10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

ACT OF 1934

For the Quarterly Period Ended April 1, 2017

Commission File Number: 0-25121

SELECT COMFORT 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.)

9800 59th Avenue North
Minneapolis, Minnesota	55442
(Address of principal executive offices)	(Zip Code)

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

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ý NO o

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

Large accelerated filer	ý		Accelerated filer o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company o
			Emerging growth company o

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.o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

As of April 1, 2017, 41,676,000 shares of the Registrant’s Common Stock were outstanding.

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

INDEX

		Page
PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statement of Shareholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II: OTHER INFORMATION		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
SIGNATURES		25

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

	April 1, 2017		December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	36,452	$	11,609
Accounts receivable, net of allowance for doubtful accounts of $967 and $884, respectively	18,227		19,705
Inventories	66,858		75,026
Prepaid expenses	10,673		8,705
Other current assets	16,812		23,282
Total current assets	149,022		138,327
Non-current assets:
Property and equipment, net	207,192		208,367
Goodwill and intangible assets, net	79,223		80,817
Deferred income taxes	—		4,667
Other non-current assets	27,308		24,988
Total assets	$	462,745	$	457,166
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	106,661	$	105,375
Customer prepayments	30,650		26,207
Accrued sales returns	18,201		15,222
Compensation and benefits	31,058		19,455
Taxes and withholding	28,068		23,430
Other current liabilities	37,551		35,628
Total current liabilities	252,189		225,317
Non-current liabilities:
Deferred income taxes	996		—
Other non-current liabilities	75,409		71,529
Total liabilities	328,594		296,846
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 142,500 shares authorized, 41,676 and 43,569 shares issued and outstanding, respectively	417		436
Additional paid-in capital	—		—
Retained earnings	133,734		159,884
Total shareholders’ equity	134,151		160,320
Total liabilities and shareholders’ equity	$	462,745	$	457,166

See accompanying notes to condensed consolidated financial statements.

2

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

	Three Months Ended
	April 1, 2017			April 2, 2016
Net sales	$	393,899		$	352,980
Cost of sales	147,440			143,906
Gross profit	246,459			209,074
Operating expenses:
Sales and marketing	169,266			150,668
General and administrative	33,769			30,906
Research and development	7,596			7,602
Total operating expenses	210,631			189,176
Operating income	35,828			19,898
Other expense, net	(138		)	(97		)
Income before income taxes	35,690			19,801
Income tax expense	11,229			6,832
Net income	$	24,461		$	12,969
Basic net income per share:
Net income per share – basic	$	0.57		$	0.27
Weighted-average shares – basic	42,750			48,100
Diluted net income per share:
Net income per share – diluted	$	0.56		$	0.27
Weighted-average shares – diluted	43,712			48,845

See accompanying notes to condensed consolidated financial statements.

3

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited - in thousands)

	Three Months Ended
	April 1, 2017		April 2, 2016
Net income	$	24,461	$	12,969
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax	—		14
Comprehensive income	$	24,461	$	12,983

See accompanying notes to condensed consolidated financial statements.

4

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited - in thousands)

	Common Stock					Additional Paid-in Capital			Retained Earnings			Total
	Shares		Amount
Balance at December 31, 2016	43,569		$	436		$	—		$	159,884		$	160,320
Net income	—		—			—			24,461			24,461
Exercise of common stock options	25		—			460			—			460
Stock-based compensation	506		5			3,699			—			3,704
Repurchases of common stock	(2,424	)	(24		)	(4,159		)	(50,611		)	(54,794		)
Balance at April 1, 2017	41,676		$	417		$	—		$	133,734		$	134,151

See accompanying notes to condensed consolidated financial statements.

5

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Three Months Ended
	April 1, 2017			April 2, 2016
Cash flows from operating activities:
Net income	$	24,461		$	12,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,205			13,854
Stock-based compensation	3,704			3,766
Net loss on disposals and impairments of assets	—			1
Excess tax benefits from stock-based compensation	—			(26		)
Deferred income taxes	5,663			1,622
Changes in operating assets and liabilities:
Accounts receivable	1,478			8,816
Inventories	8,168			5,633
Income taxes	5,541			16,558
Prepaid expenses and other assets	2,880			(1,272		)
Accounts payable	(1,394		)	(495		)
Customer prepayments	4,443			(20,537		)
Accrued compensation and benefits	11,693			10,677
Other taxes and withholding	(903		)	7,493
Other accruals and liabilities	4,930			4,922
Net cash provided by operating activities	86,869			63,981
Cash flows from investing activities:
Purchases of property and equipment	(13,211		)	(12,289		)
Proceeds from marketable debt securities	—			15,090
Proceeds from sales of property and equipment	—			14
Decrease in restricted cash	3,150			—
Net cash (used in) provided by investing activities	(10,061		)	2,815
Cash flows from financing activities:
Repurchases of common stock	(54,794		)	(51,240		)
Net increase (decrease) in short-term borrowings	2,369			(6,661		)
Proceeds from issuance of common stock	460			6
Excess tax benefits from stock-based compensation	—			26
Debt issuance costs	—			(401		)
Net cash used in financing activities	(51,965		)	(58,270		)
Net increase in cash and cash equivalents	24,843			8,526
Cash and cash equivalents, at beginning of period	11,609			20,994
Cash and cash equivalents, at end of period	$	36,452		$	29,520

See accompanying notes to condensed consolidated financial statements.

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SELECT COMFORT 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 months endedApril 1, 2017 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort 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 April 1, 2017 and December 31, 2016, and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period.

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

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

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

Revenue Recognition

At April 1, 2017 and December 31, 2016, we had deferred revenue totaling $66.6 million and $61.3 million, of which $23.7 million and $21.0 million are included in other current liabilities, respectively, and $42.9 million and $40.3 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $37.0 million and $33.2 million, of which $13.3 million and $11.6 million are included in other current assets, respectively, and $23.7 million and $21.6 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years.

New Accounting Pronouncements

Adopted

In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three months ended April 1, 2017, excess tax benefits of $0.8 million were recognized as a reduction of income tax expense, rather than in additional paid-in capital.

In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $1.2 million for the three months ended April 1, 2017. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted.

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SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

Not Yet Adopted

In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance was originally effective for fiscal years beginning after December 15, 2016 and early adoption was not permitted. In July 2015, the FASB deferred the effective date from fiscal years beginning after December 15, 2016 to fiscal years beginning after December 15, 2017 (including interim reporting periods within those fiscal years). Early adoption is permitted to the original effective date of fiscal years beginning after December 15, 2016 (including interim reporting periods within those fiscal years). Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method.

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

2. Fair Value Measurements

At April 1, 2017 and December 31, 2016, we had $2.6 million and $2.3 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 $2.6 million and $2.3 million at April 1, 2017 and December 31, 2016, 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):

	April 1, 2017		December 31, 2016
Raw materials	$	4,846	$	7,973
Work in progress	411		72
Finished goods	61,601		66,981
	$	66,858	$	75,026

4. Goodwill and Intangible Assets, Net    

Goodwill and Indefinite-Lived Intangible Assets

Goodwill was $64.0 million at April 1, 2017 and December 31, 2016. Indefinite-lived trade name/trademarks totaled $1.4 million at April 1, 2017 and December 31, 2016.

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SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Definite-Lived Intangible Assets

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

	April 1, 2017				December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	5,070	$	18,851	$	4,524
Customer relationships	2,413		2,413		2,413		1,365
Trade names/trademarks	101		101		101		101
	$	21,365	$	7,584	$	21,365	$	5,990

Amortization expense for the three months ended April 1, 2017 and April 2, 2016, was $1.6 million and $0.6 million, respectively.

5. Credit Agreement

In March 2017, we amended our revolving credit facility to increase our net aggregate availability from $150 million to $153.15 million. As of April 1, 2017, availability under our credit facility was $150 million, with a $3.15 million letter of credit outstanding, and we were in compliance with all financial covenants. We maintained the accordion feature which allows us to increase the amount of the credit facility from $153.15 million to $200 million, subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions.

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

6. Repurchase of Common Stock

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Amount repurchased under Board-approved share repurchase program	$	50,000	$	50,000
Amount repurchased in connection with the vesting of employee restricted stock grants	4,794		1,240
Total amount repurchased	$	54,794	$	51,240

As of April 1, 2017, the remaining authorization under our Board-approved share repurchase program was $195 million. There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.

9

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

7. Stock-Based Compensation Expense

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Stock awards	$	3,136	$	3,151
Stock options	568		615
Total stock-based compensation expense	3,704		3,766
Income tax benefit	1,248		1,299
Total stock-based compensation expense, net of tax	$	2,456	$	2,467

In addition to the income tax benefit related to stock-based compensation expense in the table above, excess tax benefits of $0.8 million were recognized as a reduction of income tax expense during the three months ended April 1, 2017. No amounts related to excess tax benefits were recognized in income tax expense during the three months ended April 2, 2016. See Note 1, New Accounting Pronouncements, for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017.

8. 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 calendar quarter, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months endedApril 1, 2017 and April 2, 2016, our contributions, net of forfeitures, were $1.3 million and $1.3 million, respectively.

9. Other Expense, Net

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Interest expense	$	(182	)	$	(106	)
Interest income	44			9
Other expense, net	$	(138	)	$	(97	)

10

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

10. 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 1, 2017		April 2, 2016
Net income	$	24,461	$	12,969
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	42,750		48,100
Dilutive effect of stock-based awards	962		745
Diluted weighted-average shares outstanding	43,712		48,845
Net income per share – basic	$	0.57	$	0.27
Net income per share – diluted	$	0.56	$	0.27

Anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial for the periods presented.

11. Commitments and Contingencies

Sales Returns

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	15,222		$	20,562
Additions that reduce net sales	21,184			23,636
Deductions from reserves	(18,205		)	(21,288		)
Balance at end of period	$	18,201		$	22,910

Warranty Liabilities

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	8,633		$	10,028
Additions charged to costs and expenses for current-year sales	2,718			3,585
Deductions from reserves	(2,049		)	(3,272		)
Changes in liability for pre-existing warranties during the current year, including expirations	(57		)	(574		)
Balance at end of period	$	9,245		$	9,767

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SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Legal Proceedings

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

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

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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 consolidated financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in seven sections:

• Risk Factors

• Overview

• Results of Operations

• Liquidity and Capital Resources

• Non-GAAP Data

• Off-Balance-Sheet Arrangements and Contractual Obligations

• Critical Accounting Policies

Risk Factors

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto included herein. This quarterly report on Form 10-Q 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;

• The effectiveness of our marketing messages;

• The efficiency of our advertising and promotional efforts;

• Our ability to execute our Company-Controlled 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;

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

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

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

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

• Rising commodity costs and other inflationary pressures;

• Risks inherent in global sourcing activities;

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

• Increasing government regulation;

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

• The adequacy of our management information systems to meet the evolving needs of our business and existing and evolving regulatory standards applicable to data privacy and security;

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

• The vulnerability of our management information systems to attacks by hackers or other cyber threats that could compromise the security of our systems or disrupt our business;

• Our ability to attract, retain and motivate qualified management, executive and other key employees, including qualified retail sales professionals and managers; and

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

Additional information concerning these and other risks and uncertainties is contained under the caption “Risk Factors” in our Annual Report on Form 10-K.

13

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

Overview

Company Overview

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

We are a vertically integrated brand and the developer, manufacturer, marketer, retailer and servicer of a complete line of Sleep Number beds and related technology. We are also the pioneer in biometric sleep tracking and adjustability. Only the Sleep Number bed offers SleepIQ^® technology - proprietary sensor technology that works directly with the bed’s DualAir™ system to track each individual’s sleep. SleepIQ technology communicates how you slept and what adjustments you can make to optimize your sleep and improve your daily life. Our bed assortment is complemented with proprietary FlextFit™ adjustable bases, and Sleep Number pillows, sheets and other bedding products.

Our differentiated products are sold exclusively at more than 546 Sleep Number^® stores located in 49 states, online at SleepNumber.com or via phone. We offer consumers a unique, value-added store and digital experience through our team of over 3,800 individuals who are dedicated to our mission of improving lives by individualizing sleep experiences. This experience, combined with the advantages of our vertical business model and SleepIQ technology, enable a lifelong relationship with our customers. We generate revenue by marketing and selling products directly to new and existing customers.

We expect our business transformation over the past five years to result in improved profitability through the productivity and service advancements associated with our integrated ERP platform, smart bed design, more efficient manufacturing and supply chain network evolution.

