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What changed in MASIMO CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MASIMO CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+591 added−782 removedSource: 10-K (2023-03-01) vs 10-K (2022-02-16)

Top changes in MASIMO CORP's 2023 10-K

591 paragraphs added · 782 removed · 359 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

95 edited+80 added−322 removed55 unchanged
Biggest change(Cercacor) the right to certain OEM rainbow ® technologies and to incorporate certain rainbow ® technology into our products intended to be used by professional caregivers, including, but not limited to, hospital caregivers and alternate care facility caregivers. 1 Table of Contents Core Business Conventional Pulse Oximetry Pulse oximetry enables the noninvasive measurement of the oxygen saturation level of arterial blood (SpO 2 ), which delivers oxygen to the body’s tissues.
Biggest changeOur Technologies Conventional Pulse Oximetry Pulse oximetry enables the noninvasive measurement of the oxygen saturation level of arterial blood (SpO 2 ), which delivers oxygen to the body’s organs and tissues. Pulse oximetry also measures pulse rate (PR), which, when measured by electrocardiogram (ECG), is called heart rate.
In the U.S., unless an exemption applies, each medical device that we wish to market in the U.S. must, generally, first receive from the FDA either clearance of a 510(k) premarket notification or approval of a premarket application (PMA). In some cases, the device may be authorized by FDA through the de novo classification process.
In the U.S., unless an exemption applies, each medical device that we wish to market in the U.S. must, generally, first receive from the FDA either clearance of a 510(k) premarket notification or approval of a premarket application (PMA). In some cases, the device may be authorized by the FDA through the de novo classification process.
Advertising and Promotion Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission (FTC) and by federal and state regulatory and enforcement authorities, including the Department of Justice, the Office of Inspector General of the Department of Health and Human Services, and various state attorneys general.
Advertising and Promotion of Medical Devices Advertising and promotion of medical devices, in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission (FTC) and by federal and state regulatory and enforcement authorities, including the Department of Justice, the Office of Inspector General of the Department of Health and Human Services, and various state attorneys general.
Because payments through the Prospective Payment System in both the hospital inpatient and outpatient settings are based on predetermined rates and may be less than a hospital’s actual costs in furnishing care, hospitals have incentives to lower their operating costs by utilizing products that will reduce the length of inpatient stays, decrease labor or otherwise lower their costs.
Because payments through the prospective payment system in both the hospital inpatient and outpatient settings are based on predetermined rates and may be less than a hospital’s actual costs in furnishing care, hospitals have incentives to lower their operating costs by utilizing products that will reduce the length of inpatient stays, decrease labor costs or otherwise lower their costs.
We monitor our third-party manufacturers and perform inspections and product tests at various steps in the manufacturing cycle to ensure compliance with our specifications. We also do full functional testing of our circuit boards. For raw materials, we and our contract manufacturers rely on sole source suppliers for some components, including digital signal processor chips and analog-to-digital converter chips.
We monitor our third-party manufacturers and perform inspections and product tests at various steps in the manufacturing cycle to ensure compliance with our specifications. We also do full functional testing of our circuit boards. For raw materials, we and our contract manufacturers may rely on sole source suppliers for some components, including digital signal processor chips and analog-to-digital converter chips.
Federal and state anti-kickback laws may affect our sales, marketing and promotional activities, educational programs, pricing and discount practices and policies, and relationships with health care providers by limiting the kinds of arrangements we may have with hospitals, alternate care market providers, GPOs, physicians, payers and others in a position to purchase or recommend our products.
Federal and state anti-kickback laws may affect our sales, marketing and promotional activities, educational programs, pricing and discount practices and policies, and relationships with health care providers by limiting the kinds of arrangements we may have with hospitals, alternate care market providers, GPOs, physicians, payers and others in a position to purchase or recommend our healthcare products.
The Masimo Hospital Automation TM Platform Patient SafetyNet ™(1) Patient SafetyNet ™ , our patient surveillance, remote monitoring and clinician notification solution, works in concert with our bedside and ambulatory monitoring devices to facilitate the supplemental monitoring of the oxygen saturation, pulse rate, perfusion index, hemoglobin, methemoglobin and respiration rate of up to 200 patients simultaneously from a single server.
The Masimo Hospital Automation ™ Platform Patient SafetyNet ™ (1 ) , our patient surveillance, remote monitoring and clinician notification solution, works in concert with our bedside and ambulatory monitoring devices to facilitate the supplemental monitoring of the oxygen saturation, pulse rate, perfusion index, hemoglobin, methemoglobin and respiration rate of up to 200 patients simultaneously from a single server.
Patient SafetyNet ™ Series 5000 , along with Hospital Automation ™ Connectivity, Iris ® Gateway, Kite ® , UniView ™ , UniView : 60 ™, and MyView ® through the Root ® patient monitoring and connectivity platform, offers a new level of interoperability designed to enhance clinician workflows and reduce the cost of care in a variety of hospital settings, including operating rooms and the general care floors.
Patient SafetyNet ™ Series 5000 , along with Hospital Automation ™ Connectivity, Iris Gateway ® , Kite ® , iSirona ® , UniView ® , UniView: 60 and MyView ® through the Root ® patient monitoring and connectivity platform, offers a new level of interoperability designed to enhance clinician workflows and reduce the cost of care in a variety of hospital settings, including operating rooms and the general care floors.
In addition, there are government agencies that regulate our products in other countries, whose requirements vary substantially from country to country. These agencies require us to comply with laws that regulate the design, development, clinical trials, testing, manufacture, packaging, labeling, storage, distribution, import, export and promotion of many of our products.
In addition, there are government agencies that regulate our healthcare products in other countries, whose requirements vary substantially from country to country. These agencies require us to comply with laws that regulate the design, development, clinical trials, testing, manufacture, packaging, labeling, storage, distribution, import, export and promotion of many of our products.
In addition to SpO 2 , PR, perfusion index (Pi), Pleth Variability Index (PVi ® ) and respiration rate from the pleth (RRp ® ), rainbow ® Pulse CO-Oximetry has the unique ability to measure and distinguish oxygenated hemoglobins from the dyshemoglobins that are incapable of transporting oxygen, carboxyhemoglobin (SpCO ® ) and methemoglobin (SpMet ® ).
In addition to SpO 2 , PR, perfusion index (Pi), Pleth Variability Index (PVi ® ), Rainbow ® Pleth Variability Index (RPVi ™ ) and respiration rate from the pleth (RRp ® ), rainbow ® Pulse CO-Oximetry has the unique ability to measure and distinguish oxygenated hemoglobins from the dyshemoglobins that are incapable of transporting oxygen, carboxyhemoglobin (SpCO ® ) and methemoglobin (SpMet ® ).
The UK does not intend to implement the MDR into the laws of Great Britain (England, Scotland and Wales). Northern Ireland is an exception where the MDR will continue to apply. Great Britain instead introduced a new, standalone medical devices framework. Currently, this aligns closely to the MDD.
The UK does not intend to implement the EU MDR into the laws of Great Britain (England, Scotland and Wales). Northern Ireland is an exception where the EU MDR will continue to apply. Great Britain instead introduced a new, standalone medical devices framework. Currently, this aligns closely to the EU MDD.
We have implemented, and continue to implement, procedures and processes to comply with these regulations and, as international data privacy and protection laws continue to evolve, and as new regulations, interpretive guidance and enforcement information become available, we may incur incremental costs to modify our business practices to comply with these requirements.
We have implemented, and continue to implement, procedures and processes to comply with these various laws and regulations. As international data privacy and protection laws continue to evolve, and as new regulations, interpretive guidance and enforcement information become available, we may incur incremental costs to modify our business practices to comply with these requirements.
Our success with rainbow SET ® technologies in U.S. settings of care with reimbursable monitoring procedures, such as hospital emergency departments, hospital procedure labs, and physician offices may largely depend on the ability of providers to receive reimbursement for such procedures.
Our success with rainbow SET ® technologies in the U.S. market in settings of care with reimbursable monitoring procedures, such as hospital emergency departments, hospital procedure labs and physician offices, may largely depend on the ability of providers to receive reimbursement for such procedures.
Each medical device that we wish to market in the UK must comply with the national laws in the UK, which going forward may differ from the laws in the EU. Continuing FDA Regulation Clinical trials involving medical devices are subject to FDA regulation.
Each medical device that we wish to market in the UK must comply with the national laws in the UK, which going forward may differ from the laws in the EU. Continuing FDA Regulation for Medical Devices Clinical trials involving medical devices are subject to FDA regulation.
Exceptions and safe harbors exist for a number of arrangements relevant to our business, including, among other things, payments to bona fide employees, certain discount and rebate arrangements, and certain payment arrangements involving Group Purchasing Organizations (GPOs).
Exceptions and safe harbors exist for a number of arrangements relevant to our healthcare business, including, among other things, payments to bona fide employees, certain discount and rebate arrangements, and certain payment arrangements involving Group Purchasing Organizations (GPOs).
These regulatory requirements include, but are not limited to, the following: product listing and establishment registration; adherence to the Quality System Regulation (QSR) which requires stringent testing, control, documentation and other quality assurance 27 Table of Contents procedures for the design, manufacture, storage and handling of devices; labeling requirements and FDA prohibitions against the promotion of off-label uses or indications; adverse event and device malfunction reporting; post-approval restrictions or conditions, including post-approval clinical trials or other required testing; post-market surveillance requirements; the FDA’s recall authority, whereby it can ask for, or require, the recall of products from the market; and requirements relating to voluntary corrections or removals.
These regulatory requirements include, but are not limited to, the following: product listing and establishment registration; adherence to the Quality System Regulation (QSR) which requires stringent testing, control, documentation and other quality assurance procedures for the design, manufacture, storage and handling of devices; labeling requirements and FDA prohibitions against the promotion of off-label uses or indications; adverse event and device malfunction reporting; post-approval restrictions or conditions, including post-approval clinical trials or other required testing; post-market surveillance requirements; the FDA’s recall authority, whereby it can ask for, or require, the recall of products from the market; and requirements relating to voluntary corrections or removals.
We believe that Masimo SET ® is trusted by clinicians to safely monitor in excess of approximately 200 million patients each year and has been chosen as the primary pulse oximeter technology used by nine of the top ten hospitals according to the 2021-2022 U.S. News & World Report Best Hospitals Honor Roll.
We believe that Masimo SET ® is trusted by clinicians to safely monitor in excess of approximately 200 million patients each year and has been chosen as the primary pulse oximeter technology used by nine of the top ten hospitals according to the 2022-2023 U.S. News & World Report Best Hospitals Honor Roll.
Government Regulation As a global medical technology company, we are subject to significant government regulation, compliance requirements, fees and costs, both in the U.S. and abroad.
Government Regulation As a global technology company, we are subject to significant government regulation, compliance requirements, fees and costs, both in the U.S. and abroad.
Due to this, the Masimo softFlow ™ technology is able to treat respiratory insufficiency and allows therapy at home in a manner that is as reliable and efficient as in the hospital. Neuromodulation Solution Bridge ™ is the first FDA-cleared, drug-free, non-surgical device to use neuromodulation to aid in the reduction of symptoms associated with opioid withdrawal.
Due to this, the Masimo softFlow ™ technology is able to treat respiratory insufficiency and allows therapy at home in a manner that is as reliable and efficient as in the hospital. Neuromodulation Therapeutic Bridge ™ is the first FDA-cleared, drug-free, non-surgical device to use neuromodulation to aid in the reduction of symptoms associated with opioid withdrawal.
SpfO 2 ™ and ORi ™ have received CE Marking, but are not currently available for sale in the U.S. 3 Table of Contents We believe that Masimo rainbow ® Pulse CO-Oximetry products will become widely adopted for the noninvasive monitoring of these measurements in the future.
SpfO 2 ™ and ORi ™ have received CE Marking, but are not currently available for sale in the U.S. 4 Table of Contents We believe that Masimo rainbow ® Pulse CO-Oximetry products will become widely adopted for the noninvasive monitoring of these measurements in the future.
For further detail on these risks, see “Risks Related to Our Intellectual Property” under Item 1A — “Risk Factors” in this Annual Report on Form 10-K. Research and Product Development We believe that ongoing research and development efforts are essential to our success.
For further detail on these risks, see “Risks Related to Our Intellectual Property” under Item 1A — “Risk Factors” in this Annual Report on Form 10-K. Research and Product Development We believe that ongoing research and development (R&D) efforts are essential to our success.
