands) Fifty-Three Fifty-Two

Weeks Ended Weeks Ended

April 3, March 28,

2021 2020

Borrowings under revolving credit facility $ 314,900 $ 446,003

Outstanding letters of credit 3,997 3,997

Finance lease obligations 622 730

Consolidated funded indebtedness $ 319,519 $ 450,730

Capitalized operating lease obligations^1 555,903 535,425

Aggregate unrestricted cash-on-hand and cash - (199,213 )equivalents in excess of $40,000,000Total debt including capitalized operating lease $ 875,422 $ 786,942 obligations (a) Adjusted EBITDA (see above) $ 295,206 $ 208,363

Consolidated rent expense 92,650 89,237

Consolidated EBITDAR (b) $ 387,856 $ 297,600

Net Leverage Ratio under revolving credit facility 2.3 to 1.0 2.6 to 1.0(a divided by b) ^1 A multiple of six times annual rent expense is used as an estimate forcapitalizing our operating lease obligations in accordance with our creditfacility. Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data andCalculation of Net Leverage Ratio under Revolving Credit Facility areconsidered non-GAAP financial measures and are not in accordance with, orpreferable to, "as reported," or GAAP financial data. However, we are providingthis information as we believe it facilitates analysis of the Company'sfinancial performance by investors and financial analysts.



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

SLEEP NUMBER CORPORATION AND SUBSIDIARIESCalculation of Return on Invested Capital (ROIC)(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-ThreeFifty-TwoWeeks EndedWeeks EndedApril 3,

March 28,

2021

2020

Net operating profit after taxes (NOPAT)Operating income$

208,506

$

132,203

Add: Rent expense 192,650

89,237

Add: Interest income84

15

Less: Depreciation on capitalized operating leases 2(24,258

)

(22,883

)

Less: Income taxes 3(66,118

)

(47,453

)

NOPAT$

210,864

$

151,119

Average invested capitalTotal deficit$

(332,650

)

$

(155,909

)

Less: Cash greater than target 4 -

(113,397

)

Add: Long-term debt 5315,522

446,733

Add: Capitalized operating lease obligations 6741,200

713,896

Total invested capital at end of period$

724,072

$

891,323

Average invested capital 7$

763,227

$

790,420

Return on invested capital (ROIC) 827.6

%

19.1

%

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

2 Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) 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 23.9% and 23.9% for 2021 and 2020, respectively.

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

5 Long-term debt includes existing finance lease liabilities.

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

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

8 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. View source version on businesswire.com: https://www.businesswire.com/news/home/20210421005886/en/

CONTACT: Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com