We are committed to delivering superior shareholder value through three primary drivers of earnings per share growth: increasing consumer demand, leveraging the business model and deploying capital efficiently. The investments we have made in R&D, technology, digital and our store experience have strengthened our competitive advantages and established our innovation leadership. We have a long-term orientation and are focused on delivering sustainable, profitable growth.

Results of Operations

Quarterly and Year-to-Date Results

Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in sales, the timing, amount and effectiveness of advertising expenditures, changes in sales return rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/closings and related expenses, changes in net sales resulting from changes in our store base, the timing of new product introductions, the timing of promotional offerings, competitive factors, changes in commodity costs, any disruptions in supplies or third-party service providers, seasonality of retail and bedding industry sales, consumer confidence and general economic conditions. Therefore, our historical results of operations may not be indicative of the results that may be achieved for any future period.

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Highlights

Financial highlights for the period ended April 1, 2017 were as follows:

• Net sales for the three months endedApril 1, 2017 increased 12% to $394 million, compared with $353 million for the same period one year ago. The 12% sales increase resulted from a 3% comparable sales increase in our Company-Controlled channel and 10 percentage points (ppt.) of growth from sales generated by 49 net new stores opened in the past 12 months.

• The prior-year period's (ended April 2, 2016) net sales, gross profit rate, operating income, net income and earnings per share were negatively impacted by our ERP implementation. We completed the implementation by the end of the first quarter of 2016 and our new operating platform is enabling operating efficiencies, improved customer convenience and scalability.

• Sales per store (for stores open at least one year), on a trailing twelve-month basis for the period ended April 1, 2017 were $2.4 million, consistent with the prior-year comparable period.

• Operating income for the quarter totaled $36 million, or 9.1% of net sales, compared with $20 million, or 5.6% of net sales, for the same period one year ago. The increase in operating income was attributable to the 12% increase in net sales and a 3.4 ppt. improvement in our gross profit rate.

• Net income for the quarter was $24 million, or $0.56 per diluted share, compared with net income of $13 million, or $0.27 per diluted share, for the same period one year ago.

• Cash provided by operating activities totaled $87 million for the three months endedApril 1, 2017, compared with $64 million for the same period one year ago. Investing activities for the current-year period included $13 million of property and equipment purchases, compared with $12 million for the same period last year.

• At April 1, 2017, cash and cash equivalents totaled $36 million and we had $150 million of borrowing capacity available under our credit facility.

• In the first quarter of 2017, we repurchased 2.2 million shares of our common stock under our Board-approved share repurchase program at a cost of $50 million (an average of $22.49 per share). As of April 1, 2017, the remaining authorization was $195 million.

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

	Three Months Ended
	April 1, 2017					April 2, 2016
Net sales	$	393.9		100.0	%	$	353.0		100.0	%
Cost of sales	147.4			37.4	%	143.9			40.8	%
Gross profit	246.5			62.6	%	209.1			59.2	%
Operating expenses:
Sales and marketing	169.3			43.0	%	150.7			42.7	%
General and administrative	33.8			8.6	%	30.9			8.8	%
Research and development	7.6			1.9	%	7.6			2.2	%
Total operating expenses	210.6			53.5	%	189.2			53.6	%
Operating income	35.8			9.1	%	19.9			5.6	%
Other expense, net	(0.1		)	0.0	%	(0.1		)	0.0	%
Income before income taxes	35.7			9.1	%	19.8			5.6	%
Income tax expense	11.2			2.9	%	6.8			1.9	%
Net income	$	24.5		6.2	%	$	13.0		3.7	%
Net income per share:
Basic	$	0.57				$	0.27
Diluted	$	0.56				$	0.27
Weighted-average number of common shares:
Basic	42.8					48.1
Diluted	43.7					48.8

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Company-Controlled channel	98.2	%	97.3	%
Wholesale/Other channel	1.8	%	2.7	%
Total	100.0	%	100.0	%

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Sales change rates:
Retail comparable-store sales(1)	2	%	(4	%)
Online and Phone	18	%	8	%
Company-Controlled comparable sales change	3	%	(4	%)
Net opened/closed stores	10	%	5	%
Total Company-Controlled channel	13	%	1	%
Wholesale/Other channel	(23	%)	10	%
Total net sales change	12	%	1	%

⁽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.

Other sales metrics were as follows: 

	Three Months Ended
	April 1, 2017			April 2, 2016
Average sales per store(1) ($ in thousands)	$	2,365		$	2,363
Average sales per square foot(1)	$	926		$	960
Stores > $1 million in net sales(1)	97		%	98		%
Stores > $2 million in net sales(1)	59		%	61		%
Average revenue per mattress unit – Company-Controlled channel(2)	$	4,053		$	3,978

⁽¹⁾ Trailing twelve months for stores included in our comparable-store sales calculation.

⁽²⁾ Represents Company-Controlled channel total net sales divided by Company-Controlled channel mattress units.

The number of retail stores operating was as follows:

	Three Months Ended
	April 1, 2017		April 2, 2016
Beginning of period	540		488
Opened	16		14
Closed	(10	)	(5	)
End of period	546		497

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Comparison of Three Months Ended April 1, 2017 with Three Months Ended April 2, 2016

Net sales

Net sales increased12% to $394 million for the three months ended April 1, 2017, compared with $353 million for the same period one year ago. The sales increase resulted from a 3% comparable sales increase in our Company-Controlled channel and 10 percentage points (ppt.) of growth from sales generated by 49 net new stores opened in the past 12 months. Our ERP implementation negatively impacted net sales in the comparable period one year ago. We completed the implementation by the end of the first quarter of 2016 and our new operating platform is enabling operating efficiencies, improved customer convenience and scalability.

The $41 million net sales increase compared with the same period one year ago was comprised of the following: (i) a $33 million increase resulting from net store openings; and (ii) a $10 million increase in sales from our Company-Controlled comparable sales; partially offset by (iii) a $2 million decrease in Wholesale/Other channel sales. Company-Controlled mattress unit sales increased 10%. Average revenue per mattress unit in our Company-Controlled channel increased by 2% to $4,053.

Gross profit

Gross profit of $246 millionincreased by $37 million compared with the same period one year ago. The gross profit rate increased to 62.6% of net sales for the three months ended April 1, 2017, compared with 59.2% for prior-year comparable period. The prior-year gross profit rate was negatively impacted by actions taken to manage operating issues associated with our ERP implementation. The current-year gross profit rate improvement of 3.4 ppt. was primarily due to manufacturing and supply chain efficiencies, and lower sales return and exchange costs compared with the same period one year ago. In addition, our gross profit rate can fluctuate from quarter to quarter due to a variety of other factors, including warranty expenses, product mix changes and performance-based incentive compensation.

Sales and marketing expenses

Sales and marketing expenses for the three months ended April 1, 2017 increased to $169 million, or 43.0% of net sales, compared with $151 million, or 42.7% of net sales, for the same period one year ago. The 0.3 ppt. increase in the sales and marketing expense rate was mainly due to: (i) a year-over-year increase in our sales professionals' incentive compensation resulting from the strong increase in net sales; partially offset by (ii) 0.5 ppt. of leverage from media spending, which increased by 7% compared with the prior year, while net sales increased by 12%.

General and administrative expenses

General and administrative (G&A) expenses totaled $34 million for the three months ended April 1, 2017, compared with $31 million in the prior year period, but decreased to 8.6% of net sales, compared with 8.8% of net sales last year. The $2.9 million increase in G&A expenses consisted of the following major components: (i) a $1.9 million increase in employee compensation, including a year-over-year increase in company-wide performance-based incentive compensation, and salary and wage rate increases that were in line with inflation; and (ii) $1.6 million of additional depreciation and amortization expense, including incremental depreciation expense from capital expenditures that support the growth of our business; partially offset by (iii) a $0.6 million decrease in miscellaneous other expenses. The G&A expense rate decreased by 0.2 ppt. in the current year period compared with the same period one year ago due to the leveraging impact from the 12% net sales increase.

Income tax expense

Income tax expense was $11 million for the three months ended April 1, 2017, compared with $7 million for the same period one year ago. The effective tax rate for the three months ended April 1, 2017 was 31.5% compared with 34.5% for the prior-year period. The lower effective tax rate for the current-year period primarily resulted from the inclusion of stock-based compensation excess tax benefits in accordance with new Financial Accounting Standards Board (FASB) guidance effective for us beginning in 2017. Under previous FASB guidance, excess tax benefits or deficiencies were recognized in additional paid-in capital in our consolidated balance sheet. See Note 1, New Accounting Pronouncements, to the Notes to the Condensed Consolidated Financial Statements for additional details.

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Liquidity and Capital Resources

Managing our liquidity and capital resources is an important part of our commitment to deliver superior shareholder value. Our business model, which can operate with minimal working capital, does not require additional capital from external sources to fund operations or organic growth. Our primary sources of liquidity are cash flows provided by operating activities and cash available under our $153 million revolving credit facility. 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 for the foreseeable future.

As of April 1, 2017, cash and cash equivalents totaled $36 million compared with $12 million as of December 31, 2016. The $25 millionincrease was primarily due to $87 million of cash provided by operating activities, partially offset by $13 million of cash used to purchase property and equipment and $55 million of cash used to repurchase our common stock ($50 million under our Board-approved share repurchase program and $4.8 million in connection with the vesting of employee restricted stock grants).

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Total cash provided by (used in):
Operating activities	$	86.9		$	64.0
Investing activities	(10.1		)	2.8
Financing activities	(52.0		)	(58.3		)
Net increase in cash and cash equivalents	$	24.8		$	8.5

Cash provided by operating activities for the three months endedApril 1, 2017 was $87 million compared with $64 million for the three months endedApril 2, 2016. Significant components of the year-over-year change in cash provided by operating activities included: (i) an $11 million increase in net income for the three months endedApril 1, 2017, compared with the same period one year ago; (ii) an $11 million fluctuation in income taxes based on a $15 million income taxes receivable at the end of 2015 compared with an $11 million income taxes liability at the end of 2016; and (iii) the ERP implementation issues we experienced in our plants and supply chain during the fourth quarter of 2015 that resulted in increased accounts receivables, higher customer prepayments and lower other taxes and withholding at the end of 2015.

Net cash used in investing activities was $10 million for the three months endedApril 1, 2017, compared with $3 million of net cash provided by investing activities for the same period one year ago. Investing activities for the current-year period included $13 million of property and equipment purchases, compared with $12 million for the same period last year. We decreased our investments in marketable debt securities by $15 million during the three months endedApril 2, 2016. We did not hold any investments in marketable debt securities as of December 31, 2016 or April 1, 2017.

Net cash used in financing activities was $52 million for the three months endedApril 1, 2017, compared with $58 million for the same period one year ago. During the three months endedApril 1, 2017, we repurchased $55 million of our stock ($50 million under our Board-approved share repurchase program and $4.8 million in connection with the vesting of employee restricted stock awards) compared with $51 million ($50 million under our Board-approved share repurchase program and $1.2 million in connection with the vesting of employee restricted stock awards) during the same period one year ago. Changes in book overdrafts are included in the net change in short-term borrowings.

Under our Board-approved share repurchase program, we repurchased 2.2 million shares at a cost of $50 million (an average of $22.49 per share) during the three months endedApril 1, 2017. During the three months endedApril 2, 2016, we repurchased 2.6 million shares at a cost of $50 million (an average of $18.96 per share). At April 1, 2017, the remaining authorization under our Board-approved share repurchase program was $195 million. There is no expiration date governing the period over which we can repurchase shares.

In March 2017, we amended our revolving credit facility to increase our net aggregate availability from $150 million to $153.15 million. As of April 1, 2017, availability under our credit facility was $150 million, with a $3.15 million letter of credit outstanding. The credit facility is for general corporate purposes. The credit facility contains an accordion feature that allows us to increase the amount of available credit from $153 million up to $200 million, subject to lenders' approval. The credit facility matures in February 2021.

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The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio and a minimum interest coverage ratio. Under the terms of the credit agreement we pay a variable rate of interest and a commitment fee based on our leverage ratio. As of April 1, 2017, we were in compliance with all financial covenants.

We have an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance purchases from us (Synchrony Agreement). The Synchrony Agreement contains certain financial covenants, including a maximum leverage ratio and a minimum interest coverage ratio. As of April 1, 2017, 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.