Our sales representatives’ primary focus is to facilitate the conversion of competitor accounts to our Masimo SET ® pulse oximetry and rainbow SET ® Pulse CO-Oximetry ® products, to expand the use of Masimo SET ® and Patient SafetyNet ™ on the general floor and to create and expand the use of rainbow ® measurements in both critical care and non-critical care areas.
Our healthcare sales representatives’ primary focus is to facilitate the conversion of competitor accounts to our Masimo SET ® pulse oximetry and rainbow SET ® Pulse CO-Oximetry products, to expand the use of Masimo SET ® and Patient SafetyNet ™ on the general hospital floor and to create and expand the use of rainbow ® measurements in both critical care and non-critical care areas.
Our Masimo SET ® platform, which became available to U.S. hospitals in 1998, is the basis of our pulse oximetry products, and we believe represented the first significant technological advancement in pulse oximetry since its introduction in the early 1980s.
Our Masimo SET ® platform, which became available to U.S. hospitals in 1998, is the basis of our pulse oximetry products, and we believe represented the first significant technological advancement in pulse oximetry since its invention in the early 1970s and introduction in the early 1980s.
To facilitate clinician awareness of Masimo technologies, our OEM partners have generally agreed to place the applicable Masimo trademark prominently on their instruments. In order to facilitate our U.S. direct sales to hospitals, we have signed contracts with what we believe to be the five largest national GPOs in the U.S., based on the total volume of negotiated purchases.
To facilitate clinician awareness of Masimo technologies, our OEM partners have generally agreed to place the applicable Masimo trademark prominently on their instruments. 25 Table of Contents In order to facilitate our U.S. direct sales to hospitals, we have signed contracts with what we believe to be the five largest national GPOs in the U.S., based on the total volume of negotiated purchases.
To complement our Masimo SET ® platform, we have developed a wide range of proprietary single-patient-use (disposable) and multi-patient-use (reusable) sensors, cables and other accessories designed specifically to work with Masimo SET ® software and hardware. Our single-patient-use sensors offer several advantages over reusable sensors, including improved performance, cleanliness, increased comfort and greater reliability.
To complement our Masimo SET ® platform, we have developed a wide range of proprietary single-patient-use (disposable) sensors, including untethered Radius-PPG ® , and multi-patient-use (reusable) sensors, cables and other accessories designed specifically to work with Masimo SET ® software and hardware. Our single-patient-use sensors offer several advantages over reusable sensors, including improved performance, cleanliness, increased comfort and greater reliability.
Our ability to achieve market acceptance or significant sales volume in international markets we enter will be dependent in large part on the availability of reimbursement for procedures performed using our products under health care payment systems in such markets. 31 Table of Contents Other U.S. and Foreign Regulation We and our OEM partners also must comply with numerous federal, state and local laws, as well as laws in other jurisdictions, relating to matters such as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal.
Our ability to achieve market acceptance or significant sales volume in international markets we enter will be dependent in large part on the availability of reimbursement for procedures performed using our products under health care payment systems in such markets. 22 Table of Contents Other U.S. and Foreign Regulation We must comply with numerous federal, state and local laws, as well as laws in other jurisdictions, relating to matters such as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal.
As business associates, we are subject to many of the requirements of HIPAA and could be directly subject to HIPAA civil and criminal enforcement and the associated penalties for violation of the Privacy, Security and Breach Notification Rules.
As business associates, we may be subject to many of the requirements of HIPAA and could be directly subject to HIPAA civil and criminal enforcement and the associated penalties for violation of the Privacy, Security and Breach Notification Rules.
Coronavirus-2019 (COVID-19) Response and Telehealth Solutions Masimo SafetyNet ™ In an effort to help clinicians and public health officials combat the COVID-19 pandemic, we developed the Masimo SafetyNet ™ solution. The Masimo SafetyNet ™ solution provides continuous tetherless pulse oximetry and respiration rate monitoring coupled with a patient surveillance platform. Masimo SafetyNet ™ solution is available worldwide.
Telehealth Solutions In an effort to help clinicians and public health officials combat the COVID-19 pandemic, we developed the Masimo SafetyNet ™ solution. The Masimo SafetyNet ™ solution provides continuous tetherless pulse oximetry and respiration rate monitoring coupled with a patient surveillance platform. Masimo SafetyNet ™ solution is available worldwide.
To obtain a CFG, the device manufacturer must apply to the FDA. The FDA certifies that the product has been granted clearance or approval in the United States and that the manufacturing facilities were in compliance with the FDA’s QSR regulations at the time of the last FDA inspection.
To obtain a CFG, the device manufacturer must apply to the FDA. The FDA certifies that the product has been granted clearance or approval in the United States and that the manufacturing facilities were in compliance with the FDA’s QSR regulations at the time of the last FDA inspecti on.
Federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third-party payers that are false or fraudulent.
False Claims Laws and Fraud Statutes Federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third-party payers that are false or fraudulent.
In general, Medicare will cover a medical product or procedure when the product or procedure is included within a statutory benefit category and is reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body part.
Generally, Medicare will cover a medical product or procedure when the product or procedure is included within a statutory benefit category and is reasonable and necessary for the diagnosis or treatment of an illness or injury, or to improve the functioning of a malformed body part.
Third-Party Reimbursement Health care providers, including hospitals, that purchase our products generally rely on third-party payers, including the Medicare and Medicaid programs and private payers, including indemnity insurers and managed care plans, to cover and reimburse all or part of the cost of the products and the procedures in which they are used.
Third-Party Reimbursement for Medical Devices Health care providers, including hospitals, that purchase our healthcare products generally rely on third-party payers, including the Medicare and Medicaid programs and private payers, including indemnity insurers and managed care plans, to cover and reimburse all or part of the cost of the products and the procedures in which they are used.
In addition, large technology companies that have not historically operated in the healthcare or medical device space, such as Alphabet Inc., Amazon.com, Inc., Apple Inc., Samsung Electronics Co., Ltd. and others, have developed or may develop products and technologies that may compete with our current or future products and technologies in the consumer and clinical marketplaces.
In addition, large technology companies that have not historically operated in the healthcare or medical device space, such as Alphabet Inc. (Alphabet), Amazon, Apple Inc. (Apple), Samsung Electronics Co., Ltd. (Samsung) and others, have developed or may develop products and technologies that may compete with our current or future products and technologies in the consumer health and professional healthcare marketplaces.
(2) Non-vital signs measurements include the body fluid constituents other than vital signs measurements and include, but are not limited to, carbon monoxide, methemoglobin, blood glucose, hemoglobin and bilirubin. Our License to Cercacor.
(2) Non-vital signs measurements include the body fluid constituents other than vital signs measurements and include, but are not limited to, carbon monoxide, methemoglobin, blood glucose, hemoglobin and bilirubin.
The CBP also imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance. Products exported from the United States are subject to foreign countries’ import requirements and the exporting requirements of the FDA or European regulating bodies, as applicable.
The CBP also imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance. Medical device products exported from the United States are subject to forei gn countries’ import requirements and the exporting requirements of the FDA or European regulating bodies, as applicable.
For example, the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) prohibits anyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program, including Medicare and Medicaid.
The Federal Anti-Kickback Statute prohibits anyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program, including Medicare and Medicaid.
For example, the Federal Civil False Claims Act (31 U.S.C. § 3729 et seq.) imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid and Medicare.
The Federal Civil False Claims Act imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid and Medicare.
In return for the GPOs putting our products on contract, we have agreed to pay the GPOs a percentage of our revenue from their member hospitals. In 2021 and 2020, revenue from the sale of our pulse oximetry products to hospitals that are associated with GPOs amounted to $643.1 million and $564.0 million, respectively.
In return for the GPOs putting our healthcare products on contract, we have agreed to pay the GPOs a percentage of our healthcare revenue from their member hospitals. In 2022 and 2021, healthcare revenues from the sale of our pulse oximetry products to hospitals that are associated with GPOs amounted to $721.3 million and $643.1 million, respectively.
The Foreign Corrupt Practices Act of 1977 and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
We generally grant our OEM partners a right to cross-reference the 510(k) submission files from our cleared Masimo SET ® circuit boards, sensors, cables and notification systems. In the EU, medical devices are currently subject to the Medical Devices Directive 93/42/EEC (MDD).
We generally grant our OEM partners a right to cross-reference the 510(k) submission files from our cleared Masimo SET ® circuit boards, sensors, cables and notification systems. In the EU, medical devices are currently subject to Regulation (EU) No 2017/745 (EU MDR).
Our pulse oximetry technology is contained on a circuit board which can be placed inside a standalone pulse oximetry monitor, placed inside OEM multiparameter monitors, or included as part of an external “Board-in-Cable” solution that is plugged into a port on an OEM or other device. All of these solutions use our proprietary single-patient-use or reusable sensors and cables.
Our pulse oximetry technology is contained on a circuit board which can be placed inside a standalone pulse oximetry monitor, placed inside OEM multiparameter monitors, or included as part of an external “Board-in-Cable” solution that is plugged into a port on an OEM or other device.
These regulatory requirements subject our products and our business to numerous risks that are specifically discussed within “Risks Related to Our Regulatory Environment” under Part I, Item 1A — “Risk Factors” within this Annual Report on Form 10-K. A summary of certain critical aspects of our regulatory environment is included below.
These regulatory requirements subject our products and our business to numerous risks that are specifically discussed within “Risks Related to Our Regulatory Environment” under Part I, Item 1A — “Risk Factors” within this Annual Report on Form 10-K.
A stable air flow is essential for treating hypoxemic and hypercapnic respiratory failure. Together with the softflow ™ nasal applicator, the softflow ™ generator provides a constant air flow and in doing so, it is completely independent of external pneumatic systems.
A stable air flow is essential for treating hypoxemic and hypercapnic respiratory failure. Together with the TNI applicator (comprising respiratory circuit and patient interface), the TNI flow generator guarantees a constant TNI flow and in doing so, it is completely independent of external pneumatic systems.
Iris ® connectivity enables multiple standalone third-party devices such as intravenous pumps (IV), ventilators, hospital beds and other patient monitors to connect through Root ® , enabling display, notification and documentation to the EMR through Masimo Patient SafetyNet ™ .
To address these challenges, we introduced Iris ® connectivity in our Root ® patient monitoring and connectivity platform. iSirona and Iris ® connectivity enables multiple standalone third-party devices such as intravenous pumps (IV), ventilators, hospital beds and other patient monitors to connect through Root ® , enabling display, notification and documentation to the EMR through Masimo Patient SafetyNet ™ .
Without device interoperability, critical patient information can go unnoticed, leaving clinicians unaware and patients at risk. Existing approaches for device interoperability require separate hardware, software and/or network infrastructure, which can clutter the patient room, increase complexity, burden IT management and increase costs. To address these challenges, we introduced Iris ® connectivity in our Root ® patient monitoring and connectivity platform.
Without device interoperability, critical patient information can go unnoticed, leaving clinicians unaware and patients at risk. Existing approaches for device interoperability require separate hardware, software and/or network infrastructure, which can clutter the patient room, increase complexity, burden IT management and increase costs.
We have agreements with certain major suppliers and each agreement provides for varying terms with respect to contract expiration, termination and pricing. Most of these agreements allow for termination upon specified notice, ranging from four to twelve months, to the non-terminating party.
We have agreements with certain major suppliers and each agreement provides for varying terms with respect to contract expiration, termination and pricing. Most of these agreements allow for termination upon specified advance notice of various periods to the non-terminating party. Certain of these agreements with our major suppliers allow for pricing adjustments and each agreement provides for annual pricing negotiation.
Any article that appears to be in violation of the Federal Food, Drug and Cosmetics Act (FDCA) may be refused admission and a notice of detention and hearing may be issued.
All devices are subject to FDA examination before release from CBP. Any article that appears to be in violation of the Federal Food, Drug and Cosmetics Act (FDCA) may be refused admission and a notice of detention and hearing may be issued.
Product Clearance and Approval Requirements 26 Table of Contents Many of our products are regulated by numerous government agencies, the most significant of which are the U.S. FDA, the national authorities in the European Union (EU) and the United Kingdom (UK), and MHLW in Japan.
Product Clearance and Approval Requirements for Medical Devices Many of our healthcare products are regulated by numerous government agencies, the most significant of which are the FDA, the national authorities in the European Union (EU) and the United Kingdom (UK), and the Ministry of Health, Labour and Welfare (MHLW) of Japan.
Although we are not a covered entity, we are sometimes deemed by our customers to be a business associate of covered entities due to activities that we perform for or on behalf of covered entities, such as training customers on the use of our products or investigating product performance.
