Commitments and Contingencies

9 Months Ended

Sep. 28, 2024

Commitments and Contingencies Disclosure [Abstract]

Warranty Liabilities

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


	Nine Months Ended
	September 28, 2024	September 30, 2023
Balance at beginning of period	$8,503	$8,997
Additions charged to costs and expenses for current-year sales	9,981	12,327
Deductions from reserves	(11,546)	(12,543)
Changes in liability for pre-existing warranties during the current year, including expirations	511	40
Balance at end of period	$7,449	$8,821

Legal Proceedings

The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business,

including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S.

generally accepted accounting principles, the Company records a liability in its condensed consolidated financial

statements with respect to any of these matters when it is both probable that a liability has been incurred and the

amount of the liability can be reasonably estimated. If a material loss is reasonably possible but not known or probable,

and may be reasonably estimated, the estimated loss or range of loss is disclosed. With respect to currently pending

legal proceedings, the Company has not established an estimated range of reasonably possible material losses either

because it believes that is has valid defenses to claims asserted against it, the proceeding has not advanced to a stage of

discovery that would enable it to establish an estimate, or the potential loss is not material. The Company currently does

not expect the outcome of pending legal proceedings to have a material effect on its condensed 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 the Company could adversely impact its condensed

consolidated results of operations, financial position or cash flows. The Company expenses legal costs as incurred.

Purported Class Action Complaint

On September 27, 2024, a purported customer served a putative class action complaint on behalf of themself and a

putative class of California consumers against Sleep Number in the United States District Court for the Eastern District of

California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The Plaintiff seeks

injunctive relief, damages, and attorneys fees. Sleep Number does not believe the Plaintiff’s claims have merit and

intends to vigorously defend this matter.

Purported Class Action Complaint

On December 15, 2023, a former Field Services team member filed a purported class action Complaint in the Superior

Court of California, County of Santa Clara, alleging violations of California’s meal and rest break law and additional wage

and hour derivative claims under the California Labor Code. While the representative plaintiff was in the Field Services

workforce, the Complaint does not limit the purported plaintiff class to that group, but rather extends to all non-exempt

Sleep Number employees in the state. The plaintiff alleges that Sleep Number failed to provide compliant meal or rest

breaks, failed to pay wages owed due to alleged off the clock work, failed to pay overtime, minimum wage and wages

due at termination, thus resulting in inaccurate wage statements, all in violation of California law. The Complaint seeks

damages in the form of unpaid regular and premium wages, statutory penalties, pre-judgment and post-judgment

interest, plaintiffs’ attorneys’ fees and costs. On February 22, 2024, the plaintiff filed a related lawsuit in the same county

alleging violations of a broad range of California Labor Code wage and hour violations under the state’s Private Attorney

General Act (PAGA), including the same meal and rest break, and wage and hour, violations as appear in the purported

class action.

The Court dismissed the class action complaint with prejudice. The Court sua sponte stayed the PAGA collective action

and the individual plaintiff must prove his claims in arbitration before the stay is lifted. Given the developments in these

proceedings, the matter no longer rises to the level of disclosure in Sleep Number’s periodic reports.

Shareholder Class Action Complaints

On December 14, 2021, purported Sleep Number shareholder, Steamfitters Local 449 Pension & Retirement Security

Funds (Steamfitters), filed a putative class action complaint in the United States District Court for the District of

Minnesota (the District of Minnesota) on behalf of all purchasers of Sleep Number common stock between February 18,

2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen, the Company’s former

Executive Vice President and Chief Financial Officer. Steamfitters alleges material misstatements and omissions in certain

of Sleep Number’s public disclosures during the purported class period, in violation of Sections 10(b) and 20(a) of the

Securities Exchange Act of 1934, as amended (the Exchange Act). The complaint seeks, among other things, unspecified

monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by

the District of Minnesota.

On February 14, 2022, a second purported Sleep Number shareholder, Ricardo Dario Schammas, moved for

appointment as lead plaintiff in the action. On March 24, 2022, the District of Minnesota heard argument on Schammas’s

motion, and subsequently appointed Steamfitters and Schammas as Co-Lead Plaintiffs (together, Co-Lead Plaintiffs). On

July 19, 2022, Co-Lead Plaintiffs filed a consolidated amended complaint, which, like the predecessor complaint, asserts

claims against Sleep Number, Shelly Ibach, and David Callen under Sections 10(b) and 20(a) of the Exchange Act. Co-

Lead Plaintiffs purport to assert these claims on behalf of all purchasers of Sleep Number common stock between

February 18, 2021 and July 20, 2021. On September 19, 2022, Defendants moved to dismiss the consolidated amended

complaint, which motion was heard by the Court on January 17, 2023. On July 10, 2023, the Court issued an order

dismissing the Plaintiffs’ consolidated amended complaint with prejudice.

Shareholder Derivative Complaint

On May 12, 2022, Gwendolyn Calla Moore, as the appointed representative of purported Sleep Number shareholder

Matthew Gelb, filed a derivative action (the Derivative Action) in the District of Minnesota against Jean-Michel Valette,

Shelly Ibach, Barbara Matas, Brenda Lauderback, Daniel Alegre, Deborah Kilpatrick, Julie Howard, Kathleen Nedorostek,

Michael Harrison, Stephen Gulis, Jr., David Callen, and Kevin Brown. Moore purports to assert claims on behalf of Sleep

Number for breaches of fiduciary duty, waste, and contribution under Sections 10(b) and 21(d) of the Exchange Act.

Moore’s allegations generally mirror those asserted in the securities complaint described above. The Moore complaint

seeks damages in an unspecified amount, disgorgement, interest, and costs and expenses, including attorneys’ and

experts’ fees.

On September 13, 2022, the District of Minnesota entered a joint stipulation staying all proceedings in the Derivative

Action pending the outcome of any motion to dismiss the Steamfitters consolidated amended complaint. On July 10,

2023, the District of Minnesota in the Steamfitters case dismissed the consolidated amended complaint with prejudice,

as noted above. The Plaintiff in the Derivative Action subsequently moved the Court to voluntarily dismiss its Complaint

and on January 22, 2024, the District of Minnesota dismissed the Derivative Action without prejudice.

Stockholder Demand

On March 25, 2022, Sleep Number received a shareholder litigation demand (the “Demand”), requesting that the Board

investigate the allegations in the Steamfitters complaint and pursue claims on Sleep Number’s behalf based on those

allegations. On May 12, 2022, the Board established a special litigation committee to investigate the demand.

On October 5 and October 12, 2022, Sleep Number received two additional shareholder litigation demands, which

adopted and incorporated the allegations and requests in the Demand. Both of these additional litigation demands were

referred to the special litigation committee.

Subsequently, the special litigation committee determined that it would not be in the best interests of the Company and

its shareholders to take the actions requested in the demands and, thus, rejected the demands in their entirety.