Non-GAAP Data

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

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

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

	Three Months Ended				Trailing-Twelve Months Ended
	April 1, 2017		April 2, 2016		April 1, 2017		April 2, 2016
Net income	$	24,461	$	12,969	$	62,909	$	34,689
Income tax expense	11,229		6,832		28,913		16,664
Interest expense	182		106		887		256
Depreciation and amortization	16,152		13,757		59,305		50,129
Stock-based compensation	3,704		3,766		11,899		11,274
Asset impairments	—		15		59		67
Adjusted EBITDA	$	55,728	$	37,445	$	163,972	$	113,079

Free Cash Flow

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

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

	Three Months Ended				Trailing-Twelve Months Ended
	April 1, 2017		April 2, 2016		April 1, 2017		April 2, 2016
Net cash provided by operating activities	$	86,869	$	63,981	$	174,533	$	123,059
Subtract: Purchases of property and equipment	13,211		12,289		58,774		80,079
Free cash flow	$	73,658	$	51,692	$	115,759	$	42,980

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Non-GAAP Data(continued)

Return on Invested Capital (ROIC)

(dollars in thousands)

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

	Trailing-Twelve Months Ended
	April 1, 2017			April 2, 2016
Net operating profit after taxes (NOPAT)
Operating income	$	92,580		$	51,270
Add: Rent expense(1)	69,217			63,204
Add: Interest income	128			340
Less: Depreciation on capitalized operating leases(2)	(17,550		)	(16,501		)
Less: Income taxes(3)	(48,050		)	(31,992		)
NOPAT	$	96,325		$	66,321
Average invested capital
Total equity	$	134,151		$	187,184
Less: Cash greater than target(4)	—			—
Add: Long-term debt(5)	—			—
Add: Capitalized operating lease obligations(6)	553,736			505,632
Total invested capital at end of period	$	687,887		$	692,816
Average invested capital(7)	$	692,896		$	729,234
Return on invested capital (ROIC)(8)	13.9		%	9.1		%

___________________

⁽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 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 33.3% and 32.5% for 2017 and 2016, respectively.

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

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

⁽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.

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Off-Balance-Sheet Arrangements and Contractual Obligations

As of April 1, 2017, we were not involved in any unconsolidated special purpose entity transactions. Other than our operating leases and a $3.15 million outstanding letter of credit, we do not have any off-balance-sheet financing.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Changes in the overall level of interest rates affect interest income generated from our cash and cash equivalents. If overall interest rates were one percentage point lower than current rates, our annual interest income would not change by a significant amount based on our cash and cash equivalents as of April 1, 2017, and the current low interest-rate environment. We do not manage our investment interest-rate volatility risk through the use of derivative instruments.

As of April 1, 2017, we had no borrowings under our revolving credit facility.

ITEM 4. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

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

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the fiscal quarter ended April 1, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

21

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 1A. RISK FACTORS

Our business, financial condition and operating results are subject to a number of risks and uncertainties, including both those that are specific to our business and others that affect all businesses operating in a global environment. Investors should carefully consider the information in this report under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and also the information under the heading, “Risk Factors” in our most recent Annual Report on Form 10-K. The risk factors discussed in the Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q do not identify all risks that we face because our business operations could also be affected by additional risk factors that are not presently known to us or that we currently consider to be immaterial to our operations.

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

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

Fiscal Period	Total Number of Shares    Purchased(1)(2)	Average Price Paid per Share		Total Numberof SharesPurchased asPart ofPubliclyAnnouncedPlans orPrograms(1)	ApproximateDollar Valueof Shares thatMay Yet BePurchasedUnder thePlans orPrograms(3)
January 1, 2017 through January 28, 2017	619,080	$	21.24	613,198	$	231,980,000
January 29, 2017 through February 25, 2017	657,972	21.28		646,278	218,243,000
February 26, 2017 through April 1, 2017	1,146,491	24.11		963,808	195,000,000
Total	2,423,543	$	22.61	2,223,284	$	195,000,000

⁽¹⁾  Under our Board-approved $300 million share repurchase program, we repurchased 2,223,284 shares of our common stock at a cost of $50 million (based on trade dates) during the three months ended April 1, 2017.

⁽²⁾  In connection with the vesting of employee restricted stock grants, we also repurchased 200,259 shares of our common stock at a cost of $4.8 million during the three months ended April 1, 2017.

⁽¹⁾  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.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

23

ITEM 6. EXHIBITS

Exhibit Number	Description	Method of Filing
10.1	Second Amendment Agreement to Credit and Security Agreement dated as of September 9, 2015 by and among Select Comfort Corporation, Key Bank National Association, as Administrative Agent, Swing Line Lender and Issuing Lender and the other financial institutions from time to time party thereto	Filed herewith
10.2	Form of Performance-Based Restricted Stock Unit Award Agreement - EPS Target	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith
101	The following financial information from the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2017, filed with the SEC on May 1, 2017, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of April 1, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Operations for the three months ended April 1, 2017 and April 2, 2016; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended April 1, 2017 and April 2, 2016; (iv) Condensed Consolidated Statement of Shareholders' Equity for the three months ended April 1, 2017; (v) Condensed Consolidated Statements of Cash Flows for the three months ended April 1, 2017 and April 2, 2016; and (vi) Notes to Condensed Consolidated Financial Statements.	Filed herewith

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SIGNATURES

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

		SELECT COMFORT CORPORATION
		(Registrant)
Dated:	May 1, 2017	By:	/s/ Shelly R. Ibach
			Shelly R. Ibach
			Chief Executive Officer
			(principal executive officer)
		By:	/s/ Robert J. Poirier
			Robert J. Poirier
			Chief Accounting Officer
			(principal accounting officer)

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EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
10.1	Second Amendment Agreement to Credit and Security Agreement dated as of September 9, 2015 by and among Select Comfort Corporation, Key Bank National Association, as Administrative Agent, Swing Line Lender and Issuing Lender and the other financial institutions from time to time party thereto	Filed herewith
10.2	Form of Performance-Based Restricted Stock Unit Award Agreement - EPS Target	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Furnished herewith
101	The following financial information from the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2017, filed with the SEC on May 1, 2017, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of April 1, 2017 and December 31, 2016; (ii) Condensed Consolidated Statements of Operations for the three months ended April 1, 2017 and April 2, 2016; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended April 1, 2017 and April 2, 2016; (iv) Condensed Consolidated Statement of Shareholders' Equity for the three months ended April 1, 2017; (v) Condensed Consolidated Statements of Cash Flows for the three months ended April 1, 2017 and April 2, 2016; and (vi) Notes to Condensed Consolidated Financial Statements.	Filed herewith

26

EX-10.1

Exhibit 10.1

SECOND AMENDMENT AGREEMENT

This SECOND AMENDMENT AGREEMENT (this “Amendment”) is made as of the 31^st day of March, 2017 among:

(a)SELECT COMFORT CORPORATION, a Minnesota corporation (the “Borrower”);

(b)the Lenders, as defined in the Credit Agreement, as hereinafter defined; and

(c)KEYBANK NATIONAL ASSOCIATION, a national banking association, as the administrative agent for the Lenders under the Credit Agreement (the “Administrative Agent”).

WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to that certain Credit and Security Agreement, dated as of September 9, 2015 (as amended as the same may from time to time be further amended, restated or otherwise modified, the “Credit Agreement”);

WHEREAS, the Borrower, the Administrative Agent and the Lenders desire to amend the Credit Agreement to modify certain provisions thereof;

WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and

WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower, the Administrative Agent and the Lenders agree as follows:

1.Amendment to Definitions in the Credit Agreement. Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Maximum Revolving Amount” and “Total Commitment Amount” therefrom and to insert in place thereof, respectively, the following:

“Maximum Revolving Amount” means One Hundred Fifty-Three Million One Hundred Fifty Thousand Dollars ($153,150,000), as such amount may be increased pursuant to Section 2.9(b) hereof, or decreased pursuant to Section 2.9(a) hereof.

“Total Commitment Amount” means the principal amount of One Hundred Fifty-Three Million One Hundred Fifty Thousand Dollars ($153,150,000), as such amount may be increased pursuant to Section 2.9(b) hereof, or decreased pursuant to Section 2.9(a) hereof.

Exhibit 10.1

2.Amendment to Schedule 1. The Credit Agreement is hereby amended to delete Schedule 1 (Commitments of Lenders) therefrom and to insert in place thereof a new Schedule 1 in the form of Schedule 1 hereto.

3.Reallocation of Outstanding Amounts. On the date hereof, the Lenders shall make adjustments among themselves with respect to the Loans then outstanding and amounts of principal with respect thereto as shall be necessary, in the opinion of the Administrative Agent, in order to reallocate among such Lenders such outstanding amounts, based on the revised Commitments as set forth in the revised Schedule 1 hereto.

4.Closing Deliveries. Concurrently with the execution of this Amendment, the Borrower shall:

(a)deliver to the Administrative Agent, for delivery to each Lender, a replacement Revolving Credit Note, dated the date hereof, in the amount specified in Schedule 1 to the Credit Agreement as allocable thereto (after giving effect to this Amendment);

(b)deliver to the Administrative Agent certified copies of the resolutions of the board of directors of the Borrower evidencing approval of the execution and delivery of this Amendment and the execution of any other Loan Documents and Related Writings required in connection therewith;

(c)cause each Guarantor of Payment to execute the attached Guarantor Acknowledgment and Agreement; and

(d)pay all fees (including legal fees) and expenses of the Administrative Agent in connection with this Amendment and any other Loan Documents.

5.Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that (a) the Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind the Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by the Borrower and the performance and observance by the Borrower of the provisions hereof do not violate or conflict with the Organizational Documents of the Borrower or any law applicable to the Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against the Borrower; (d) no Default or Event of Default exists, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) each of the representations and warranties contained in the Loan Documents is true and correct in all material respects as of the date hereof as if made on the date hereof, except to the extent that any such representation or warranty expressly states that it relates to an earlier date (in which case such representation or warranty is true and correct in all material respects as of such earlier date); (f) the Borrower is not aware of any claim or offset against, or defense or counterclaim to, the Borrower’s obligations or liabilities under the Credit Agreement or any other Related Writing; and (g) this

2

Exhibit 10.1

Amendment constitutes a valid and binding obligation of the Borrower in every respect, enforceable in accordance with its terms.

6.Waiver and Release. The Borrower, by signing below, hereby waives and releases the Administrative Agent, and each of the Lenders, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the Borrower is aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

7. References to Credit Agreement and Ratification. Each reference to the Credit Agreement that is made in the Credit Agreement or any other Related Writing shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as otherwise specifically provided herein, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

8.Counterparts. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile or other electronic signature, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

9.Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

10.Severability. Any provision of this Amendment that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

11.Governing Law. The rights and obligations of all parties hereto shall be governed by the laws of the State of New York.

[Remainder of page intentionally left blank.]

3

Exhibit 10.1

JURY TRIAL WAIVER. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.

SELECT COMFORT CORPORATION

By: /s/ Robert Poirier

Robert Poirier

Vice President and Chief Accounting Officer

4

Exhibit 10.1

KEYBANK NATIONAL ASSOCIATION

   as the Administrative Agent and as a Lender

By: /s/ Marianne T. Meil

Marianne T. Meil

Senior Vice President

5

Exhibit 10.1

BMO HARRIS BANK, N.A.

By: /s/ Wesley M. Anderson

Wesley M. Anderson

Director

6

Exhibit 10.1

U.S. BANK NATIONAL ASSOCIATION

By: /s/ Peter I. Bystol

Peter I. Bystol

Senior Vice President

7

Exhibit 10.1

GUARANTOR ACKNOWLEDGMENT AND AGREEMENT

The undersigned consent and agree to and acknowledge the terms of the foregoing Second Amendment Agreement dated as of March 31, 2017. The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned are hereby ratified and shall remain in full force and effect and be unaffected hereby.

The undersigned hereby waive and release the Administrative Agent and the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the undersigned are aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

JURY TRIAL WAIVER. THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE BORROWER, THE ADMINISTRATIVE AGENT, THE LENDERS AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTOR ACKNOWLEDGMENT AND AGREEMENT, THE AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

SELECT COMFORT RETAIL CORPORATION

SELECT COMFORT CANADA HOLDING INC.

SELECT COMFORT SC CORPORATION

SLEEPIQ LABS INC.