Although we are not a covered entity, we are sometimes deemed by our U.S. customers to be a business associate due to activities that we perform for or on behalf of covered entity customers.
A violation of either statute is a felony and may result in fines, imprisonment and other significant penalties. 29 Table of Contents The Physician Payment Sunshine Act (Sunshine Act), which was enacted by Congress as part of the ACA, requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S.
Transparency Regulations The Physician Payment Sunshine Act (Sunshine Act), which was enacted by Congress as part of the ACA, requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S.
Market Demand We currently sell all of our medical products both directly to hospitals and the alternate care market via our sales force and various distributors in the U.S. and around the world, including Europe, the Middle East, Asia, Latin America, Canada and Australia. We sell our non-medical/consumer products through e-commerce Internet sites such as www.masimopersonalhealth.com and www.amazon.com.
Market Demand We currently sell our healthcare products directly to hospitals and various distributors in the U.S. and around the world, including Europe, the Middle East and Asia Pacific, through our direct sales force. We sell our home wellness products through e-commerce internet sites such as www.masimopersonalhealth.com , www.amazon.com and www.shopify.com .
In addition, our neonatal adhesive sensors have been designed to exhibit greater durability compared to competitive sensors. Although our technology platforms operate solely with our proprietary sensor lines, our sensors have the capability to work with certain competitive pulse oximetry monitors through the use of adapter cables. Adhesive sensors are single-patient-use items, but the U.S.
Although our technology platforms operate solely with our proprietary sensor lines, our sensors have the capability to work with certain competitive pulse oximetry monitors through the use of adapter cables. Adhesive sensors are single-patient-use items, but the U.S. Food and Drug Administration (FDA) allows third parties to reprocess pulse oximetry sensors.
A microprocessor then analyzes the changes in light absorption to provide a continuous, real-time measurement of the amount of oxygen in the patient’s arterial blood. Pulse oximeters typically give audio and visual alerts, or alarms, when the patient’s arterial blood oxygen saturation level or pulse rate falls outside of a user-designated range.
Pulse oximeters typically give audio and visual alerts, or alarms, when the patient’s arterial blood oxygen saturation level or pulse rate falls outside of a user-designated range.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) created new federal crimes, including health care fraud and false statements related to health care matters. The health care fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program, including those offered by private payers.
The health care fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program, including those offered by private payers.
In addition to sales representatives, we employ clinical specialists to work with our sales representatives to educate end-users on the benefits of Masimo SET ® and assist with the introduction and implementation of our technology and products to their sites.
In addition to sales representatives, we employ clinical specialists to work with our sales representatives to educate end-users on the benefits of Masimo SET ® and assist with the introduction and implementation of our technology and products to their sites. For the year ended December 31, 2022, one just-in-time healthcare distributor represented approximately 10.1% of our total healthcare revenue.
Health Care Fraud and Abuse In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Government agencies in the EU, UK, Japan and other countries and jurisdictions have similar regulations on the advertising and promotion of medical devices. Anti-Kickback Regulations In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Under the MDD, a medical device may only be placed on the market within the EU if it conforms to certain “essential requirements”. Key requirements include that a medical device achieves its intended performance and does not compromise the clinical condition or safety of patients or the safety and health of users and others, and bears the CE Mark.
Key requirements include that a medical device achieves its intended performance and does not compromise the clinical condition or safety of patients or the safety and health of users and others and bears the CE Mark.
A medical device that conforms to such essential requirements can bear a CE Mark, which allows the device to be placed on the market throughout the EU. Each medical device that we wish to market in the EU must conform to these requirements. Conformity is determined through an assessment procedure, which depends upon the risk classification of the device.
A medical device that conforms to such essential requirements can bear a CE Mark, which allows the device to be placed on the market throughout the EU. Each medical device that we wish to market in the EU must conform to these requirements. The UK exited the EU on December 31, 2020 (Brexit).
Compared to conventional pulse oximeters, during patient motion and low perfusion, Masimo SET ® provides measurements when other pulse oximeters cannot, significantly reduces false alarms (improved specificity), and accurately detects true alarms (improved sensitivity).
Compared to conventional pulse oximeters, during patient motion and low perfusion, Masimo SET ® provides measurements when other pulse oximeters cannot, significantly reduces false alarms (improved specificity), and accurately detects true alarms (improved sensitivity). Despite pulse oximetry’s widespread use since the 1980s, it had not been shown to improve clinical outcomes before the introduction of Masimo SET ®.
Resources Intellectual Property We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain protection of the proprietary aspects of our technology. We rely on a combination of patent, trademark, trade secret, copyright and other intellectual property rights and measures to protect our intellectual property.
Resources Intellectual Property We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain protection of the proprietary aspects of our technology. The ownership of intellectual property rights is an important factor in our business.
Most of our OEM partners are required to obtain clearance or approval of their devices that incorporate Masimo’s technologies, like Masimo SET ® technology, Masimo rainbow SET ® technology, Masimo Board-in-Cable technology, or are used with Masimo’s sensors.
The majority of our current regulated products have been deemed Class II devices, requiring 510(k) clearance, while some have been deemed Class I devices. 19 Table of Contents Most of our OEM partners are required to obtain clearance or approval of their devices that incorporate Masimo’s healthcare technologies, like Masimo SET ® technology, Masimo rainbow SET ® technology, Masimo Board-in-Cable technology, or are used with Masimo’s sensors.
Health care payment systems in non-U.S. markets vary significantly by country, and include single-payer government managed systems, as well as systems in which private payers and government managed systems exist side-by-side.
Our success in non-U.S. markets depends largely upon the availability of coverage and reimbursement from the third-party payers through which health care providers are paid in those markets. Health care payment systems in non-U.S. markets vary significantly by country, and include single-payer government managed systems, as well as systems in which private payers and government managed systems exist side-by-side.
Future environmental laws may require us to alter our manufacturing processes, thereby increasing our manufacturing costs. We believe that our products and manufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated.
We believe that our products and manufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated. 24 Table of Contents Markets Competitive Conditions We compete in both healthcare and consumer electronic markets throughout the globe.
These sensors contain two light-emitting diodes that transmit red and infrared light from one side of the extremity through the tissue to a photodetector on the other side of the extremity. The photodetector in the sensor measures the amount of red and infrared light absorbed by the tissue.
Pulse oximeters use sensors attached to an extremity, typically the fingertip or certain core body sites. These sensors contain two light-emitting diodes that transmit red and infrared light from one side of the extremity through the tissue to a photodetector on the other side of the extremity.
We have also entered into various other agreements with Cercacor, including an Administrative Services Agreement, a Consulting Services Agreement and a Sublease Agreement. See Note 3 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on these agreements and other transactions with Cercacor.
See Note 3 , “Related Parties Transactions”, to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our related party transactions with Cercacor.
A number of states also have false claims laws, and some of these laws may apply to claims for items or services reimbursed under Medicaid and/or commercial insurance. Sanctions under these federal and state fraud and abuse laws may include civil monetary penalties and criminal fines, exclusion from government health care programs and imprisonment.
A number of states also have false claims laws, and some of these laws may apply to claims for items or services reimbursed under Medicaid and/or commercial insurance.
The FDA determines the appropriate process based on the risk classification of the medical device. There are three classifications, from Class I to Class III. The majority of our current regulated products have been deemed Class II devices, requiring 510(k) clearance, while some have been deemed Class I devices.
The FDA determines the appropriate process based on the risk classification of the medical device. There are three classifications, from Class I to Class III.
Nasal High-Flow Ventilation The Masimo softFlow ™ technology provides respiratory support by generating a precisely regulated, stable and high flow of room air or a mix of room air and oxygen through the nose of the patient by means of thin nasal prongs. Controlled oxygen supply ensures oxygenation while, at the same time, the respiratory airways are humidified.
(1) The use of the trademark Patient SafetyNet ™ is under license from the University HealthSystem Consortium. 5 Table of Contents Nasal High-Flow Ventilation The Masimo softFlow ™ technology provides respiratory support by generating a precisely regulated, stable and high flow of room air or a mix of room air and oxygen through the nose of the patient by means of thin nasal prongs.
Masimo rainbow SET ® Platform Since introducing Masimo SET ® , we have continued to innovate by introducing noninvasive measurements that go beyond arterial blood oxygen saturation and pulse rate. Our Masimo rainbow SET ® platform leverages our Masimo SET ® technology and incorporates licensed rainbow ® technology to enable real-time monitoring of additional noninvasive measurements.
Our Masimo rainbow SET ® platform leverages our Masimo SET ® technology and incorporates licensed rainbow ® technology to enable real-time monitoring of additional noninvasive measurements.
To date, over forty companies have released rainbow SET ® equipped products or announced rainbow ® integration plans. Measurements SpHb ® Hemoglobin is the oxygen-carrying component of red blood cells (RBCs).
To date, over forty companies have released rainbow SET ® equipped products or announced rainbow ® integration plans.
Additionally, we sell certain of our products through our OEM partners who incorporate our technologies into their monitors and sometimes resell our sensors to their installed base. Our OEM agreements allow us to expand the availability of our technologies through the sales and distribution channels of each OEM partner.
Our OEM agreements allow us to expand the availability of our technologies through the sales and distribution channels of each OEM partner.
As a result, demand for our products is dependent in part on the coverage and reimbursement policies of these payers.
As a result, demand for our healthcare products is dependent in part on the coverage and reimbursement policies of these payers. No uniform coverage or reimbursement policy for medical technology exists among all third-party payers, and coverage and reimbursement can differ significantly from payer to payer.
The patient-centric user interface of the Patient SafetyNet ™ Series 5000 displays near real-time data from all devices with Kite ® , providing a single unified dashboard of patient information.
In an operating room setting, the patient-centric user interface of the Patient SafetyNet ™ Series 5000 displays near real-time data from all devices with Kite ® , providing a single unified dashboard of patient information. Connectivity Platforms Despite medical technology advances, the lack of device communication and integration creates risks to patient safety in hospitals around the world.
By ensuring that oxygen saturation levels in babies remain within clinically acceptable limits, clinicians believe they can lower the incidence of ROP. Conventional pulse oximetry has limitations that can reduce its effectiveness and the quality of patient care.
Clinicians also use pulse oximeters to monitor oxygen saturation in premature babies to ensure that appropriate oxygen saturation levels are maintained. Conventional pulse oximetry has limitations that can reduce its effectiveness and the quality of patient care.
ORi ™ has received the CE Mark, but is not currently available for sale in the U.S. Other Noninvasive Measurements Following the introduction of our rainbow SET ® platform, we have continued to expand our technology offerings by introducing additional noninvasive measurements and technologies to create new market opportunities in both hospital and non-hospital care settings.
Following the introduction of our rainbow SET ® platform, we have continued to expand our technology offerings by introducing additional noninvasive measurements, technologies, platforms and other solutions to create new market opportunities in both hospital and non-hospital care settings, including the Masimo Hospital Automation ™ Platform, other connectivity platforms, nasal high-flow ventilation, and neuromodulation therapeutics and telehealth solutions, which are described in more detail below.
Our Products and Markets We develop, manufacture and market patient monitoring technologies that incorporate a monitor or circuit board and sensors, including proprietary single-patient-use and reusable sensors and patient cables. In addition, we offer remote alarm/monitoring solutions, software and connectivity solutions.
Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services.
We sell our products to end-users through our direct sales force and through certain distributors, as well as to our OEM partners, for incorporation into their products. In 2013, we also began selling our pulse oximetry products in the consumer market.
All of these solutions, as well as most of our patient cables, use our proprietary single-patient-use or reusable sensors . We sell our products to end-users through our direct sales force and through certain distributors, as well as to our OEM partners, for incorporation into their products.
As a result of these dyshemoglobins, pulse oximeters will report falsely high oxygen levels when they are present in the blood. 2 Table of Contents Masimo Difference Masimo SET ® Pulse Oximetry Masimo SET ® was designed to overcome the primary limitations of conventional pulse oximetry by maintaining accuracy in the presence of motion artifact, low perfusion and weak signal-to-noise situations.
Furthermore, conventional pulse oximetry readings can also be impacted by bright light and electrical interference caused by the presence of electrical surgical equipment. 3 Table of Contents The Masimo Difference - Masimo SET ® Pulse Oximetry Masimo SET ® was designed to overcome the primary limitations of conventional pulse oximetry by maintaining accuracy in the presence of motion artifact, low perfusion and weak signal-to-noise situations.
Import and Export Requirements To import a device, the importer must file an entry notice and bond with the United States Bureau of Customs and Border Protection (CBP). All devices are subject to FDA examination before release from CBP.