By: /s/ Robert Poirier

Robert Poirier

Vice President and Chief Accounting Officer

8

Exhibit 10.1

SCHEDULE 1

COMMITMENTS OF LENDERS

LENDERS	REVOLVING CREDIT COMMITMENT PERCENTAGE	REVOLVING CREDIT COMMITMENT AMOUNT	MAXIMUM AMOUNT
KeyBank National Association	33.3333%	$51,050,000.00	$51,050,000.00
BMO Harris Bank, N.A.	33.3333%	$51,050,000.00	$51,050,000.00
U.S. Bank National Association	33.3333%	$51,050,000.00	$51,050,000.00
Total Commitment Amount	100%	$153,150,000.00	$153,150,000.00

9

EX-10.2

Exhibit 10.2

The grant of your equity award reflected in the attached Performance Based Restricted Stock Unit Award Agreement is subject to you agreeing to the terms and conditions of the Employee Inventions, Confidentiality, Non-Compete and Mutual Arbitration Agreement attached to the Award Agreement. By accepting your grant you are also accepting the Employee Inventions, Confidentiality, Non-Compete and Mutual Arbitration Agreement.

By clicking the “Accept” button for your equity grant on the Schwab Equity Award Center you are electronically signing both the Performance Based Restricted Stock Unit Agreement and the Employee Inventions, Confidentiality, Non-Compete and Mutual Arbitration Agreement. Your electronic signature is the legal equivalent of your manual signature of the Agreements and by clicking the “Accept” button, you are agreeing to be legally bound by each Agreement’s terms and conditions.

PERFORMANCE BASED

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS AGREEMENT is entered into and effective as of March 21, 2017 (the “Date of Grant”), by and between Select Comfort Corporation (the “Company”) and (the “Grantee”).

The Company has adopted the Select Comfort Corporation Amended and Restated 2010 Omnibus Incentive Plan (the “Plan”) authorizing the grant of Restricted Stock Unit Awards to employees, non-employee directors and consultants of the Company and its Subsidiaries (as defined in the Plan).

The Company desires to give the Grantee a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Grantee a Restricted Stock Unit Award pursuant to the Plan.

This Award is one of a series of awards (the “EPS Based Awards”) granted by the Company to certain members of the Company’s senior management team (each such grantee, an “Award Recipient”) on the date hereof that are based on the Company’s achievement of the EPS Target set forth below.

Accordingly, the parties agree as follows:

1.    Grant of Award Units; Performance Target and Potential Adjustments.

1.1    Grant of Award Units The Company hereby grants to the Grantee a Restricted Stock Unit Award (the “Award”) consisting of units (the “Award Units”) that will be settled in shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), subject to the terms, conditions and restrictions set forth below and in the Plan. Reference in this Agreement to the Award Units or the Adjusted Award Units (as defined in Section 1.2 of this Agreement) will be deemed to include the Dividend Proceeds (as defined in Section 4.3 of this Agreement) with respect to such Award Units or Adjusted Award Units as provided in Section 4.3 of this Agreement.

1.2    Performance Target and Potential Adjustments.

1

Exhibit 10.2

(a)    The Award Units will vest and become free of restrictions, subject to adjustment as set forth in Sections 1.2(b) and (c), as follows:

(i)    50% of the Award Units will vest and become free of restrictions on March 21, 2020 if the Company’s EPS is at least $2.75 (the “EPS Target”) for the Company’s fiscal year ended December 28, 2019 (the “Performance-Based Restriction”);

(ii)    if, and only if, the EPS Target has been achieved, the remaining 50% of the Award Units will vest and become free of restrictions on March 21, 2021; and

(iii)    with respect to both subsection (i) and (ii) above, the vesting of the Award Units and lapse of the restrictions on the Award Units is subject to and contingent up the Grantee remaining in the continuous employment or service with the Company or any Subsidiary until the applicable vesting date; provided, however, that such employment or service period restrictions will earlier lapse and terminate as set forth in Section 2 below (or as otherwise set forth in the Plan for any circumstance not contemplated by the terms of Section 2) (collectively with the restriction set forth in subsection (ii) above, the “Time-Based Restrictions”).

For purposes of this Agreement, the Company’s “EPS” means the Company’s diluted net income per share, calculated in accordance with generally accepted accounting principles in the United States and as reported by the Company in its audited consolidated financial statements for the applicable fiscal year; provided, that for purposes of determining whether the EPS Target has been achieved, the Company’s EPS will be calculated assuming that the Company’s effective tax rate is the same as the Company’s effective tax rate for its fiscal year ended December 31, 2016.

(b)    Potential Reduction Based on Negative Total Shareholder Return. The number of Award Units granted hereunder will be reduced by 15% (and Grantee’s rights under this Agreement with respect to such portion of the Award Units will terminate immediately without notice and will be forfeited) if the Company has a negative Total Shareholder Return for the period beginning on the Date of Grant and ending on December 28, 2019 (such period, the “Performance Period”). “Total Shareholder Return” means the increase or decrease in the Company’s stock price during the Performance Period plus reinvested dividends, divided by the Company’s stock price at the beginning of the Performance Period. For purposes of this definition, the beginning stock price will be the average closing price over the twenty (20) trading days up to and including the Date of Grant and the ending stock price will be the average closing price over the twenty (20) trading days up to and including the last trading day of the Performance Period.

(c)    Potential Reduction Based on Compensation Expense of Awards. If the EPS Target is not achieved, but would have been achieved if a portion of the stock-based compensation expense attributable to the EPS Based Awards reported by the Company as set forth in its audited consolidated financial statements for the applicable fiscal year (the “Compensation Expense”) had been excluded from the calculation of the Company’s

2

Exhibit 10.2

EPS for such fiscal year, then the number of Award Units will be proportionately reduced, on a pro rata basis with the other Award Recipients, until the Company’s EPS, calculated without taking into account the portion of the Compensation Expense attributable to the aggregate number of Award Units by which the EPS Based Awards have been reduced, equals $2.75, and Grantee’s rights under this Agreement with respect to such portion of the Award Units will terminate immediately without notice and will be forfeited; provided, however, that if such adjustment would cause the number of Award Units to be less than 20% of the original number of Award Units subject to this Award, then this Award and all of the Award Units will terminate in their entirety immediately and will be forfeited. For example, and solely for purposes of illustration, if the Company’s EPS, calculated taking into account the full Compensation Expense, would be $2.73, but the Company’s EPS, calculated excluding the Compensation Expense attributable to 10% of the Award Units granted to each Award Recipient, would be $2.75, then the number of Award Units granted to each Award Recipient will be reduced by 10% and all rights of each Award Recipient, including the Grantee, relating to 10% of the Award Units will terminate immediately without notice of any kind and will be forfeited.

(d)    Determination of Achievement of Performance Target and Potential Adjustments. All determinations under Section 1.2(a), (b) and (c) above will be made by the Board or the Committee, which determinations shall be final and conclusive for all purposes under this Agreement. The number of Award Units resulting after adjustment as described in Section 1.2(b) or (c) above will be referred to herein as the “Adjusted Award Units.”

1.3    Restrictive Covenant Agreement. In consideration for the grant of this Award, Grantee agrees to execute and be bound by the terms of the Employee Inventions, Confidentiality, Non-Compete and Mutual Arbitration Agreement (the “ Non-Compete Agreement”) attached hereto and Grantee acknowledges that Grantee’s failure to execute the Non-Compete Agreement will cause this Award to automatically terminate and be forfeited without any further action.

2.    Effect of Termination of Employment or Service.

2.1    Death or Disability. In the event of the Grantee’s death or Disability (as defined by the Plan) prior to the Grantee’s termination of employment or other service, all Time-Based Restrictions will lapse and terminate and if, and only if, the EPS Target is achieved, then 100% of the Award Units or Adjusted Award Units will vest.

2.2    Termination Due to Qualified Retirement. In the event that the Grantee’s employment or other service with the Company and all Subsidiaries is terminated prior to December 31, 2020 by reason of the Grantee’s retirement at or beyond age sixty (60) and the Grantee has five (5) or more years of service with the Company prior to retirement (a “Qualified Retirement”), the Time-Based Restrictions will lapse and terminate, and the Grantee will become vested in the outstanding Award Units or Adjusted Award Units, pro rata based on the number of full months (beginning, for purposes of this Section 2.2, with January 2017) elapsed in the Performance Period as of the date of the Qualified Retirement divided by the total number of months in the Performance Period and the remaining Award Units will terminate immediately without notice of any kind and will be forfeited. For example, if the Qualified Retirement occurred on January 15, 2018 and the EPS Target was achieved on December 28, 2019, then the

3

Exhibit 10.2

pro ration would be based on 12 full months of the 36 month Performance Period (and Grantee would become vested in one-third (1/3rd) of the Award Units or Adjusted Award Units).

2.3    Termination for Reasons other than Death, Disability or Qualified Retirement. In the event the Grantee’s employment or other service with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Qualified Retirement as provided above, or the Grantee is in the employ or service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Grantee continues in the employ or service of the Company or another Subsidiary), all rights of the Grantee under this Agreement relating to Award Units with respect to which both the Performance-Based Restrictions and Time-Based Restrictions have not lapsed will terminate immediately without notice of any kind, and will be forfeited.

3.    Change in Control.

3.1.    If a Change in Control of the Company occurs and the Company is not the surviving corporation following the Change in Control, and the surviving corporation following such Change in Control or the acquiring corporation (such acquiring corporation or acquiring corporation is hereinafter referred to as the “Acquiror”) does not assume the Award or does not substitute equivalent equity awards relating to the securities of such Acquiror or its affiliates for the Award, then: (a) the Performance-Based Restrictions will immediately lapse and terminate and (b) (i) the Grantee will become vested in the Award Units with respect to (x) 33% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2017, (y) 66% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2018, and (z) 100% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2019 and, in each case, the remaining portion of the Award Units will terminate immediately without notice of any kind and will be forfeited, and (ii) the Time-Based Restrictions of the vested portion of the Award Units will immediately lapse and terminate; and the vested portion of the Award Units will become immediately payable.

3.2    If the Company is the surviving corporation following a Change in Control, or the Acquiror assumes the Award or substitutes equivalent equity awards relating to the securities of such Acquiror or its affiliates for the Award, then the Award or such substitutes therefore shall remain outstanding and (a) the Performance-Based Restriction of the Award or substitutes will immediately lapse and terminate and (b) (i) the Grantee will become vested in the Award Units with respect to (x) 33% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2017, (y) 66% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2018, or (z) 100% of the Award Units if such Change in Control occurs during the Company’s fiscal year 2019, and (ii) the vested portion of the Award Units will remain subject to the Time-Based Restrictions; and shall otherwise be governed by their respective terms and the provisions of the Plan.

4

Exhibit 10.2

3.3    If the Grantee’s employment or other service with the Company and all Subsidiaries is terminated (i) without Cause or Adverse Action or (ii) by the Grantee for Good Reason, in either case within two (2) years following a Change in Control, then all restrictions and vesting requirements applicable to the outstanding Award Units or Adjusted Award Units based solely on the continued employment or service of the Grantee will terminate.

4.    Issuance of Shares.

4.1    Timing. Vested Award Units or Adjusted Award Units shall be converted to shares of Common Stock on a one-for-one basis and such shares will be issued within 90 days following the earliest to occur of the following:

(a)    with respect to 50% of the Award Units or Adjusted Award Units, March 21, 2020 (i.e., the third anniversary of grant);

(b)    with respect to the remaining 50% of the Award Units or Adjusted Award Units, March 21, 2021 (i.e., the fourth anniversary of grant);

(c)    the later of March 21, 2020 and the first to occur of the Grantee’s death, Disability (provided such Disability satisfies the definition of “disability” under Code section 409A), or Qualified Retirement (provided such Qualified Retirement constitutes a “separation from service” under Code section 409A); and

(d)    the later of March 21, 2020 and the Grantee’s termination of employment or other service with the Company and all Subsidiaries (provided such termination constitutes a “separation from service” under Code section 409A) (i) without Cause or Adverse Action or (ii) by the Grantee for Good Reason, in either case within two (2) years following a Change in Control (provided such Change in Control constitutes a “change in control event” under the regulations issued under Code section 409A).

4.2.    Limitation for Specified Employees.  If any shares of Common Stock become issuable with respect to Award Units or Adjusted Award Units as a result of the Grantee’s “separation from service” at such time as the Grantee is a “specified employee” within the meaning of Code Section 409A, then no shares of Common Stock will be issued, except as permitted under Code Section 409A, prior to the first business day after the earlier of (i) the date that is six months after the Grantee’s “separation from service”, or (ii) the Grantee’s death.

4.3    Dividends and Other Distributions. The Award Units are being granted with an equal number of dividend equivalents. Accordingly, the Grantee is entitled to receive an additional Award Unit with a value equal to any dividends or distributions (including, without limitation, any cash dividends, stock dividends or dividends in kind, the proceeds of any stock split or the proceeds resulting from any changes or exchanges described in Section 7 of this Agreement, all of which are referred to herein collectively as the “Dividend Proceeds”) that are paid or payable with respect to one share of Common Stock for each Award Unit which will be subject to the same rights, restrictions and performance adjustments under this Agreement as the Award Units to which such dividends or distributions relate. The number of additional Award Units to be received as divided equivalents for each Award Unit shall be determined by dividing the cash dividend per share by the Fair Market Value of one share of Common Stock on the dividend or distribution payment date. All such additional Award Units received as dividend

5

Exhibit 10.2

equivalents will be subject to the same restrictions and performance adjustments as the Award Units to which such Dividend Proceeds relate    

4.4    Limitations on Transfer. Award Units or Adjusted Award Units will not be assignable or transferable by the Grantee, either voluntarily or involuntarily, and may not be subjected to any lien, directly or indirectly, by operation of law or otherwise. Any attempt to transfer, assign or encumber the Award Units or Adjusted Award Units other than in accordance with this Agreement and the Plan will be null and void and will void the Award, and all Award Units or Adjusted Award Units for which the restrictions have not lapsed will be forfeited and immediately returned to the Company.

5.    Rights of Grantee.

5.1    Employment or Service. Nothing in this Agreement will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or service of the Grantee at any time, nor confer upon the Grantee any right to continue in the employment or service with the Company or any Subsidiary at any particular position or rate of pay or for any particular period of time.

5.2    Rights as a Shareholder. The Grantee will have no rights as a shareholder until the Grantee becomes the holder of record of shares of Common Stock issued in settlement of the Award Units or Adjusted Award Units. As soon as practicable after the satisfaction of any conditions to the effective issuance of shares of Common Stock in settlement of the Award Units or Adjusted Award Units, the Grantee will be recorded on the books of the Company as the owner of such shares, and the Company will issue one or more duly issued and executed stock certificates evidencing the shares.

6.    Withholding Taxes. The Company is entitled to (a) withhold and deduct from future wages of the Grantee (or from other amounts that may be due and owing to the Grantee from the Company), or to withhold from the shares of Common Stock that would otherwise be determined to be paid to the Company out of Dividend Proceeds, or make other arrangements for the collection of all amounts the Company reasonably determines are required to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the receipt of the Award, the receipt of dividends or distributions on Award Units or Adjusted Award Units, or the lapse or termination of the restrictions applicable to Award Units or Adjusted Award Units, or (b) require the Grantee promptly to remit the amount of such withholding to the Company. In the event that the Company is unable to withhold such amounts, for whatever reason, the Grantee agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.    Adjustments. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering or divestiture (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Grantee, will make appropriate adjustment (which determination

6

Exhibit 10.2

will be conclusive) as to the number and kind of securities or other property (including cash) subject to this Award.

8.    Subject to Plan. The Award and the Award Units granted pursuant to this Agreement have been granted under, and are subject to the terms of, the Plan. The terms of the Plan are incorporated by reference in this Agreement in their entirety. In addition, the Grantee, by execution hereof, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan and any ambiguities in this Agreement will be interpreted by reference to the Plan. In the event that any provision of this Agreement is not authorized by or is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.    Forfeiture, Clawback or Recoupment. In addition to the other rights of the Committee under the Plan, if Grantee is determined by the Committee, acting in its sole discretion, to have taken any action that would constitute Adverse Action or Cause as defined under the Plan, or that is subject to any other or additional “clawback”, forfeiture or recoupment policy adopted by the Company, either prior to or after the date of this Agreement, or to have violated the Non-Compete Agreement, as defined in Section 1.3, (a) all of Grantee’s rights under the Plan and any agreements evidencing an Award granted under the Plan, including this Agreement evidencing this Award, then held by Grantee shall terminate and be forfeited upon the effectiveness of such Committee action, and without notice of any kind, and (b) the Committee in its sole discretion may require Grantee to surrender and return, transfer or assign to the Company all or any portion of the shares of Common Stock received, or to disgorge all or any profits or any other economic value (however defined by the Committee) made or realized by Grantee or Grantee’s affiliate, during the period beginning one (1) year prior to your termination of employment or service with the Employer, in connection with any Awards granted under the Plan, including this Award, or any shares of Common Stock issued upon the exercise or vesting of any Awards, including this Award. This Section 9 shall not apply and shall automatically become void ab initio following a Change of Control.

10.    Miscellaneous.

10.1    Binding Effect. This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2    Governing Law. This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota, without regard to conflicts of laws provisions. Any legal proceeding related to this Agreement will be brought in an appropriate Minnesota court and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3    Entire Agreement. This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and vesting of this Award and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and vesting of this Award and the administration of the Plan.

7

Exhibit 10.2

10.4    Amendment and Waiver. Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties to this Agreement or, in the case of a waiver, by the party waiving compliance.

10.5    Code Section 409A. Payment of amounts under this Agreement are intended to comply with the requirements of Code section 409A and this Agreement shall in all respects be administered and construed to give effect to such intent. The Committee in its sole discretion may accelerate or delay distribution of any shares in payment of amounts due under this Agreement if and to the extent allowed under Code section 409A.

8

Exhibit 10.2

The parties hereto have executed this Agreement effective the day and year first above written.

	SELECT COMFORT CORPORATION
	/s/ Shelly Ibach
	Shelly Ibach
	President and CEO
By execution of this Agreement, the Grantee acknowledges having received a copy of the Plan.	GRANTEE
	(Signature)
	(Name and Address)

9

Exhibit 10.2

EMPLOYEE INVENTIONS, CONFIDENTIALITY, NON-COMPETE AND MUTUAL ARBITRATION AGREEMENT

PARTIES:	Select Comfort Corporation 9800 59th Ave N Minneapolis, MN 55442	(the "Company")
		(the "Employee")
		(Address)
Date

THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION

WHICH MAY BE ENFORCED BY THE PARTIES.

WHEREAS, the Company is in the business of designing, manufacturing and selling beds and related products, a worldwide and highly competitive business, and has expended considerable time, effort and resources in the development of trade secrets, confidential information, and customer goodwill, and in the recruitment and training of its workforce; and

WHEREAS, the success of the Company is dependent in large measure on the preservation of its intangible assets, including trade secrets, confidential information, customer goodwill and its workforce, and in the prevention of unfair competition, and the Company desires to obtain reasonable protection against unfair competition and reasonable protection of its assets and business information that have been developed and acquired at substantial expense; and

WHEREAS, as a condition to the receipt of the grant of an Incentive Award under the Select Comfort Corporation Amended and Restated 2010 Omnibus Incentive Plan, the Company requires Employee to agree and Employee hereby does agree, to reasonable restrictions on Employee’s activities during and for a reasonable period of time after Employee’s termination of employment, for the purpose of ensuring the preservation and protection of the Company’s assets; and

WHEREAS, the Company and Employee seek to resolve any differences as soon as possible after they may arise and agree to resolve any otherwise unresolved dispute arising out of the employment relationship by binding arbitration; and

WHEREAS, for purposes of this Agreement, the term "Company" shall be deemed to include Select Comfort together with each of its affiliated, parent or subsidiary corporations;

10

Exhibit 10.2

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Inventions.

A. "Inventions" includes inventions, discoveries, improvements, technology, processes, ideas, designs, concepts, patent applications, prototypes, software code, trademarks, documentation (whether or not they are in writing or reduced to practice) or works of authorship (whether or not they can be patented or copyrighted) that the Employee makes, authors, or conceives (either alone or with others) and that:

i) concern directly the Company's business or the Company's present or demonstrably anticipated future research or development;

ii) result from any work the Employee performs for the Company;

ii) use the Company's equipment, supplies, facilities, or trade secret information; or

iv) the Employee develops during the time the Employee is performing employment duties for the Company.

B. The Employee agrees that all Inventions made, authored or conceived by the Employee during the term of the Employee's employment with the Company will be considered “works made for hire ”as defined in the Copyright Act at 17 U.S.C § 201(b) and will be the Company's sole and exclusive property. The Employee will, with respect to any Invention:

i) keep current, accurate, and complete records, which will belong to the Company and will be kept and stored on the Company's premises while the Employee is employed by the Company;

ii) promptly and fully disclose the existence and describe the nature of the Invention to the Company in writing (and without request);

iii) assign (and the Employee does hereby assign) to the Company all of the Employee's rights to the Invention, any applications the Employee makes for patents or copyrights in any country, and any patents or copyrights granted to the Employee in any country; and

iv) acknowledge and deliver promptly to the Company any written instruments, and perform any other acts necessary in the Company's opinion to preserve property rights in the Invention against forfeiture, abandonment or loss and to obtain and maintain letters patent and/or copyrights on the Invention and to vest the entire right and title to the Invention in the Company; and

v) waives and agrees never to assert any and all Moral Rights Employee may

11

Exhibit 10.2

have in or with respect to any such works. “Moral Rights” means any rights to claim authorship of a work, to object to or prevent any distortion or other modification of a work, or to withdraw from circulation or control the publication or distribution of a work, and any similar right, now or in the future existing under the law of any country in the world, regardless of whether or not such right is denominated or generally referred to as a Moral Right.

The requirements of this subsection 1(B) do not apply to an Invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, and (1) which does not relate directly to the Company's business or to the Company's actual or demonstrably anticipated research or development, or (2) which does not result from any work the Employee performed for the Company. With respect to any obligations performed by the Employee under this subsection 1(B) following termination of employment, the Company will pay the Employee reasonable hourly compensation (consistent with the last base salary) and will pay or reimburse all reasonable out-of-pocket expenses.

In the event of any dispute, arbitration or litigation concerning whether an invention, improvement or discovery made or conceived by Employee is the property of the Company, such invention, improvement or discovery will be presumed the property of the Company and Employee will bear the burden of establishing otherwise.

2. Confidential Information

A. "Confidential Information" means any information that the Employee learns or develops in the course of employment with the Company and that derives independent economic value from not being generally known, or not being readily ascertainable, by proper means, by other persons who can obtain economic value from the disclosure or use of such information. Such information includes, but is not limited to, the Company’s sales, pricing, financial and statistical information, information about new or future products or services, the Company’s present, past and future marketing and strategic plans and goals, lists of the Company’s customers, information about customer purchases and preferences, advertising information, business plans, product development information, delivery schedules, market research, forecasts, non-public personnel information, methods of operation, financial data, statements and projections, pricing information, costs, sales, budgets, profits and merger, acquisition, expansion or divestiture information, information regarding management systems, computer software and programs, Inventions and any other confidential information which provides the Company with a competitive advantage. Any information that the Employee reasonably considers to be Confidential Information, or that the Company treats as Confidential Information (whether the Employee or others originated it and regardless of how the Employee obtained it) will be deemed to be Confidential Information.

B. Except as specifically authorized by the Company, the Employee will never, either during or after the Employee's employment by the Company, use or disclose Confidential Information to any person or entity. When the Employee's employment

12

Exhibit 10.2

with the Company ends, the Employee will promptly deliver to the Company all records and any compositions, articles, devices, apparatus and other items that disclose, describe or embody Confidential Information, including all copies, reproductions and specimens of the Confidential Information in the Employee's possession, regardless of who prepared them, and will promptly deliver any other property of the Company in the Employee's possession, whether or not Confidential Information. Employee acknowledges and agrees that all such documents and tangible materials, and copies or duplicates thereof, including Employee’s own notes, are the Company’s property which is only entrusted to Employee on a temporary basis. After returning these documents, data, and other property, Employee will immediately permanently delete from any electronic media in Employee’s possession, custody, or control (such as computers, mobile phones, hand-held devices, tablets, back-up devices, zip drives, MP3 players, PDAs, etc.) or to which Employee has access (such as the cloud remote e-mail exchange servers, back-up servers, off-site storage, etc.), all Company documents or electronically stored images, and other data or data compilations stored in any medium from which such information can be obtained. Employee also agrees to provide the Company with a list of any documents that Employee created or is otherwise aware that are password-protected and the password(s) necessary to access such password-protected documents.