Government agencies in the EU, UK, Japan and other countries and jurisdictions have similar regulations on the advertising and promotion of medical devices. 20 Table of Contents Import and Export Requirements Applicable to Medical Devices To import a device, the importer must file an entry notice and bond with the United States Bureau of Customs and Border Protection (CBP).
Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables. We provide our products to hospitals, emergency medical service (EMS) providers, home care providers, long-term care facilities, physician offices, veterinarians and consumers through our direct sales force, distributors and original equipment manufacturers (OEM) partners.
We primarily sell our healthcare products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through our direct sales force, distributors and original equipment manufacturer (OEM) partners, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control and Zoll, just to name a few.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy. • The laws of foreign countries may not adequately protect our intellectual property rights. • Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new products in the U.S., which could severely harm our business. 36 Table of Contents • The failure of our OEM partners to obtain required FDA clearances or approvals for products that incorporate our technologies could have a negative impact on our revenue. • If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market. • Failure to obtain regulatory authorizations in foreign jurisdictions may prevent us from marketing our products abroad. • Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained. • Regulatory reforms may impact our ability to develop and commercialize our products and technologies. • If our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations, and may need to initiate voluntary corrective actions or in certain circumstances be required to take corrective actions, such as the recall of our products. • Promotion of our products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties. • The regulatory environment governing information, cybersecurity and privacy is increasingly demanding and continues to evolve. • We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse laws, and could face substantial penalties if we are unable to fully comply with these laws. • Legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance.
Biggest changeAs a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy. • The laws of foreign countries may not adequately protect our intellectual property rights. • Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new healthcare products in the U.S., which could severely harm our business. • If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market. • Regulatory reforms may impact our ability to develop and commercialize our healthcare products and technologies. • If our healthcare products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations and other applicable laws, and may need to initiate voluntary or mandatory corrective actions, such as the recall of our healthcare products. • Promotion of our healthcare products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties. • The regulatory environment governing information, data security and privacy is increasingly demanding and evolving.
If hospitals and other healthcare providers do not believe our Masimo SET ® and Masimo rainbow SET ® platforms are cost-effective, safe or more accurate or reliable than competitive pulse oximetry products, they may not buy our products in sufficient quantities to enable us to generate revenue growth from the sale of these products.
If hospitals and other healthcare providers do not believe our Masimo SET ® and Masimo rainbow SET ® platforms are cost-effective, safe or more accurate or reliable than competitive pulse oximetry products, they may not buy our healthcare products in sufficient quantities to enable us to generate revenue growth from the sale of these products.
If we are successful in these endeavors, we expect these technologies will become more useful in more environments and will become more widely adopted. Our product portfolio continues to expand, and we are investing significant resources to enter into, and in some cases create, new markets for these products.
If we are successful in these endeavors, we expect these technologies will become more useful in more environments and will become more widely adopted. Our product portfolio continues to expand, and we are investing significant resources to enter into, and in some cases create, new markets for our products.
Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our products, or for procedures using our products, may cause our revenue to decline or prevent us from realizing revenues from future products. Sales of our products depend in part on the reimbursement and coverage policies of governmental and private healthcare payers.
Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our healthcare products, or for procedures using our healthcare products, may cause our revenue to decline or prevent us from realizing revenues from future products. Sales of our healthcare products depend in part on the reimbursement and coverage policies of governmental and private healthcare payers.
A staggered Board will make it more difficult for a third-party to obtain control of our Board through a proxy contest, which may be a necessary step in an acquisition of us that is not favored by our Board. We are also subject to anti-takeover provisions under the General Corporation Law of the State of Delaware.
A staggered Board will make it more difficult for a third-party to obtain control of our Board through a proxy contest, which may be a necessary step in an acquisition of us that is not favored by our Board. We are also subject to anti-takeover provisions under the General Corporation Law of the State of Delaware (DGCL).
Among other requirements, we and certain of our suppliers are required to comply with the FDA’s Quality System Regulation (QSR), which governs the methods and documentation of the design, control testing, production, component suppliers control, quality assurance, complaint handling, labeling control, packaging, storage and shipping of our products. The FDA enforces the QSR through announced and unannounced inspections.
Among other requirements, we and certain of our suppliers are required to comply with the FDA’s Quality System Regulation (QSR), which governs the methods and documentation of the design, control testing, production, component suppliers control, quality assurance, complaint handling, labeling control, packaging, storage and shipping of our healthcare products. The FDA enforces the QSR through announced and unannounced inspections.
These trends could lead to pressure to reduce prices for our current and future products, hinder our ability to obtain market adoption, cause a decrease in the size of the market or potentially increase competition, any of which could have a material adverse effect on our business, financial condition and results of operations.
These trends could lead to pressure to reduce prices for our current and future healthcare products, hinder our ability to obtain market adoption, cause a decrease in the size of the market or potentially increase competition, any of which could have a material adverse effect on our business, financial condition and results of operations.
Our customers are facing growing levels of uncertainties, including variations in overall hospital census for paying patients and the impact of such census variations on hospital budgets. As a result, many hospitals are reevaluating their entire cost structure, including the amount of capital they allocate to medical device technologies and products.
Our healthcare customers are facing growing levels of uncertainties, including variations in overall hospital census for paying patients and the impact of such census variations on hospital budgets. As a result, many hospitals are reevaluating their entire cost structure, including the amount of capital they allocate to medical device technologies and products.
Furthermore, one or more of our competitors may develop products that are substantially equivalent to those of our products that are cleared or approved for use, or those of our original equipment manufacturer (OEM) partners, in which case a competitor of ours may use our products or those of our OEM partners as predicate devices to more quickly obtain regulatory clearance or approval of their competing products.
Furthermore, one or more of our competitors may develop products that are substantially equivalent to those of our healthcare products that are cleared or approved for use, or those of our original equipment manufacturer (OEM) partners, in which case a competitor of ours may use our products or those of our OEM partners as predicate devices to more quickly obtain regulatory clearance or approval of their competing products.
The degree of market acceptance of these products will depend on a number of factors, including but not limited to: • perceived clinical benefits from our products; • perceived cost effectiveness of our products; • perceived safety and effectiveness of our products; • reimbursement available through government and private healthcare programs for using some of our products; and • introduction and acceptance of competing products or technologies.
The degree of market acceptance of our healthcare products will depend on a number of factors, including but not limited to: • perceived clinical benefits from our products; • perceived cost effectiveness of our products; • perceived safety and effectiveness of our products; • reimbursement available through government and private healthcare programs for using some of our products; and • introduction and acceptance of competing products or technologies.
We have registered and expect to continue to register shares reserved under our equity plans pursuant to Registration Statements on Form S-8. All shares issued pursuant to a Registration Statement on Form S-8 can be freely sold in the public market upon issuance, subject to restrictions on our affiliates under Rule 144.
We have registered and expect to continue to register shares reserved under our incentive equity plans pursuant to Registration Statements on Form S-8. All shares issued pursuant to a Registration Statement on Form S-8 can be freely sold in the public market upon issuance, subject to restrictions on our affiliates under Rule 144.
Any modification to a device that is cleared by the FDA that could significantly affect its safety or effectiveness or that could constitute a major change in its intended use would require a new clearance or approval and certain modifications to devices cleared or approved by foreign regulatory authorities may also require a new clearance or approval.
Any modification to a medical device that is cleared by the FDA that could significantly affect its safety or effectiveness or that could constitute a major change in its intended use would require a new clearance or approval and certain modifications to devices cleared or approved by foreign regulatory authorities may also require a new clearance or approval.
Earthquakes are of particular significance since some of our facilities are located in earthquake-prone areas. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist or terrorist organizations, epidemics, communication failures, fire, floods and similar events.
Earthquakes are of particular significance since some of our facilities are located in earthquake-prone areas. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist or terrorist organizations, epidemics, communication failures, fire, floods, hurricanes and similar events.
Risks Related to Our Regulatory Environment Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new products in the U.S., which could severely harm our business.
Risks Related to Our Regulatory Environment Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new healthcare products in the U.S., which could severely harm our business.
Manufacturers that make modifications pursuant to these policies will need to stop marketing the modifications at the end of the COVID-19 pandemic unless the manufacturer receives 510(k) clearance for the modifications. Regulatory reforms may impact our ability to develop and commercialize our products and technologies.
Manufacturers that make modifications pursuant to these policies will need to stop marketing the modifications at the end of the COVID-19 pandemic unless the manufacturer receives 510(k) clearance for the modifications. Regulatory reforms may impact our ability to develop and commercialize our healthcare products and technologies.
The lack of adequate coverage and reimbursement for our products or the procedures in which our products are used may deter customers from purchasing our products. We cannot guarantee that governmental or third-party payers will reimburse or begin reimbursing a customer for the cost of our products or the procedures in which our products are used.
The lack of adequate coverage and reimbursement for our healthcare products or the procedures in which our healthcare products are used may deter customers from purchasing our products. We cannot guarantee that governmental or third-party payers will reimburse or begin reimbursing a customer for the cost of our healthcare products or the procedures in which our healthcare products are used.
The FDA clearances we have obtained may not make it easier for our OEM partners to obtain clearances of products incorporating these technologies, or the FDA may not grant clearances on a timely basis, if at all, for any future products incorporating Masimo technologies that our OEM partners propose to market.
The FDA clearances we have obtained may not make it easier for our OEM partners to obtain clearances of products incorporating these technologies, or the FDA may not grant clearances on a timely basis, if at all, for any future products incorporating our technologies that our OEM partners propose to market.
We expect this will be a complex, evolving, and long-term strategic initiative that will involve the development of new and emerging technologies, continued investment in medical technology and consumer hardware products, and collaboration with other companies, developers, partners and other participants.
We expect this will be a complex, evolving, and long-term strategic initiative that will involve the development of new and emerging technologies, continued investment in medical technology and consumer products, and collaboration with other companies, developers, partners and other participants.
Recent accounting changes related to our embedded leases within certain deferred equipment agreements have also resulted in the acceleration of the timing related to our recognition of revenue and expenses associated with certain equipment provided to customers at no up-front charge.
Recent accounting changes related to our embedded leases within certain deferred equipment agreements have also resulted in the acceleration of the timing related to our recognition of revenue and expenses associated with certain equipment provided to healthcare customers at no up-front charge.
Additionally, some of our just-in-time distributors have been demanding higher fees, which we may be obligated to pay in order to continue to offer products to our customers through these distributors or which may obligate us to distribute our products directly to our customers.
Additionally, some just-in-time distributors of our healthcare products have been demanding higher fees, which we may be obligated to pay in order to continue to offer products to our customers through these distributors or which may obligate us to distribute our products directly to our customers.
If we fail to maintain or develop relationships with GPOs, sales of our products would decline. Our ability to sell our products to hospitals depends, in part, on our relationships with GPOs. Many existing and potential customers for our products are members of GPOs.
If we fail to maintain or develop relationships with GPOs, sales of our healthcare products would decline. Our ability to sell our healthcare products to hospitals depends, in part, on our relationships with GPOs. Many existing and potential customers for our products are members of GPOs.
A lack of inclusion into scope of practice procedures may limit adoption of our products. Additionally, increases in demand resulting from global medical crises such as the COVID-19 pandemic may be short lived.
A lack of inclusion into scope of practice procedures may limit adoption of our products. Additionally, increases in demand resulting from global medical crises, such as the ongoing COVID-19 pandemic, may be short lived.
Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained. We have made modifications to our devices in the past and we may make additional modifications in the future.
Modifications to our marketed medical devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained. We have made modifications to our medical devices in the past and we may make additional modifications in the future.
Any claims of patent or other intellectual property infringement against us, even those without merit, could: • be expensive and time-consuming to defend and result in payment of significant damages to third parties; • force us to stop making or selling products that incorporate the intellectual property; • require us to redesign, reengineer or rebrand our products, product candidates and technologies; • require us to enter into royalty agreements that would increase the costs of our products; • require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims; • divert the attention of our management and other key employees; and 43 Table of Contents • result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the claims are resolved; any of which could have a material adverse effect on our business, financial condition and results of operations.
Any claims of patent or other intellectual property infringement against us, even those without merit, could: • be expensive and time-consuming to defend and result in payment of significant damages to third-parties; • force us to stop making or selling products that incorporate the intellectual property; • require us to redesign, reengineer or rebrand our products, product candidates and technologies; • require us to enter into royalty agreements that would increase the costs of our products; • require us to indemnify third-parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims; • divert the attention of our management and other key employees; and • result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the claims are resolved; any of which could have a material adverse effect on our business, financial condition and results of operations.