C. In the event that the Employee becomes legally required or compelled, by deposition, interrogatory, request for documents, subpoena, civil investigative demand or by any similar process or court or administrative order, to disclose any Confidential Information, then Employee shall provide Company with prompt written notice of such legal requirement so that Company may seek a protective order or such other appropriate remedy or, at Company’s sole discretion, waive compliance with the terms of this Agreement. In the event that such protective order or other remedy is sought by Company, Employee agrees to reasonably cooperate in the pursuit of obtaining such protective order or other remedy at Company’s reasonable expense. In the event that such protective order or other remedy is not obtained, and regardless of whether or not Company waives compliance with the terms of this Agreement, the Employee agrees to disclose only that portion of the Confidential Information which the Employee is legally required to disclose and to exercise its best efforts to obtain assurances that confidential treatment will be accorded such Confidential Information so disclosed.

3. Competitive Activities:

A. The Employee agrees that, during the term of the Employee's employment with the Company, the Employee will not, alone or in any capacity with another person or entity directly or indirectly engage in any commercial activity (including without limitation working on, consulting on or otherwise rendering services in any capacity, whether as an employee, advisor, paid or unpaid consultant, independent contractor, principal, agent, partner, officer, director, shareholder, or otherwise) that competes with the Company's business as the Company has conducted it during the preceding five years, within any state in the United States or within any country in which the Company directly or indirectly markets or services products or provides

13

Exhibit 10.2

services.

B. The Employee agrees that during the term of the Employee’s employment with the Company and for a period of one (1) year after the Employee’s employment with the Company ends, the Employee will not, directly or indirectly, alone or in any capacity with another person or entity:

i) engage in any commercial activity as described above that competes with the Company's business as the Company has conducted it during the five years before the Employee's employment with the Company ends, within any state in the United States or within any country in which the Company directly or indirectly markets or services products or provides services;

ii) interfere or attempt to interfere with the Company's relationships with any of its current or prospective customers or vendors, by soliciting competing business from or having any competitive business-related contact with the customer or vendor or otherwise; or

ii) employ, attempt to employ or otherwise contract for services with any person or entity who is then employed or engaged by the Company (whether as an employee or an independent contractor) on behalf of Employee or any other person or entity, or take any action to induce any person or entity then employed or engaged by the Company (whether as an employee or independent contractor) to terminate their employment or engagement with the Company.

C. The provisions of Section 3(B) shall not prevent the Employee from seeking employment during such one-year period so long as such employment commences after the expiration of such period and does not require, induce or result in the disclosure of any trade secrets or other confidential or proprietary information of the Company. Employee acknowledges and agrees that should his employment with the Company end, the restrictions on Employee’s activities referenced in this Agreement will not prevent Employee from earning a living outside of the Company after this employment with the Company ends.

4. Conflict of Interest. Employee agrees not to engage in any conduct which might result in, or create the appearance of using Employee’s position for private gain, or otherwise create a conflict of interest or the appearance of a conflict of interest with the Company. Such conduct includes without limitation having an undisclosed financial interest in any vendor or supplier of the Company, accepting payments of any kind or gifts other than of a nominal value from vendors, customers or suppliers, or having an undisclosed relationship with a family member or other individual who is employed by any entity in active or potential competition with the Company, and which creates a conflict of interest. While still employed at the Company, Employee must not take any preliminary or preparatory steps toward establishing or operating a competing business.

5. E-Mail Messages/Internet Usage. Employee acknowledges that all e-mail messages that Employee produces, sends or receives while at Company facilities or

14

Exhibit 10.2

using Company equipment are the property of the Company. Employee also understands that the Company may monitor and inspect all such messages and may also monitor and control the communications that Employee initiates or receives through the Internet while at Company facilities and while using Company equipment in any location. Employee acknowledges that Employee has no right to or expectation of privacy in such communications. Employee agrees to cooperate with the Company in its implementation of such security and control measures as it may implement from time to time with respect to e-mail and Internet communications and shall take all reasonable precautions to ensure that the confidentiality of any such communications containing trade secrets and Confidential Information is maintained. Employee also agrees that the Internet may not be used for the transmission or intentional reception of obscene, scandalous, offensive or otherwise inappropriate materials, and that Employee will comply with Company policies regarding appropriate use of the Internet and e-mail.

6. Remedies for Breach of the Inventions, Confidentiality and Competitive Activities Provisions of this Agreement. Employee recognizes that if Employee violates the Inventions, Confidentiality or Competitive Activities provisions of this Agreement, the damages to the Company would be difficult to determine and to remedy by monetary damages. Therefore, in the event of any such breach by Employee, or in the event of any apparent danger of such breach, the Company shall be entitled, in addition to any other legal or equitable remedies available to the Company, including actual, incidental and consequential damages, to obtain injunctive relief restraining Employee from violating this Agreement, without the requirement of posting bond, and to recover from Employee its reasonable attorneys’ fees and costs incurred in enforcing this Agreement. In addition, in the event Employee violates the Inventions, Confidentiality or Competitive Activities provisions of this Agreement while Employee has the right to exercise stock options or SARs under the Select Comfort Corporation Amended and Restated 2010 Omnibus Incentive Plan (the “Incentive Plan”) or to vest in restricted stock or receive payouts under any restricted stock unit award, performance award, or other cash-based or stock based award issued under the Incentive Plan, then all of Employee’s outstanding stock options, SARs, restricted stock units, performance awards and other cash-based and stock-based awards shall terminate immediately.

7. Mutual Agreement to Arbitrate; Waiver of Jury Trial. Company is committed to work cooperatively with its employees to resolve any differences as soon as possible after they arise. Before pursing arbitration to resolve any differences that may arise during or after the employment relationship, Employee and Company agree to seek resolution through the Company’s internal procedures and/or reporting, to the extent doing so does not prejudice the rights of either party. If internal resolution fails, the parties agree to arbitrate their differences as set forth below.

Employee and the Company agree that, except as otherwise provided in this Agreement, any claim arising out of Employee’s employment with the Company, termination of employment or any other dispute, including any claim that could have been presented to or could have been brought before any court, shall be submitted

15

Exhibit 10.2

to and resolved by binding arbitration under the Federal Arbitration Act (“FAA”).

A. Claims Covered by this Arbitration Agreement. Except as otherwise provided in this Agreement, the Company and the Employee consent to the resolution by arbitration of all claims or controversies arising out of, relating to or associated with the Employee’s employment or termination of employment including, without limitation, claims under the Age Discrimination in Employment Act; Title VII of the Civil Rights Act of 1964; the Fair Labor Standards Act; the Americans with Disabilities Act of 1990; sections 1981 through 1988 of Title 42 of the United States Code; the Family and Medical Leave Act; all human rights, civil rights, fair employment, whistleblower and anti-retaliation laws and all non-discrimination laws of the state(s) where Employee is employed; all state wage and hour laws of the state(s) where Employee is employed; and any cause of action based on any public policy, contract, tort or common law arising out of or related to Employee’s employment. All claims and defenses that could be raised before a government administrative agency or court must be raised in arbitration and the arbitrator shall apply the law accordingly. Employee expressly agrees that he/she will not serve as a class representative or a member of a class or collective action with respect to any dispute the Employee may have against the Company. Employee agrees that any arbitration shall be conducted on an individual basis only and not on a class-wide, multiple plaintiff, consolidated, collective, or similar basis.

B. Process. Any controversy or claim arising out of or relating to the making, performance or interpretation of this Agreement, including without limitation alleged fraudulent inducement thereof, shall be settled by binding arbitration in Minneapolis, Minnesota. The party invoking arbitration shall notify the other party in writing. The arbitration shall be conducted in accordance with the American Arbitration Association’s National Rules for the Resolution of Employment Disputes. The parties shall exercise their best efforts, in good faith, to agree upon selection of a single arbitrator. If the parties are unable to agree upon selection of a single arbitrator, they shall so notify the American Arbitration Association (“AAA”) or another agreed upon arbitration administrator and request that the arbitration provider work with the parties to select a single arbitrator. The arbitrator shall have no authority to assess punitive or exemplary damages as to any dispute arising out of or concerning the provisions of this Agreement or otherwise arising out of the employment relationship, except as and unless such damages are expressly authorized by otherwise applicable and controlling statutes and case law interpreting those statutes. All other claims that are subject to binding arbitration shall be conducted in the judicial district where Employee is/was employed by the Company. To the extent permitted by applicable law, each party shall bear its own costs, including attorneys’ fees, and share all costs of the arbitration equally. Nothing provided herein shall interfere with either party’s right to seek or receive damages or costs as may be allowed by applicable statutory law.

In the event that this agreement to resolve claims by arbitration is unenforceable in any jurisdiction, Company and Employee agree to submit their claim(s) for resolution by a bench trial (trial by judge), specifically waiving a jury as the ultimate fact finder.

16

Exhibit 10.2

C. Waiver of Right to Trial by Jury. Each party expressly waives any right, whether pursuant to any applicable federal, state, or local statute, to a jury trial and/or to have a court of law determine rights and award damages with respect to any such dispute.

D. Claims Not Covered by this Arbitration Agreement. Claims not covered by this Arbitration Agreement are claims for:

i) Workers’ compensation benefits;

ii) Unemployment compensation benefits;

iii) Injunctive, equitable or other relief relating to unfair competition, non-compete and/or unauthorized disclosure of trade secrets or Confidential Information, as to which the Company or Employee may seek and obtain relief from a court of competent jurisdiction as provided in Section 7(C);

iv) Benefits and/or welfare plans that contain an appeal procedure or other procedure for the resolution of disputes under the plan(s); or

v) Relief already filed with a court or government agency before implementation of this Agreement.

Nothing in this Agreement shall prevent Employee from participating in any investigation conducted by any federal, state, or local government agency. Nothing in this Agreement is intended to prohibit the Employee from engaging in concerted activity or exercising any substantive right Employee may have under the National Labor Relations Act (“NLRA”).

E. Applicable Time Limits; Rules. Any claim for arbitration will be timely only if brought within the time in which an administrative charge or complaint would have been filed if the claim is one that could be filed with an administrative agency. If the arbitration claim raises an issue that could not have been filed with an administrative agency, then the claim must be filed within the time set by the appropriate statute of limitation. A copy of the Employment Arbitration Rules is available from your Human Capital Business Partner and from the AAA website at www.adr.org.

F. Arbitrator’s Award. The arbitrator’s award, which shall be written, shall be final and binding upon the parties. The arbitrator shall have the power to award any type of legal or equitable relief available in a court of competent jurisdiction including, without limitation, attorney’s fees and/or costs, to the extent such damages are available under law. An arbitrator’s award shall be final and binding and enforceable and may be entered in any court having jurisdiction as a final judgment.

8. Consideration for Agreement. Employee understands and agrees that the Company’s grant of an Incentive Award to the Employee under the Select Comfort

17

Exhibit 10.2

Corporation Amended and Restated 2010 Omnibus Incentive Plan conditioned on the Employee’s execution of this Agreement constitutes independent and sufficient consideration for all provisions of this Agreement. As additional consideration from the Company for Employee to sign the arbitration provisions of this Agreement, Company agrees to pay all costs of arbitration charged by the AAA and to be bound by the arbitration procedure set forth in this Agreement. Additional consideration in support of this Agreement is each party’s promise to resolve claims by arbitration in accordance with the provisions of this Agreement, rather than through the courts.

Employee agrees not to challenge the independent nature or sufficiency of this consideration, either during the term of employment with the Company or at any time thereafter.

9. Miscellaneous

A. Employment Terminable at Will. The Employee acknowledges and agrees that the Employee's employment with the Company is terminable at will, either by the Employee or by the Company, for any or no reason and without notice, regardless of the length of employment or the granting of benefits of any kind, including without limitation any benefits that provide for vesting based upon length of employment.

B. Modification. This Agreement may be modified or amended only by a writing manually signed by both the Company and the Employee.

C. Governing Law; Jurisdiction. The terms of this Agreement shall be construed and enforced in accordance with the laws of the State of Minnesota. The venue for any action arising out of Sections 1, 2 or 3 of this Agreement shall be exclusively in the State of Minnesota, whether or not such venue is or subsequently becomes inconvenient, and the parties consent to the jurisdiction of the state and federal courts located in the State of Minnesota.

D. Construction. Wherever possible, each provision of this Agreement will be interpreted so that it is valid under the applicable law. If any provision of this Agreement is to any extent invalid under the applicable law, that provision will still be effective to the extent it remains valid and an arbitrator or court shall have the power to blue-line (amend, modify or delete) that portion thus adjudicated to be invalid or unenforceable. To the extent permitted and possible, the invalid or unenforceable term shall be deemed replaced by a term that is valid and enforceable and that comes closest to expressing the intention of such invalid or unenforceable term. The remainder of this Agreement also will continue to be valid, and the entire Agreement will continue to be valid in other jurisdictions. Should the duration or geographical extent of, or business activities covered by, any provision of this Agreement be in excess of that which is valid and enforceable under applicable law, then such provision shall be construed to cover only that duration, extent or activities which may validly and enforceably be covered. If any portion of this Agreement is adjudicated to be invalid or unenforceable, the remaining provisions shall not be affected thereby,

18

Exhibit 10.2

E. Waivers. No failure or delay by either the Company or the Employee in exercising any right or remedy under this Agreement will waive any provision of the Agreement. Nor will any single or partial exercise by either the Company or the Employee of any right or remedy under this Agreement preclude either of them from otherwise or further exercising these rights or remedies, or any other rights or remedies granted by any law or any related document.

F. Captions. The headings in this Agreement are for convenience only and do not affect this Agreement's interpretation.

G. Notices. All notices and other communications required or permitted under this Agreement shall be in writing and sent by certified first-class mail, postage prepaid, return receipt requested, and shall be effective five days after mailing to the addresses stated at the beginning of this Agreement. These addresses may be changed at any time by like notice.

H. Binding Effect; Assignment. Except as herein or otherwise provided to the contrary, this Agreement shall be binding on and inure to the benefit of the parties and their respective heirs, successors, assigns and personal representatives. The Company may assign its rights and obligations under this Agreement without the consent of Employee. Employee may not assign any rights or obligations under this Agreement without the prior written consent of the Company.

I. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original of this Agreement and all of which, when taken together, shall constitute one and the same Agreement. Employee agrees that his/her typed and electronically transmitted signature below shall constitute a valid, signed original signature reflecting Employee’s assent to the terms of this Agreement. Additionally, a signed facsimile or copy of this agreement shall constitute a signed original.

J. Integration. This Agreement embodies the entire agreement and understanding between the parties relating to the subject matter addressed herein and supersedes all prior agreements and understandings related to such subject matter. In signing this Agreement, neither party is relying on any representation, oral or written, on the subject of the effect, enforceability nor meaning of this Agreement, except as specifically stated herein.

K. Survival. The obligations of this Agreement will survive the termination of Employee’s employment, voluntary or involuntary, regardless of the reason for termination.

L. Acknowledgments, Representations and Warranties. Employee states that Employee has made no misrepresentations on Employee’s resume or otherwise in the application or interview process. Employee represents and warrants that neither the Employee’s employment with the Company nor Employee’s performance of

19

Exhibit 10.2

Employee’s obligations hereunder will conflict with or violate, or otherwise are inconsistent with, any contractual or other obligations, legal or otherwise, which Employee may have. Employee covenants that Employee will perform Employee’s duties in a professional manner and not in conflict or violation, or otherwise inconsistent with, any other obligations, legal or otherwise, which Employee may have. Employee acknowledges that Employee has had the opportunity to seek legal advice regarding this Agreement. Employee has read and understands this Agreement and agrees to all its terms and conditions.

IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the date first above written.

	SELECT COMFORT CORPORATION
	/s/ Shelly Ibach
	Shelly Ibach
	President and CEO
By execution of this Agreement, the Grantee acknowledges having received a copy of the Plan.	EMPLOYEE
	(Signature)
	(Name and Address)

20

EX-31.1

Exhibit 31.1

Certification by Chief Executive Officer

I, Shelly R. Ibach, certify that:

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

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

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

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

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

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

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

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

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

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

Date:	May 1, 2017
		/s/ Shelly R. Ibach
		Shelly R. Ibach
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification by Chief Financial Officer

I, David R. Callen, certify that:

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

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

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

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

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

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

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

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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

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

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

Date:	May 1, 2017
		/s/ David R. Callen
		David R. Callen
		Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Select Comfort Corporation (the “Company”) on Form 10-Q for the quarter ended April 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Shelly R. Ibach, Chief Executive Officer of the Company, solely for the purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, does hereby certify, to her knowledge, that:

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

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

Date:	May 1, 2017
		/s/ Shelly R. Ibach
		Shelly R. Ibach
		Chief Executive Officer

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

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

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Select Comfort Corporation (the “Company”) on Form 10-Q for the quarter ended April 1, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David R. Callen, Senior Vice President and Chief Financial Officer of the Company, solely for the purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, does hereby certify, to his knowledge, that:

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

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

Date:	May 1, 2017
		/s/ David R. Callen
		David R. Callen
		Senior Vice President and Chief Financial Officer

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

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

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Document and Entity Information	3 Months Ended
	Apr. 01, 2017 shares
Document and Entity Information [Abstract]
Entity Registrant Name	SELECT COMFORT CORP
Entity Central Index Key	0000827187
Current Fiscal Year End Date	--12-30
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Apr. 01, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding	41,676,000

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Consolidated Balance Sheets - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 36,452	$ 11,609
Accounts receivable, net of allowance for doubtful accounts of $967 and $884, respectively	18,227	19,705
Inventories	66,858	75,026
Prepaid expenses	10,673	8,705
Other current assets	16,812	23,282
Total current assets	149,022	138,327
Non-current assets:
Property and equipment, net	207,192	208,367
Goodwill and intangible assets, net	79,223	80,817
Deferred income taxes	0	4,667
Other non-current assets	27,308	24,988
Total assets	462,745	457,166
Current liabilities:
Accounts payable	106,661	105,375
Customer prepayments	30,650	26,207
Accrued sales returns	18,201	15,222
Compensation and benefits	31,058	19,455
Taxes and withholding	28,068	23,430
Other current liabilities	37,551	35,628
Total current liabilities	252,189	225,317
Non-current liabilities:
Deferred income taxes	996	0
Other non-current liabilities	75,409	71,529
Total liabilities	328,594	296,846
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.01 par value; 142,500 shares authorized, 41,676 and 43,569 shares issued and outstanding, respectively	417	436
Additional paid-in capital	0	0
Retained earnings	133,734	159,884
Total shareholders’ equity	134,151	160,320
Total liabilities and shareholders’ equity	$ 462,745	$ 457,166

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Current assets:
Accounts receivable, net of allowance for doubtful accounts	$ 967	$ 884
Shareholders’ equity:
Undesignated preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Undesignated preferred stock, shares issued (in shares)	0	0
Undesignated preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	142,500,000	142,500,000
Common stock, shares issued (in shares)	41,676,000	43,569,000
Common stock, shares outstanding (in shares)	41,676,000	43,569,000

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Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Income Statement [Abstract]
Net sales	$ 393,899	$ 352,980
Cost of sales	147,440	143,906
Gross profit	246,459	209,074
Operating expenses:
Sales and marketing	169,266	150,668
General and administrative	33,769	30,906
Research and development	7,596	7,602
Total operating expenses	210,631	189,176
Operating income	35,828	19,898
Other expense, net	(138)	(97)
Income before income taxes	35,690	19,801
Income tax expense	11,229	6,832
Net income	$ 24,461	$ 12,969
Basic net income per share:
Net income per share – basic	$ 0.57	$ 0.27
Weighted-average shares – basic	42,750,000	48,100,000
Diluted net income per share:
Net income per share – diluted	$ 0.56	$ 0.27
Weighted-average shares – diluted	43,712,000	48,845,000

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 24,461	$ 12,969
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax	0	14
Comprehensive income	$ 24,461	$ 12,983

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Consolidated Statement of Shareholders' Equity - 3 months ended Apr. 01, 2017 - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]
Balance (in shares) at Dec. 31, 2016	43,569,000	43,569,000
Balance at Dec. 31, 2016	$ 160,320	$ 436	$ 0	$ 159,884
Net income	24,461			24,461
Exercise of common stock options (in shares)		25,000
Exercise of common stock options	460	$ 0	460	0
Stock-based compensation (in shares)		506,000
Stock-based compensation	3,704	$ 5	3,699	0
Repurchases of common stock (in shares)		(2,424,000)
Repurchases of common stock	$ (54,794)	$ (24)	(4,159)	(50,611)
Balance (in shares) at Apr. 01, 2017	41,676,000	41,676,000
Balance at Apr. 01, 2017	$ 134,151	$ 417	$ 0	$ 133,734

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Cash flows from operating activities:
Net income	$ 24,461	$ 12,969
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,205	13,854
Stock-based compensation	3,704	3,766
Net loss on disposals and impairments of assets	0	1
Excess tax benefits from stock-based compensation	0	(26)
Deferred income taxes	5,663	1,622
Changes in operating assets and liabilities:
Accounts receivable	1,478	8,816
Inventories	8,168	5,633
Income taxes	5,541	16,558
Prepaid expenses and other assets	2,880	(1,272)
Accounts payable	(1,394)	(495)
Customer prepayments	4,443	(20,537)
Accrued compensation and benefits	11,693	10,677
Other taxes and withholding	(903)	7,493
Other accruals and liabilities	4,930	4,922
Net cash provided by operating activities	86,869	63,981
Cash flows from investing activities:
Purchases of property and equipment	(13,211)	(12,289)
Proceeds from marketable debt securities	0	15,090
Proceeds from sales of property and equipment	0	14
Decrease in restricted cash	(3,150)	0
Net cash (used in) provided by investing activities	(10,061)	2,815
Cash flows from financing activities:
Repurchases of common stock	(54,794)	(51,240)
Net increase (decrease) in short-term borrowings	2,369	(6,661)
Proceeds from issuance of common stock	460	6
Excess tax benefits from stock-based compensation	0	26
Debt issuance costs	0	(401)
Net cash used in financing activities	(51,965)	(58,270)
Net increase in cash and cash equivalents	24,843	8,526
Cash and cash equivalents, at beginning of period	11,609	20,994
Cash and cash equivalents, at end of period	$ 36,452	$ 29,520

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Basis of Presentation

3 Months Ended

Apr. 01, 2017

Accounting Policies [Abstract]

Basis of Presentation

Business and Summary of Significant Accounting Policies

Business & Basis of Presentation

We prepared the condensed consolidated financial statements as of and for the three months endedApril 1, 2017 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort 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 April 1, 2017 and December 31, 2016, and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period.

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

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

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

Revenue Recognition

At April 1, 2017 and December 31, 2016, we had deferred revenue totaling $66.6 million and $61.3 million, of which $23.7 million and $21.0 million are included in other current liabilities, respectively, and $42.9 million and $40.3 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $37.0 million and $33.2 million, of which $13.3 million and $11.6 million are included in other current assets, respectively, and $23.7 million and $21.6 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years.

New Accounting Pronouncements

Adopted

In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three months ended April 1, 2017, excess tax benefits of $0.8 million were recognized as a reduction of income tax expense, rather than in additional paid-in capital.

In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $1.2 million for the three months ended April 1, 2017. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted.

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

Not Yet Adopted

In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance was originally effective for fiscal years beginning after December 15, 2016 and early adoption was not permitted. In July 2015, the FASB deferred the effective date from fiscal years beginning after December 15, 2016 to fiscal years beginning after December 15, 2017 (including interim reporting periods within those fiscal years). Early adoption is permitted to the original effective date of fiscal years beginning after December 15, 2016 (including interim reporting periods within those fiscal years). Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method.

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

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Fair Value Measurements

3 Months Ended

Apr. 01, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

At April 1, 2017 and December 31, 2016, we had $2.6 million and $2.3 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 $2.6 million and $2.3 million at April 1, 2017 and December 31, 2016, 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.

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Inventories

3 Months Ended

Apr. 01, 2017

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consisted of the following (in thousands):

	April 1, 2017		December 31, 2016
Raw materials	$	4,846	$	7,973
Work in progress	411		72
Finished goods	61,601		66,981
	$	66,858	$	75,026

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Goodwill and Intangible Assets

3 Months Ended

Apr. 01, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets, Net    

Goodwill and Indefinite-Lived Intangible Assets

Goodwill was $64.0 million at April 1, 2017 and December 31, 2016. Indefinite-lived trade name/trademarks totaled $1.4 million at April 1, 2017 and December 31, 2016.

Definite-Lived Intangible Assets

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

	April 1, 2017				December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	5,070	$	18,851	$	4,524
Customer relationships	2,413		2,413		2,413		1,365
Trade names/trademarks	101		101		101		101
	$	21,365	$	7,584	$	21,365	$	5,990

Amortization expense for the three months ended April 1, 2017 and April 2, 2016, was $1.6 million and $0.6 million, respectively.

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Credit Agreement

3 Months Ended

Apr. 01, 2017

Debt Disclosure [Abstract]

Debt

Credit Agreement

In March 2017, we amended our revolving credit facility to increase our net aggregate availability from $150 million to $153.15 million. As of April 1, 2017, availability under our credit facility was $150 million, with a $3.15 million letter of credit outstanding, and we were in compliance with all financial covenants. We maintained the accordion feature which allows us to increase the amount of the credit facility from $153.15 million to $200 million, subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions.