If the increased demand results in a stockpiling of our products by, or excess inventory at, our customers, future orders may be delayed or canceled until such on-hand inventory is consumed.
If the increased demand results in a stockpiling of our healthcare products by, or excess inventory at, our customers, future orders may be delayed or canceled until such on-hand inventory is consumed.
Our ability to arrange additional financing and make payments of principal and interest on our indebtedness will depend on our future performance, which will be subject to general economic, financial, and business conditions as well as other factors affecting our operations, many of which are beyond our control. 54 Table of Contents Risks Related to Our Stock Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.
Our ability to arrange additional financing and make payments of principal and interest on our indebtedness will depend on our future performance, which will be subject to general economic, financial, and business conditions as well as other factors affecting our operations, many of which are beyond our control. 48 Table of Contents Risks Related to Our Stock Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.
Even if we achieve the anticipated benefits from the pending acquisition, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions, or other general corporate purposes.
Even if we achieve the anticipated benefits from the acquisition, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions, or other general corporate purposes.
Such uncertainty may have an impact on our business, from the demand for our customers’ products to our costs of compliance in the manufacturing and servicing of our customers’ products, all of which may impact our results of operations.
Such uncertainty may have an impact on our business, from the demand for our products to our costs of compliance in the manufacturing and servicing of our products, all of which may impact our results of operations.
We are required to prepare and disclose certain information under the Exchange Act as amended, in a timely manner and meet our reporting obligations in their entirety, and our failure to do so could subject us to penalties under federal securities laws and regulations of The Nasdaq Stock Market LLC, expose us to lawsuits and restrict our ability to access financing on favorable terms, or at all.
We are required to prepare and disclose certain information under the Exchange Act, in a timely manner and meet our reporting obligations in their entirety, and our failure to do so could subject us to penalties under federal securities laws and regulations of The Nasdaq Stock Market LLC, expose us to lawsuits and restrict our ability to access financing on favorable terms, or at all.
Regulatory agencies in many countries require us to report anytime our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury.
Regulatory agencies in many countries require us to report anytime our healthcare products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury.
Over the past 36 months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. To the extent outstanding options are exercised or outstanding RSUs or PSUs vest, our existing stockholders may incur dilution. We rely on equity awards to motivate current employees and to attract new employees.
Over the past 48 months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. To the extent outstanding options are exercised or outstanding RSUs or PSUs vest, our existing stockholders may incur dilution. We rely on equity awards to motivate current employees and to attract new employees.
In addition, given our dependence upon patient and physician perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects. Promotion of our products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.
In addition, given our dependence upon patient, physician and consumer perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects. Promotion of our healthcare products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.
Even if we complete acquisitions, there are many factors that could affect whether such acquisition will be beneficial to our business, including, without limitation: • payment of above-market prices for acquisitions and higher than anticipated acquisition costs; • issuance of common stock as part of the acquisition price or a need to issue stock options or other equity to newly-hired employees of target companies, resulting in dilution of ownership to our existing stockholders; • reduced profitability if an acquisition is not accretive to our business over either the short-term or the long-term; • difficulties in integrating any acquired companies, personnel, products and other assets into our existing business; • delays in realizing the benefits of the acquired company, products or other assets; • regulatory challenges and becoming subject to additional regulatory requirements; • cybersecurity and compliance-related issues; • diversion of our management’s time and attention from other business concerns; • limited or no direct prior experience in new markets or countries we may enter; 52 Table of Contents • unanticipated issues dealing with unfamiliar suppliers, service providers or other collaborators of the acquired company; • higher costs of integration than we anticipated; • write-downs or impairments of goodwill or other intangible assets associated with the acquired company; • difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions; • negative impacts on our relationships with our employees, clients or collaborators; • intellectual property and other litigation, other claims or liabilities in connection with the acquisition; and • changes in the overall financial model as certain acquired companies may have a different revenue, gross profit margin or operating expense profile.
Even if we complete acquisitions, there are many factors that could affect whether such acquisition, including our acquisition of Sound United, will be beneficial to our business, including, without limitation: • payment of above-market prices for acquisitions and higher than anticipated acquisition costs; • issuance of common stock as part of the acquisition price or a need to issue stock options or other equity-based compensation to newly-hired employees of target companies, resulting in dilution of ownership to our existing stockholders; • reduced profitability if an acquisition is not accretive to our business over either the short-term or the long-term; • difficulties in integrating any acquired companies, personnel, products and other assets into our existing business; • delays in realizing the benefits of the acquired company, products or other assets; • regulatory challenges and becoming subject to additional regulatory requirements; 46 Table of Contents • cybersecurity and compliance-related issues; • diversion of our management’s time and attention from other business concerns; • limited or no direct prior experience in new markets or countries we may enter; • unanticipated issues dealing with unfamiliar suppliers, service providers or other collaborators of the acquired company; • higher costs of integration than we anticipated; • write-downs or impairments of goodwill or other intangible assets associated with the acquired company; • difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions; • negative impacts on our relationships with our employees, clients, customers or collaborators; • intellectual property and other litigation, other claims or liabilities in connection with the acquisition; and • changes in the overall financial model as certain acquired companies may have a different revenue, gross profit margin or operating expense profile.
Additionally, the FDA may not grant 510(k) clearance on a timely basis, if at all, for new products or new uses that we propose for Masimo SET ® or licensed rainbow ® technology. The traditional FDA 510(k) clearance process for our products has generally taken between four to nine months.
Additionally, the FDA may not grant 510(k) clearance on a timely basis, if at all, for new products or new uses that we propose for Masimo SET ® or licensed rainbow ® technology. The traditional FDA 510(k) clearance process for our medical devices has generally taken between four to nine months.
The risks inherent in operating internationally, including the purchase, sale and shipment of our components and products across international borders, may adversely impact our business, financial condition and results of operations. We currently derive approximately 33% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources.
The risks inherent in operating internationally, including the purchase, sale and shipment of our components and products across international borders, may adversely impact our business, financial condition and results of operations. We currently derive approximately 45% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources.
In addition, under our Credit Facility, we are required to satisfy and maintain specified financial ratios and other affirmative covenants. Our ability to meet those financial ratios and affirmative covenants could be affected by events beyond our control and, therefore, we cannot be assured that we will be able to continue to satisfy these requirements.
In addition, under our credit facility, we are required to satisfy and maintain specified financial ratios and other customary affirmative and negative covenants. Our ability to meet those financial ratios and affirmative and negative covenants could be affected by events beyond our control and, therefore, we cannot be assured that we will be able to continue to satisfy these requirements.
For example, we have had sales of medical products destined for Iran. 57 Table of Contents In addition, changes in policy in the U.S. and other countries regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business.
For example, we have had sales of medical products destined for Iran. 52 Table of Contents In addition, changes in policy in the U.S. and other countries regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business.
There have also been recent U.S. Congressional actions to repeal and replace the ACA, and future actions are expected.
There have also been U.S. Congressional actions to repeal and replace the ACA, and future actions are expected.
We rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.
We rely on the use of registered and common law trademarks with respect to our brands and the names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.
Outside of the U.S., we can generally market a product only if we receive a marketing authorization (and/or meet certain pre-marketing requirements) and, in some cases, pricing approval, from the appropriate regulatory authorities. The regulatory registration/licensing process varies among international jurisdictions and may require additional or different product testing than required to obtain FDA clearance.
Outside of the U.S., we can generally market our healthcare products only if we receive a marketing authorization (and/or meet certain pre-marketing requirements) and, in some cases, pricing approval, from the appropriate regulatory authorities. The regulatory registration/licensing process varies among international jurisdictions and may require additional or different product testing than required to obtain FDA clearance.
We believe some of the new market entrants in the healthcare and monitoring space, including some of the world’s largest technology companies, may be infringing our intellectual property, and we may be required to engage in additional litigation to protect our intellectual property in the future.
We believe some of the new market entrants in the healthcare and monitoring space, including some of the world’s largest technology companies, and some consumer audio companies may be infringing our intellectual property, and we may be required to engage in additional litigation to protect our intellectual property in the future.
If we fail to receive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, financial condition and results of operations could be adversely affected. Furthermore, foreign regulatory requirements may change from time to time, which could adversely affect our ability to market new products, and/or continue to market existing products, internationally.
If we fail to receive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, financial condition and results of operations could be adversely affected. 40 Table of Contents Furthermore, foreign regulatory requirements may change from time to time, which could adversely affect our ability to market new products, and/or continue to market existing products, internationally.
Obtaining 510(k) clearance permits us to promote our products for the uses cleared by the FDA. Use of a device outside its cleared or approved indications is known as “off-label” use or promotion, respectively.
Obtaining 510(k) clearance permits us to promote our products for the uses cleared by the FDA. Use of a device outside its cleared or approved indications is known as “off-label” use.
Our bylaws provide that the state or federal courts located within the State of Delaware are the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or stockholders to our stockholders, (iii) any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware, our certificate of incorporation or our bylaws or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine.
Our bylaws provide that the state or federal courts located within the State of Delaware are the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or stockholders to our stockholders, (iii) any action asserting a claim against us arising pursuant to the DGCL, our certificate of incorporation or our bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine.
Our ability to effectively manage and maintain our internal business information, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other information systems. 61 Table of Contents Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work.
Our ability to effectively manage and maintain our internal business information, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other information systems. Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work.
To effectively compete, we may need to expand our product offerings and distribution channels, which in the interim could increase our research and development costs and decrease our operating margins, thereby adversely impacting our business, financial condition and results of operations. 39 Table of Contents We depend on our domestic and international OEM partners for a portion of our revenue.
To effectively compete, we may need to expand our product offerings and distribution channels, which in the interim could increase our research and development costs and decrease our operating margins, thereby adversely impacting our business, financial condition and results of operations. We depend on our domestic and international OEM partners for a portion of our revenue.
If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock. We may elect not to declare cash dividends on our stock, may elect to only pay dividends on an infrequent or irregular basis, or may elect not to make any additional stock repurchases.
If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock. 58 Table of Contents We may elect not to declare cash dividends on our stock, may elect to only pay dividends on an infrequent or irregular basis, or may elect not to make any additional stock repurchases.
These risks include, but are not limited to: • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • a shortage of high-quality sales people and distributors; • the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with foreign tax laws, regulations and requirements; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts; • financial and civil unrest worldwide; • outbreaks of illnesses, pandemics or other local or global health issues; • the inability to collect amounts paid by foreign government customers to our appointed foreign agents; • longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and • difficulties in enforcing or defending intellectual property rights.
These risks include, but are not limited to: • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • a shortage of high-quality sales people and distributors; • the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with foreign tax laws, regulations and requirements; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts, including the ongoing conflict between Ukraine and Russia and the global impact of restrictions and sanctions imposed on Russia; • financial and civil unrest worldwide; • outbreaks of illnesses, pandemics or other local or global health issues; • the inability to collect amounts paid by foreign government customers to our appointed foreign agents; • longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and • difficulties in enforcing or defending intellectual property rights.
Healthcare fraud and abuse laws potentially applicable to our operations include, but are not limited to: 48 Table of Contents • the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the purchase, order or recommendation of an item or service reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs); • the federal False Claims Act and other federal laws which prohibit, among other things, knowingly and willfully presenting, or causing to be presented, claims for payment from Medicare, Medicaid, other government payers or other third-party payers that are false or fraudulent; • the Physician Payments Sunshine Act, which requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S.; and • state laws analogous to each of the above federal laws, such as state anti-kickback and false claims laws that may apply to items or services reimbursed by governmental programs and non-governmental third-party payers, including commercial insurers.
Healthcare fraud and abuse laws potentially applicable to our operations include, but are not limited to: • the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the purchase, order or recommendation of an item or service reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs); • the federal False Claims Act and other federal laws which prohibit, among other things, knowingly and willfully presenting, or causing to be presented, claims for payment from Medicare, Medicaid, other government payers or other third-party payers that are false or fraudulent; • the Physician Payments Sunshine Act, which requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to certain health care professionals and teaching hospitals in the U.S.; and • state laws analogous to each of the above federal laws, such as state anti-kickback and false claims laws that may apply to items or services reimbursed by governmental programs and non-governmental third-party payers, including commercial insurers.
Our ongoing and future litigation could result in significant additional costs and further divert the attention of our management and key personnel from our business operations and the implementation of our business strategy and may not be successful or adequate to protect our intellectual property rights. The laws of foreign countries may not adequately protect our intellectual property rights.
Our ongoing and future litigation could result in significant additional costs and further divert the attention of our management and key personnel from our business operations and the implementation of our business strategy and may not be successful or adequate to protect our intellectual property rights. 38 Table of Contents The laws of foreign countries may not adequately protect our intellectual property rights.
Furthermore, our new products or significantly modified marketed products could be 44 Table of Contents denied 510(k) clearance and be required to undergo the more burdensome PMA or de novo classification review processes. The process of obtaining a de novo classification or PMA approval is much more costly, lengthy and uncertain than the process for obtaining 510(k) clearance.
Furthermore, our new products or significantly modified marketed products could be denied 510(k) clearance and be required to undergo the more burdensome PMA or de novo classification review processes. The process of obtaining a de novo classification or PMA approval is much more costly, lengthy and uncertain than the process for obtaining 510(k) clearance.
However, our personal consumer business may not develop in accordance with our vision and expectations, and market acceptance of features, products or services we build for the personal consumer business may be uncertain. We may be unsuccessful in our research and product development efforts, including if we are unable to develop relationships with key participants in the personal consumer business.
However, our non-healthcare business may not develop in accordance with our vision and expectations, and market acceptance of features, products or services we build for our consumer business may be uncertain. We may be unsuccessful in our research and product development efforts, including if we are unable to develop relationships with key participants in the consumer products business.
Public health emergencies may also prompt temporary or permanent regulatory reforms that could change the processes governing the clearance or approval, manufacture and marketing of medical devices. 46 Table of Contents In the EU, for example, the new MDR became applicable to our medical devices on May 26, 2021.
Public health emergencies may also prompt temporary or permanent regulatory reforms that could change the processes governing the clearance or approval, manufacture and marketing of medical devices. In the EU, for example, the new MDR became applicable to our medical devices on May 26, 2021.
Similarly, certain of our foreign subsidiaries transact business in their respective country’s local currency, which is also their functional currency. In addition, certain production costs related to our manufacturing operations in Mexico are denominated in Mexican Pesos. As a result, expenses of these foreign subsidiaries and certain production costs, when converted into U.S.
Similarly, certain of our foreign subsidiaries transact business in their respective country’s local currency, which is also their functional currency. In addition, certain production costs related to our manufacturing operations are denominated in local currency. As a result, expenses of these foreign subsidiaries and certain production costs, when converted into U.S.
These include, but are not limited to: • actual or anticipated fluctuations in our operating results or future prospects; • our announcements or our competitors’ announcements of new products; • the public’s reaction to our press releases, our other public announcements and our filings with the SEC; • strategic actions by us or our competitors, such as acquisitions or restructurings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in our growth rates or our competitors’ growth rates; • developments regarding our patents or proprietary rights or those of our competitors; • ongoing legal proceedings; • our inability to raise additional capital as needed; • concerns or allegations as to the safety or efficacy of our products; • changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad; • effects of public health crises, epidemics and pandemics, such as the COVID-19 pandemic; • sales of stock by us or members of our management team, our Board or certain institutional stockholders; and 62 Table of Contents • changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally.
These include, but are not limited to: • actual or anticipated fluctuations in our operating results or future prospects; • our announcements or our competitors’ announcements of new products; • the public’s reaction to our press releases, including those relating to our earnings or financial guidance, our other public announcements and our filings with the SEC; • strategic actions by us or our competitors, such as acquisitions or restructurings; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidance, interpretations or principles; 57 Table of Contents • changes in our growth rates or our competitors’ growth rates; • developments regarding our patents or proprietary rights or those of our competitors; • ongoing legal proceedings; • our inability to raise additional capital as needed; • concerns or allegations as to the safety or efficacy of our products; • changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad; • effects of public health crises, epidemics and pandemics, such as the COVID-19 pandemic; • sales of stock by us or members of our management team, our Board or certain institutional stockholders; • shareholder activism; • changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally; and • short selling or other hedging activity in our stock.
For example, we acquired TNI medical AG ® (TNI) and added softFlow ® technology to our product portfolio during 2020. In addition, we acquired LiDCO Group, Plc, which specializes in hemodynamic monitoring solutions.
For example, we acquired TNI medical AG ® (TNI ® ) and added softFlow ® technology to our product portfolio. In addition, we acquired LiDCO Group, Plc, which specializes in hemodynamic monitoring solutions.
Our products, along with the manufacturing processes, labeling and promotional activities for our products, are subject to continual review and periodic inspections by the FDA and other regulatory bodies.
Our healthcare products, along with the manufacturing processes, labeling and promotional activities for those products, are subject to continual review and periodic inspections by the FDA and other regulatory bodies.
To maintain high standards of corporate governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with evolving standards. In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act.
To maintain high standards of corporate governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with evolving standards. 55 Table of Contents In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act.
Our sales could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs and customers, including wholesalers or distributors.
Our revenues could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs and customers, including wholesalers or distributors.
If we cannot commercialize our products incorporating licensed rainbow ® technology successfully, we may not be able to generate sufficient product revenue from these products to be profitable, which could adversely affect our business, financial condition and results of operations. 51 Table of Contents Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.
If we cannot commercialize our products incorporating licensed rainbow ® technology successfully, we may not be able to generate sufficient revenue from these products to be profitable, which could adversely affect our business, financial condition and results of operations. Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.
As a result, changes in foreign exchange rates could have a material adverse effect on our business, financial condition and results of operations. For additional information related to our foreign currency exchange rate risk, please see Quantitative and Qualitative Disclosures about Market Risks in Part I, Item 3 of this Annual Report on Form 10-K.
As a result, changes in foreign exchange rates could have a material adverse effect on our business, financial condition and results of operations. For additional information related to our foreign currency exchange rate risk, please see “Quantitative and Qualitative Disclosures about Market Risk” in Part I, Item 3 of this Annual Report on Form 10-K.
Additional discussion of the risks summarized in this summary, and other risks that we face, can be found following this summary and should be carefully considered together with all of the other information appearing in this Annual Report on Form 10-K. • We currently derive the majority of our revenue from our Masimo SET ® platform, Masimo rainbow SET ® platform and related products.
Additional discussion of the risks summarized in this summary, and other risks that we face, can be found following this summary and should be carefully considered together with all of the other information appearing in this Annual Report on Form 10-K. • We currently derive a significant portion of our revenue from our Masimo SET ® platform, Masimo rainbow SET ® platform and related products.
If for any reason we were to lose our ability to sell to a specific group or class of customers or through a distributor, we could experience a significant reduction in revenue, which would adversely impact our operating results.
If for any reason we were to lose our ability to sell to a specific group or class of customers or through a distributor, we could experience a significant reduction in revenue or loss of market share, which would adversely impact our operating results.
Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.
Our corporate documents, Delaware law and our stockholder rights plan contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.
Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which may not be publicly-available information, or claimed trademark rights that have not been revealed through our searches. In addition, some of our employees were previously employed at other medical device companies.
Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which may not be publicly-available information, or claimed trademark rights that have not been revealed through our searches. In addition, some of our employees were previously employed at our competitors.
While a majority of our sales are transacted in U.S. Dollars, some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on the approximation of the exchange rates applied during a respective period.
Dollars, some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on the approximation of the exchange rates applied during a respective period.
Any repurchase of our common stock under the stock repurchase plan authorized by our Board in October 2021 (2021 Repurchase Program) will be at the discretion of a committee comprised of our CEO and Chief Financial Officer, and will depend on several factors, including, but not limited to, results of operations, capital requirements, financial conditions, available capital from operations or other sources and the market price of our common stock.
Any repurchase of our common stock under the stock repurchase plan authorized by our Board in June 2022 (Repurchase Program) will be at the discretion of a committee comprised of our CEO and Chief Financial Officer, and will depend on several factors, including, but not limited to, results of operations, capital requirements, financial conditions, available capital from operations or other sources, including debt, and the market price of our common stock.
GPOs negotiate pricing arrangements and contracts with medical supply manufacturers and distributors that may include provisions for sole sourcing and bundling, which generally reduce the choices available to member hospitals. These negotiated prices are made available to a GPO’s members.
GPOs negotiate pricing arrangements and contracts with medical supply manufacturers and distributors that may include provisions for sole sourcing and bundling, which generally reduce the choices available to member hospitals. 34 Table of Contents These negotiated prices are made available to a GPO’s members.
As a result, we would likely be subject to increased competition within our market, and Cercacor or competitors who obtain a license to rainbow ® technology from Cercacor would be able to offer related products. We may not be able to commercialize our products incorporating licensed rainbow ® technology cost-effectively or successfully.
As a result, we would likely be subject to increased competition within our market, and Cercacor or competitors who obtain a license to rainbow ® technology from Cercacor would be able to offer related products. 45 Table of Contents We may not be able to commercialize our products incorporating licensed rainbow ® technology cost-effectively or successfully.
We may also experience price increases for materials or components, with no guarantee that such increases can be passed along to our customers, which could adversely impact our gross margins.
We may also experience price increases for materials, components and shipping with no guarantee that such increases can be passed along to our customers, which could adversely impact our gross margins.
If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers. We depend on certain sole or limited source suppliers for certain key materials and components, including digital signal processor chips and analog-to-digital converter chips, for our noninvasive patient monitoring solutions.
If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers. We depend on certain sole or limited source suppliers for certain key materials and components, including digital signal processor chips and analog-to-digital converter chips for certain products.
These include the new EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a new regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU and the expiry of the transitional periods.
These include the EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU (Brexit).
As a result, we may not be able to sell products incorporating licensed rainbow ® technology at a price the market is willing to accept.
Accordingly, we may not be able to sell products incorporating licensed rainbow ® technology at a price the market is willing to accept.
This is now separate from the regime in the EU. Although certain transition periods apply until June 30, 2023, the medical devices we intend to commercialize in Great Britain will need to conform to different requirements than the requirements in the EU.
This is now separate from the regime in the EU. Although certain transition periods apply until June 30, 2023 (expected to be extended imminently to June 30, 2024), the medical devices we intend to commercialize in Great Britain will need to conform to different requirements than the requirements in the EU.
For purposes of these provisions, an “interested stockholder” generally means someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the General Corporation Law of the State of Delaware.
For purposes of these provisions, an “interested stockholder” generally means someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the DGCL.
In addition, as our personal consumer business continues to evolve, we may be subject to a variety of laws and regulations in the United States and international jurisdictions, which we were not previously affected by, including in the areas of privacy, which may delay or impede the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business.
In addition, as our non-healthcare business continues to evolve, we may be subject to a variety of laws and regulations in the U.S. and international jurisdictions, which we were not previously affected by, including in the areas of privacy, which may delay or impede the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business.
We currently manufacture our products at a limited number of locations and any disruption to, expansion of, or changes in trade programs related to such manufacturing operations could adversely affect our business, financial condition and results of operations. We rely on manufacturing facilities in California, New Hampshire and Mexico that may be affected by natural or man-made disasters.
We currently manufacture our products at a limited number of locations and any disruption to, expansion of, or changes in trade programs related to such manufacturing operations could adversely affect our business, financial condition and results of operations. We rely on manufacturing facilities in the U.S., Mexico, Asia and Europe that may be affected by natural or man-made disasters.
The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results. We have a concentration of OEM, distributor and direct customers.
The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results. Our healthcare business has a concentration of OEM, distributor and direct customers.
In addition, as we continue to expand our product portfolio, we may enter or create new markets, including consumer markets, that may expose us to additional product liability risks. For example, with the acquisition of TNI ® in March 2020, we added softFlow ® technology to our product portfolio.
In addition, as we continue to expand our product portfolio, we may enter or create new markets, including consumer markets, which may expose us to additional product liability risks. For example, with our previous acquisition of TNI ® , we added softFlow ® technology to our product portfolio.
Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies; • product recalls or seizures; • orders for physician notification or device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions. 45 Table of Contents If any of these events were to occur, it would harm our reputation and adversely affect our business, financial condition and results of operations.
Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies; • product recalls or seizures; • orders for physician notification or device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES We own two facilities in Irvine, California with combined square footage of approximately 314,400 that house our corporate headquarters and the majority of our U.S. research and development activities.
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Item 2. Properties ” in this Annual Report on Form 10-K. S ustainability As a global manufacturer of technology products, we understand the materials we use and the products we manufacture can have an impact on the environment. We are continuously evaluating ways to reduce our overall environmental footprint.
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We also own approximately 86,500 square feet of property in Hudson, New Hampshire, which is used to develop and manufacture advanced light emitting diodes and other advanced component-level technologies, as well as warehousing and administrative operations. Additionally, we own approximately 79,300 square feet of property in Neuchatel, Switzerland, that houses our international headquarters.