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

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Repurchase of Common Stock

3 Months Ended

Apr. 01, 2017

Repurchase of Common Stock [Abstract]

Repurchase of Common Stock

Repurchase of Common Stock

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Amount repurchased under Board-approved share repurchase program	$	50,000	$	50,000
Amount repurchased in connection with the vesting of employee restricted stock grants	4,794		1,240
Total amount repurchased	$	54,794	$	51,240

As of April 1, 2017, the remaining authorization under our Board-approved share repurchase program was $195 million. There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.

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Stock-Based Compensation

3 Months Ended

Apr. 01, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation Expense

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Stock awards	$	3,136	$	3,151
Stock options	568		615
Total stock-based compensation expense	3,704		3,766
Income tax benefit	1,248		1,299
Total stock-based compensation expense, net of tax	$	2,456	$	2,467

In addition to the income tax benefit related to stock-based compensation expense in the table above, excess tax benefits of $0.8 million were recognized as a reduction of income tax expense during the three months ended April 1, 2017. No amounts related to excess tax benefits were recognized in income tax expense during the three months ended April 2, 2016. See Note 1, New Accounting Pronouncements, for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017.

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Profit Sharing and 401(k) Plan

3 Months Ended

Apr. 01, 2017

Profit Sharing and 401 (k) Plan [Abstract]

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan

Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each calendar quarter, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months endedApril 1, 2017 and April 2, 2016, our contributions, net of forfeitures, were $1.3 million and $1.3 million, respectively.

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Other (Expense) Income, Net

3 Months Ended

Apr. 01, 2017

Other Income and Expenses [Abstract]

Other (Expense) Income, Net

Other Expense, Net

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Interest expense	$	(182	)	$	(106	)
Interest income	44			9
Other expense, net	$	(138	)	$	(97	)

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Net Income Per Common Share

3 Months Ended

Apr. 01, 2017

Earnings Per Share [Abstract]

Net Income per Common Share

Net Income per Common Share

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Net income	$	24,461	$	12,969
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	42,750		48,100
Dilutive effect of stock-based awards	962		745
Diluted weighted-average shares outstanding	43,712		48,845
Net income per share – basic	$	0.57	$	0.27
Net income per share – diluted	$	0.56	$	0.27

Anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial for the periods presented.

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Commitments and Contingencies

3 Months Ended

Apr. 01, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Sales Returns

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	15,222		$	20,562
Additions that reduce net sales	21,184			23,636
Deductions from reserves	(18,205		)	(21,288		)
Balance at end of period	$	18,201		$	22,910

Warranty Liabilities

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	8,633		$	10,028
Additions charged to costs and expenses for current-year sales	2,718			3,585
Deductions from reserves	(2,049		)	(3,272		)
Changes in liability for pre-existing warranties during the current year, including expirations	(57		)	(574		)
Balance at end of period	$	9,245		$	9,767

Legal Proceedings

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

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

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Basis of Presentation (Policies)

3 Months Ended

Apr. 01, 2017

Accounting Policies [Abstract]

Business and Basis of Presentation, Policy

We prepared the condensed consolidated financial statements as of and for the three months endedApril 1, 2017 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort 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 April 1, 2017 and December 31, 2016, and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period.

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

Use of Estimates, Policy

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

Consolidation, Policy

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

Revenue Recognition, Deferred Revenue [Policy Text Block]

Revenue Recognition

At April 1, 2017 and December 31, 2016, we had deferred revenue totaling $66.6 million and $61.3 million, of which $23.7 million and $21.0 million are included in other current liabilities, respectively, and $42.9 million and $40.3 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $37.0 million and $33.2 million, of which $13.3 million and $11.6 million are included in other current assets, respectively, and $23.7 million and $21.6 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years.

New Accounting Pronouncements, Policy

New Accounting Pronouncements

Adopted

In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three months ended April 1, 2017, excess tax benefits of $0.8 million were recognized as a reduction of income tax expense, rather than in additional paid-in capital.

In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $1.2 million for the three months ended April 1, 2017. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted.

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

Not Yet Adopted

In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance was originally effective for fiscal years beginning after December 15, 2016 and early adoption was not permitted. In July 2015, the FASB deferred the effective date from fiscal years beginning after December 15, 2016 to fiscal years beginning after December 15, 2017 (including interim reporting periods within those fiscal years). Early adoption is permitted to the original effective date of fiscal years beginning after December 15, 2016 (including interim reporting periods within those fiscal years). Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method.

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

Stockholders' Equity, Policy

There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings.

Profit Sharing and 401(k) Plan Policy

Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each calendar quarter, we may make a discretionary contribution equal to a percentage of the employee’s contribution.

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Inventories (Tables)

3 Months Ended

Apr. 01, 2017

Inventory Disclosure [Abstract]

Inventories

Inventories consisted of the following (in thousands):

	April 1, 2017		December 31, 2016
Raw materials	$	4,846	$	7,973
Work in progress	411		72
Finished goods	61,601		66,981
	$	66,858	$	75,026

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Apr. 01, 2017

Finite-Lived Intangible Assets [Line Items]

Definite-Lived Intangible Assets

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

	April 1, 2017				December 31, 2016
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Developed technologies	$	18,851	$	5,070	$	18,851	$	4,524
Customer relationships	2,413		2,413		2,413		1,365
Trade names/trademarks	101		101		101		101
	$	21,365	$	7,584	$	21,365	$	5,990

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Repurchase of Common Stock (Tables)

3 Months Ended

Apr. 01, 2017

Repurchase of Common Stock [Abstract]

Repurchase of Common Stock

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Amount repurchased under Board-approved share repurchase program	$	50,000	$	50,000
Amount repurchased in connection with the vesting of employee restricted stock grants	4,794		1,240
Total amount repurchased	$	54,794	$	51,240

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Stock-Based Compensation (Tables)

3 Months Ended

Apr. 01, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Stock awards	$	3,136	$	3,151
Stock options	568		615
Total stock-based compensation expense	3,704		3,766
Income tax benefit	1,248		1,299
Total stock-based compensation expense, net of tax	$	2,456	$	2,467

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Other (Expense) Income, Net (Tables)

3 Months Ended

Apr. 01, 2017

Other Income and Expenses [Abstract]

Other (Expense) Income, Net

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Interest expense	$	(182	)	$	(106	)
Interest income	44			9
Other expense, net	$	(138	)	$	(97	)

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Net Income Per Common Share (Tables)

3 Months Ended

Apr. 01, 2017

Earnings Per Share [Abstract]

Net Income per Common Share

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

	Three Months Ended
	April 1, 2017		April 2, 2016
Net income	$	24,461	$	12,969
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	42,750		48,100
Dilutive effect of stock-based awards	962		745
Diluted weighted-average shares outstanding	43,712		48,845
Net income per share – basic	$	0.57	$	0.27
Net income per share – diluted	$	0.56	$	0.27

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Commitments and Contingencies (Tables)

3 Months Ended

Apr. 01, 2017

Commitments and Contingencies Disclosure [Abstract]

Sales Returns

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	15,222		$	20,562
Additions that reduce net sales	21,184			23,636
Deductions from reserves	(18,205		)	(21,288		)
Balance at end of period	$	18,201		$	22,910

Warranty Liabilities

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

	Three Months Ended
	April 1, 2017			April 2, 2016
Balance at beginning of year	$	8,633		$	10,028
Additions charged to costs and expenses for current-year sales	2,718			3,585
Deductions from reserves	(2,049		)	(3,272		)
Changes in liability for pre-existing warranties during the current year, including expirations	(57		)	(574		)
Balance at end of period	$	9,245		$	9,767

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Basis of Presentation Deferred Revenue (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Dec. 31, 2016
Deferred Revenue Arrangement [Line Items]
Deferred Revenue	$ 66.6	$ 61.3
Deferred Costs	37.0	33.2
Other Current Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Current	23.7	21.0
Other Noncurrent Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Noncurrent	42.9	40.3
Other Current Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Current	13.3	11.6
Other Noncurrent Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Noncurrent	$ 23.7	$ 21.6
Nonsoftware Service, Support and Maintenance Arrangement [Member]
Deferred Revenue Arrangement [Line Items]
Product's Estimated Life	4 years

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Basis of Presentation New Accounting Pronouncements (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
New Accounting Pronouncements [Abstract]
Excess tax benefits, included in income tax expense	$ 0.8	$ 0.0
Excess Tax Benefit from Share-based Compensation	$ 1.2

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Fair Value Measurements (Details) - Recurring [Member] - Level 1 [Member] - USD ($) $ in Millions	Apr. 01, 2017	Dec. 31, 2016
Other Assets [Member] | Available-for-sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities assets funding the deferred compensation plan	$ 2.6	$ 2.3
Other Noncurrent Liabilities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred compensation plan liability	$ 2.6	$ 2.3

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Inventories (Details) - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 4,846	$ 7,973
Work in progress	411	72
Finished goods	61,601	66,981
Inventories	$ 66,858	$ 75,026

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Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Apr. 01, 2017	Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 64.0	$ 64.0
Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived trade name/trademarks	$ 1.4	$ 1.4

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Goodwill and Intangible Assets Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	Apr. 01, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	$ 21,365	$ 21,365
Finite-Lived Intangible Assets, Accumulated Amortization	7,584	5,990
Developed Technology Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	18,851	18,851
Finite-Lived Intangible Assets, Accumulated Amortization	5,070	4,524
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	2,413	2,413
Finite-Lived Intangible Assets, Accumulated Amortization	2,413	1,365
Trademarks and Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	101	101
Finite-Lived Intangible Assets, Accumulated Amortization	$ 101	$ 101

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Goodwill and Intangible Assets Amortization Expense (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization expense definite-lived intangible assets	$ 1.6	$ 0.6

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Credit Agreement (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Mar. 31, 2017
Line of Credit Facility [Line Items]
Current borrowing capacity	$ 153,150	$ 150,000
Line of Credit Facility, Remaining Borrowing Capacity	150,000
Letters of Credit Outstanding, Amount	3,150
Line of Credit Facility, Maximum Borrowing Capacity	$ 200,000
Line of Credit Facility, Expiration Date	Feb. 24, 2021

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Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Repurchase of Common Stock [Abstract]
Amount repurchased under Board-approved share repurchase program	$ 50,000	$ 50,000
Amount repurchased in connection with the vesting of employee restricted stock grants	4,794	1,240
Total amount repurchased	54,794	$ 51,240
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 195,000

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Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Total stock-based compensation expense	$ 3,704	$ 3,766
Income tax benefit	1,248	1,299
Total stock-based compensation expense, net of tax	2,456	2,467
Excess tax benefits, included in income tax expense	800	0
Time-Based, Performance-Based and Market-Based Stock Awards [Member]
Total stock-based compensation expense	3,136	3,151
Stock Options [Member]
Total stock-based compensation expense	$ 568	$ 615

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Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Defined Contribution Plan Disclosure [Line Items]
Employee compensation deferral (in hundredths)	50.00%
Employer contributions	$ 1.3	$ 1.3

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Other (Expense) Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Other Income and Expenses [Abstract]
Interest expense	$ (182)	$ (106)
Interest income	44	9
Other expense, net	$ (138)	$ (97)

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Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Net Income per Common Share [Abstract]
Net income	$ 24,461	$ 12,969
Basic weighted-average shares outstanding	42,750,000	48,100,000
Dilutive effect of stock-based awards	962,000	745,000
Diluted weighted-average shares outstanding	43,712,000	48,845,000
Net income per share – basic (in USD per share)	$ 0.57	$ 0.27
Net income per share – diluted (in USD per share)	$ 0.56	$ 0.27

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Commitments and Contingencies Sales Return Liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Sales return liability [Roll Forward]
Balance at beginning of year	$ 15,222	$ 20,562
Additions that reduce net sales	21,184	23,636
Deductions from reserves	(18,205)	(21,288)
Balance at end of period	$ 18,201	$ 22,910

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Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 01, 2017	Apr. 02, 2016
Warranty Liabilities [Roll Forward]
Balance at beginning of year	$ 8,633	$ 10,028
Additions charged to costs and expenses for current-year sales	2,718	3,585
Deductions from reserves	(2,049)	(3,272)
Changes in liability for pre-existing warranties during the current year, including expirations	(57)	(574)
Balance at end of period	$ 9,245	$ 9,767