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We have implemented measures to promote greater environmental responsibility, conserve resources and reduce waste in an effort to help combat climate change. 27 Table of Contents We are committed to operating in an environmentally responsible manner and support the internationally recognized environmental principles set forth in the United Nations Global Compact.
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We continue to lease and occupy various other buildings in California and other locations in the U.S. approximating a total of 168,800 square feet for product manufacturing, warehousing, distribution and sales support operations. These leases expire from February 2022 through March 2031.
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We strive to identify new opportunities to improve the sustainability of our business and encourage our employees to join in our efforts. In furtherance of these commitments, we reinforce the following sustainability principles: • Environmental. We undertake initiatives to promote greater environmental responsibility and incorporate energy efficiency measures in all areas of our business.
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We also operate multiple facilities in Mexicali and San Luis Rio Colorado, Mexico with combined square footage of approximately 333,400 square feet, which are used for manufacturing and warehousing our products under a shelter labor agreement with Industrial Vallera de Mexicali, S.A. de C.V. (IVEMSA).
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We comply with applicable environmental protection laws in all areas of our business. • Social. We train and encourage our employees to conduct their activities in an environmentally responsible and sustainable manner. • Economic. We continuously take steps to minimize material waste and energy inefficiencies in our products and manufacturing processes. • Communities .
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IVEMSA leases these manufacturing facilities directly from the owners of the properties under separate agreements that are guaranteed by us. These leases expire in August 2024. We also lease and occupy various other facilities throughout the world to operate our business.
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We have a long and proud history of investing in and giving back to the communities in which we live and work, as well as providing aid around the globe.
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We believe that our existing facilities are adequate to meet our needs and that existing needs and future growth can be accommodated by purchasing or leasing alternative or additional space.
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Through the partnerships with organizations like the World Health Organization and the Masimo Foundation, we give back by providing grants to humanitarian aid organizations and offering in-kind donations of medical equipment. In addition, our employees also actively support causes by raising awareness and funds for non-profit organizations.
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Organizations that our employees have supported in recent years include Syrian American Medical Society, Juvenile Diabetes Research Foundation, Feeding America, Patient Safety Movement Foundation and the Sound Start Foundation. Human Capital Resources Core to our long-term strategy for human capital is attracting, developing and retaining the best talent globally with the right skills to drive our future success.
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We consider our employees to be our greatest assets and the greatest strength behind our innovation and success. We seek to attract and retain highly talented, experienced and well-educated individuals to support our long-term growth and profitability goals.
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Our success and future growth is largely dependent on our ability to attract, retain and develop a diverse workforce at all levels of the organization. To succeed, we have developed key recruitment and retention strategies that we focus on as part of our overall management of our business. These include: • Compensation.
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Our compensation programs are designed to align the compensation of our employees with their performance and to provide the proper incentives to attract and retain employees while motivating them to achieve superior results.
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The structure of our compensation programs balance incentive earnings for both short-term and long-term performance. ▪ Our executive compensation is aligned with stockholder interests by aligning pay-for-performance metrics. ▪ We utilize nationally-recognized compensation consultants to evaluate our executive compensation benefit programs and provide benchmarking against our peer groups. ▪ We provide employee wages that are competitive and consistent with employee positions, experience, skills, knowledge and geography. ▪ Our annual increases and cash incentives are based on market and awarded based on merit. ▪ We offer a wide variety of benefits, including health insurance, paid time off, retirement plans, and voluntary benefits such as financial and personal wellness benefits, etc. • Health and Safety.
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We are committed to the safety and well-being of our employees. In response to the COVID-19 pandemic, we implemented changes to our business in an effort to protect our employees and customers.
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We instituted safety protocols and procedures for our employees who work on site, including: installation of plexiglass partitions between work stations at our primary manufacturing and assembly facilities, increased distancing and implementation of extensive cleaning and sanitation procedures for our manufacturing and assembly facilities and our general administration and sales facilities. • Developing Leaders of Tomorrow/Succession Planning.
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We are committed to identifying and developing the talents of our next generation of leaders. Our executive management team conducts organization and leadership reviews of all business leaders, focusing on our high-performing and high potential talent, diversity, and the succession planning for critical roles. • Employee Feedback and Retention.
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In 2021 and 2022, we were certified as a Great Place to Work ® . In addition, for 2021 and 2022, we were recognized on Fortune Best Workplaces in Manufacturing & Production ™ . To assess and improve employee retention and engagement, we survey employees and take actions to address areas of employee concerns.
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The average tenure of our employee is approximately 5.4 years and more than 18% of our employees have been employed by us for more than ten years. 28 Table of Contents • Inclusion and Diversity.
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In fiscal 2022, our full-time employees increased from approximately 2,000 as of January 1, 2022 to 4,000 as of December 31, 2022 and our dedicated contract personnel worldwide increased from approximately 4,200 as of January 1, 2022 to approximately 5,900 as of December 31, 2022.
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Of our full-time employees, approximately 69% were male and approximately 31% were female, and women represented approximately 23% of our management/leadership roles. Minorities represented approximately 47% of our U.S. workforce, and approximately 40% of our management/leadership roles. Cybersecurity We regularly perform risk assessments relating to cybersecurity risks.
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We have a risk-based cybersecurity program, dedicated to protecting our data and data that may be collected from patient monitoring devices. We utilize a defense-in-depth strategy with multiple layers of security controls to protect our data and systems.
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We mitigate cybersecurity risks by employing extensive measures, including employee training, systems monitoring and testing and maintenance of protective systems and contingency plans. We continually evaluate ourselves for appropriate business continuity and disaster recovery planning, with test scenarios that include simulations and penetration tests.
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We also install and regularly update antivirus software on all of our Company-managed systems to detect malicious code and prevent it from impacting our systems. We require cybersecurity awareness training for all staff members with access to our network. We also maintain cyber liability insurance coverage to further reduce our risk profile.
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Security of our financial data and other sensitive information remains a high priority for us, led by our global information security team. We employ an appropriate encryption and tokenization platform for all online and direct-to-consumer sales from our websites, ensuring no credit card data is stored in our internal systems.
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For more information on risks related to cybersecurity and data security, see Item 1A. “Risk Factors - Risks Related to Our Regulatory Environment and General Risk Factors ” .
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Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at our website, www.masimo.co m , as soon as reasonably practicable after electronically filing such reports with the SEC.
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Any information contained on, or that can be accessed through, our website is not incorporated by reference into, nor is it in any way a part of, this Annual Report on Form 10-K. 29 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+1 added−3 removed4 unchanged
Biggest changeShares withheld to satisfy tax withholding obligations for the years ended January 1, 2022 and January 2, 2021 were as follows (in thousands, except per share amounts): Three Months Ended Year Ended January 1, 2022 (1) January 2, 2021 January 1, 2022 (1) January 2, 2021 Shares withheld 18 8,464 67,704 18,750 ‘ (1) Average cost per share $ 276.97 $ 252.72 $ 247.10 $ 203.01 Value of shares withheld $ 5 $ 2,139 $ 16,728 $ 3,807 _____________ (1) Also included here is the option cost due upon the exercise of stock options that was paid by delivering the shares previously owned by the participant.
Biggest changeShares withheld to satisfy tax withholding obligations for the years ended December 31, 2022 and January 1, 2022 were as follows (in millions, except shares withheld and per share amounts): Three Months Ended Year Ended December 31, 2022 January 1, 2022 (1) December 31, 2022 January 1, 2022 (1) Shares withheld — 18 112,298 67,704 Average cost per share $ — $ 276.97 $ 226.22 $ 247.10 Value of shares withheld $ — $ 5 $ 25.4 $ 16.7 _____________ (1) Also included here is the option cost due upon the exercise of stock options that was paid by delivering the shares previously owned by the participant.
The stock performance shown on the graph below is not necessarily indicative of future price performance. 66 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Masimo Corporation, the Nasdaq Market Composite Index, and the Nasdaq Medical Equipment Index *$100 invested on 1/1/2017 in stock or in index, including reinvestment of dividends. Indexes calculated on month-end basis.
The stock performance shown on the graph below is not necessarily indicative of future price performance. 61 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Masimo Corporation, the Nasdaq Market Composite Index, and the Nasdaq Medical Equipment Index *$100 invested on 12/30/2017 in stock or in index, including reinvestment of dividends. Indexes calculated on month-end basis.
The following stock performance graph compares total stockholder returns for our common stock from January 1, 2017 through January 1, 2022 against the Nasdaq Market Composite Index and Nasdaq Medical Equipment Index, assuming a $100 investment made on January 1, 2017. Each of the two comparative measures of cumulative total return assumes reinvestment of dividends.
The following stock performance graph compares total stockholder returns for our common stock from December 30, 2017 through December 31, 2022 against the Nasdaq Market Composite Index and Nasdaq Medical Equipment Index, assuming a $100 investment made on December 30, 2017. Each of the two comparative measures of cumulative total return assumes reinvestment of dividends.
In October 2021, the Board approved a new stock repurchase program, authorizing the Company to purchase up to 3.0 million shares of its common stock over a period of up to three years (2021 Repurchase Program). The 2021 Repurchase Program became effective in October 2021 upon the expiration of the 2018 Repurchase Program.
Stock Repurchase Programs In October 2021, our Board approved a new stock repurchase program, authorizing us to purchase up to 3.0 million shares of our common stock over a period of up to three years (2021 Repurchase Program). The 2021 Repurchase Program became effective in October 2021 upon the expiration of the 2018 Repurchase Program.
We expect to fund the 2021 Repurchase Program through our available cash, cash expected to be generated from future operations and other potential sources of capital.
We expect to fund the 2022 Repurchase Program through our available cash, cash expected to be generated from future operations, our credit facility and other potential sources of capital.
As of February 8, 2022, the closing price of our stock was $224.52 per share, and the number of stockholders of record, excluding persons whose stock is in nominee or “street name” accounts through brokers, was 17. Dividend Policy We have historically not paid dividends to our stockholders.
As of January 27, 2023, the closing price of our stock was $171.39 per share, and the number of stockholders of record, excluding persons whose stock is in nominee or “street name” accounts through brokers, was 19. Dividend Policy We have historically not paid dividends to our stockholders.
During the year ended January 1, 2022, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding shares of our common stock, with an aggregate fair market value on the date of vesting equal to the tax withholding obligations, from the shares of our common stock actually issued in connection with such award.
As of December 31, 2022, 5.0 million shares remained available for repurchase pursuant to the 2022 Repurchase Program. 62 Table of Contents Withholdings of Equity Securities During the year ended December 31, 2022, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding shares of our common stock, with an aggregate fair market value on the date of vesting equal to the tax withholding obligations, from the shares of our common stock actually issued in connection with such award.
The 2021 Repurchase Program can be carried out at the discretion of a committee comprised of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions.
The 2022 Repurchase Program can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. No shares were repurchased pursuant to the 2022 Repurchase Program during the quarter ended December 31, 2022.
Repurchases and Withholdings of Issuer Securities In July 2018, our Board of Directors (Board) approved a new stock repurchase program, authorizing us to purchase up to 5.0 million additional shares of its common stock over a period of up to three years (2018 Repurchase Program). The 2018 Repurchase Program became effective in September 2018.
The 2021 Repurchase Program was completed in May 2022. In June 2022, our Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (2022 Repurchase Program). The 2022 Repurchase Program became effective in July 2022.
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Any repurchases under the 2021 Repurchase Program are subject to the availability of stock, general market conditions, the trading price of the stock, available capital, alternative uses for capital and our financial performanc e.
Added
No shares were withheld to satisfy tax withholding obligations during the quarter ended December 31, 2022.
Removed
During the year ended January 1, 2022, we repurchased approximately 0.5 million shares under the 2018 Repurchase Program at an average cost of 235.88 per share, totaling approximately $128.9 million.
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No shares were repurchased under the 2021 Repurchase Program during the year ended January 1, 2022 . 67 Table of Contents Issuer Repurchases and Withholdings of Equity Securities During the quarter ended January 1, 2022, we did not effect any repurchases of shares of our common stock or withhold any shares of our common stock to satisfy tax withholding obligations.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table details our total product revenues by the geographic area to which the products were shipped for the years ended January 1, 2022 and January 2, 2021 (dollars in thousands): Year Ended January 1, 2022 Year Ended January 2, 2021 Increase/ (Decrease) Percentage Change United States (U.S.) $ 822,410 66.4 % $ 763,069 66.7 % $ 59,341 7.8 % Europe, Middle East and Africa 251,839 20.3 238,681 20.9 13,158 5.5 Asia and Australia 123,595 10.0 103,756 9.1 19,839 19.1 North and South America (excluding U.S.) 41,309 3.3 38,238 3.3 3,071 8.0 Product revenue $ 1,239,153 100.0 % $ 1,143,744 100.0 % $ 95,409 8.3 % This increase was primarily due to higher revenue from consumables, parameters and services, as w ell as the impact of approximately $8.2 million of favorable foreign exchange rate movements from the prior year that increased the U.S.
Biggest changeThe following table details our revenues by segment for each of the year ended December 31, 2022 and January 1, 2022: Segment Revenue ( in millions, except percentages) Year Ended December 31, 2022 Year Ended January 1, 2022 Increase/ (Decrease) Percentage Change Healthcare $ 1,340.3 65.8 % $ 1,239.2 100.0 % $ 101.1 8.2 % Non-healthcare 695.5 34.2 — — 695.5 100.0 Revenue by segment $ 2,035.8 100.0 % $ 1,239.2 100.0 % $ 796.6 64.3 % The increase in healthcare segment revenue was primarily due to higher revenue from consumables, parameters and services, which was partially offset by the impact of unfavorable foreign exchange rate movements from the prior year that decreased the U.S.
Non-operating (Loss) Income . Non-operating (loss) income consists primarily of interest income, interest expense and foreign exchange gains and losses.
Non-operating loss consists primarily of interest income, interest expense and foreign exchange gains and losses.
We believe that the critical accounting policies that are the most significant for purposes of fully understanding and evaluating our reported financial results include the following: Revenue Recognition, Deferred Revenue and Other Contract Liabilities We derive the majority of our product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where we provide up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to OEM customers who incorporate our embedded software technology into their multiparameter monitoring devices.
We believe that the critical accounting policies that are the most significant for purposes of fully understanding and evaluating our reported financial results include the following: Revenue Recognition, Deferred Revenue and Other Contract Liabilities We derive the majority of our revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where we provide up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to OEM customers who incorporate our embedded software technology into their multiparameter monitoring devices.
Financing Activities . Cash used in financing activities for the year ended January 1, 2022 was $122.4 million, resulting primarily from cash paid for common stock repurchase transactions that settled during the year of $128.9 million, which were partially offset by proceeds from the issuance of common stock (upon exercise of options) of $23.2 million.
Cash used in financing activities for the year ended January 1, 2022 was approximately $122.4 million, resulting primarily from cash paid for common stock repurchase transactions that settled during the year of approximately $128.9 million, which were partially offset by proceeds from the issuance of common stock (upon exercise of options) of approximately $23.2 million.
Furthermore, we continue to be exposed to potential disruptions to our manufacturing operations, disruptions in the manufacturing supply chain of critical components and in our workforce as circumstances surrounding the global impact of the COVID-19 pandemic continue to change.
Furthermore, we continue to be exposed to potential disruptions to our manufacturing operations and disruptions in the supply of critical manufacturing components and in our workforce as circumstances surrounding the global impact of the COVID-19 pandemic continue to change.
Our cash requirements depend on numerous factors, including but not limited to market acceptance of our technologies, our continued ability to commercialize new products and to create or improve our technologies and applications, expansion of our global footprint through acquisitions and/or strategic investments in technologies or technology companies, investments in property and equipment, the renewal of our Credit Facility, the impact of disruptions to the manufacturing industry supply chain for key components resulting from the COVID-19 pandemic, inflation, repurchases of our stock under our authorized stock repurchase program, costs related to our domestic and international regulatory requirements and other long-term commitment and contingencies.
Our cash requirements depend on numerous factors, including but not limited to market acceptance of our technologies, our continued ability to commercialize new products and to create or improve our technologies and applications, expansion of our global footprint through acquisitions and/or strategic investments in technologies or technology companies, hedging and derivative activities, investments in property and equipment, the renewal of our credit facility, the impact of disruptions to the manufacturing industry supply chain for key components resulting from the COVID-19 pandemic, inflation, repurchases of our stock under our authorized stock repurchase program, costs related to our domestic and international regulatory requirements and other long-term commitment and contingencies.
Cash used in investing activities for the year ended January 1, 2022 was $37.5 million, consisting primarily of $25.5 million for purchases of property and equipment, $9.4 million for intangible assets related to capitalized patent and trademark costs and $2.6 million related to the acquisition of a strategic investment.
Cash used in investing activities for the year ended January 1, 2022 was approximately $37.5 million, consisting primarily of approximately $25.5 million for purchases of property and equipment, approximately $9.4 million for intangible assets related to capitalized patent and trademark costs and approximately $2.6 million related to the acquisition of a strategic investment. Financing Activities .
Recent Accounting Pronouncements For details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 77 Table of Contents
Recent Accounting Pronouncements For details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 73 Table of Contents
We have made no provision for U.S. income taxes or foreign withholding taxes on approximately $180.6 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the U.S.
We have made no provision for U.S. income taxes or foreign withholding taxes on approximately $322.6 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the U.S.
Please see “ Risks Related to Our Revenues ” and “ Risks Related to our Business and Operations” in Part I, Item 1A of this Annual Report on Form 10-K for additional information on potential negative impacts to us resulting from the COVID-19 pandemic.
Please see “ Risks Related to Our Revenues ” and “ Risks Related to our Business and Operations ” in Part I, Item 1A of this Annual Report on Form 10-K for additional information on potential negative impacts to us resulting from the COVID-19 pandemic.
The 2021 Repurchase Program may be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.
The 2022 Repurchase Program may be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.
For additional information regarding the Credit Facility, see Note 15 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds.
For additional information regarding the credit facility, see Note 15 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 68 Table of Contents In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds.
We currently have sufficient funds on-hand and cash held outside the U.S. that is available without additional tax cost to fund our global operations. In the event funds that are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds. 72 Table of Contents Uses of Cash.
We currently have sufficient funds on-hand and cash held outside the U.S. that is available without additional tax cost to fund our global operations. In the event funds that are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds. Uses of Cash.
If our assumptions, judgements or estimates for potential inventory losses prove to be too low, our future earnings will be affected when any related additional inventory losses are recorded. Stock-Based Compensation Our stock-based compensation awards are currently comprised of stock options, restricted stock units (RSUs) and performance share units (PSUs), all of which are equity-classified awards.
If our assumptions, judgements or estimates for potential inventory losses prove to be too low, our future earnings will be affected when any related additional inventory losses are recorded. 71 Table of Contents Stock-Based Compensation Our stock-based compensation awards are currently comprised of stock options, restricted stock units (RSUs) and performance share units (PSUs), all of which are equity-classified awards.
Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. We enter into agreements to sell our monitoring solutions and services, sometimes as part of arrangements with multiple performance obligations that include various combinations of distinct product sales, equipment leases and services.
Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. 70 Table of Contents We enter into agreements to sell our monitoring solutions and services, sometimes as part of arrangements with multiple performance obligations that include various combinations of distinct product sales, equipment leases and services.
Given the foregoing, our actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.
Given the foreg oing, our actual liability for U.S. or foreign taxes may be materially different from our estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.
For further details regarding our commitment and contingencies, see Note 21 to our accompanying consolidated financial statements i ncluded in Part IV, Item 15(a) of this Annual Report on Form 10-K.
For further details regarding our commitment and contingencies, see Note 24 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
This increase in our effective tax rate for the year ended January 1, 2022 resulted primarily from an decrease in the amount of excess tax benefits realized from stock-based compensation pursuant to Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), of approximately $13.7 million compared to the year ended January 2, 2021.
This increase in our effective tax rate for the year ended December 31, 2022 resulted primarily from an decrease in the amount of excess tax benefits realized from stock-based compensation pursuant to Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), of approximately $14.0 million compared to the year ended January 1, 2022.
We have concluded all U.S. federal income tax matters for years through 2017 and all material state, local and foreign income tax matters for years through 2014.
We have concluded all U.S. federal income tax matters for years through 2018 and all material state, local and foreign income tax matters for years through 2015.
While we expect our worldwide consolidated effective tax rate will continue to be lower than the U.S. federal statutory rate, our actual future effective income tax rate will depend on various factors, including the geographic composition of our pre-tax income, the amount of excess tax benefits realized from U.S. stock-based compensation, the amount of our research and development tax credits, the deductibility of executive compensation, changes in tax laws, changes in deferred tax asset valuation allowances and the recognition and derecognition of tax benefits associated with uncertain tax positions.
Our actual future effective income tax rate will depend on various factors, including the geographic composition of our pre-tax income, the amount of excess tax benefits realized from U.S. stock-based compensation, the amount of our research and development tax credits, the deductibility of executive compensation, changes in tax laws, changes in deferred tax asset valuation allowances and the recognition and derecognition of tax benefits associated with uncertain tax positions.
We estimate the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations. Inventory Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates FIFO (first-in, first-out).
We estimate the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations. Inventory Inventories are stated at the lower of cost or net realizable value.
In addition, the fluctuations in demand could result in potential reductions in future demand if our customers have over purchased our products and need to consume their excess inventory before purchasing additional products.
In addition, the increase in demand we experienced due to the COVID-19 pandemic could result in potential reductions in future demand if our customers have over purchased our products and need to consume their excess inventory before purchasing additional products.
Liquidity and Capital Resources Sources of Cash. Our principal sources of liquidity consist of our existing cash and cash equivalent balances, future funds expected to be generated from operations and available borrowing capacity under our Credit Facility. As of January 1, 2022, we had approximately $970.7 million in working capital, of which approximately $745.3 million was cash and cash equivalents.
Liquidity and Capital Resources Our principal sources of liquidity consist of our existing cash and cash equivalent balances, future funds expected to be generated from operations and available borrowing capacity under our credit facility. As of December 31, 2022, we had approximately $678.6 million in working capital, of which approximately $202.9 million was cash and cash equivalents.
Comparison of the Year ended January 2, 2021 to the Year ended December 28, 2019 For a discussion regarding our financial condition and results of operations for the year ended January 2, 2021 as compared to the year ended December 28, 2019, refer to the discussion under the heading “Comparison of the Year ended January 2, 2021 to the Year ended December 28, 2019” in Item 7, which should be read in conjunction with Item 6, in each case, of our Annual Report on Form 10-K for the year ended January 2, 2021, filed with the Securities and Exchange Commission on February 23, 2021 .
Comparison of the Year ended January 1, 2022 to the Year ended January 2, 2021 For a discussion regarding our financial condition and results of operations for the year ended January 1, 2022 as compared to the year ended January 2, 2021, refer to the discussion under the heading “Comparison of the Year ended January 1, 2022 to the Year ended January 2, 2021” in Item 7, which should be read in conjunction with Item 7, in each case, of our Annual Report on Form 10-K for the year ended January 1, 2022, filed with the SEC on February 16, 2022 .
Litigation Costs and Contingencies We record a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.
Any difference in the assumptions, judgments and estimates mentioned above could results in changes to our results of operations. 72 Table of Contents Litigation Costs and Contingencies We record a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.
We estimate expected term based on both our specific historical option exercise experience, as well as expected term information available from a peer group of companies with similar vesting schedules.
We estimate expected term based on both our specific historical option exercise experience, as well as expected term information available from a peer group of companies with similar vesting schedules. The estimated volatility is based on both the historical and implied volatilities of our share price.
Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about our future income over the lives of our DTAs and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could results in changes to our results of operations.
Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about our future income over the lives of our DTAs and the impact of changes in valuation allowances.
Our effective tax rate was 16.3% for the year ended January 1, 2022 compared to 8.9% for the year ended January 2, 2021.
Our effective tax rate was 25.8% for the year ended December 31, 2022 compared to 16.3% for the year ended January 1, 2022.
However, changes in operating strategy and customer demand, and frequent unpredictable fluctuations in market values for such materials, can limit our ability to effectively utilize all of the raw materials purchased and sold through resulting finished goods to customers for a profit.
We generally purchase raw materials in quantities that we anticipate will be fully used within one year. However, changes in operating strategy and customer demand, and frequent unpredictable fluctuations in market values for such materials, can limit our ability to effectively utilize all of the raw materials purchased and sold through resulting finished goods to customers for a profit.
The Credit Facility also provides for a sublimit of up to $25.0 million for the issuance of letters of credit and a sublimit of $75.0 million for borrowings in specified foreign currencies. Proceeds from the Credit Facility are expected to be used for general corporate, capital investment and expenditures and working capital needs.
The credit facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit. Proceeds from the credit facility are being used for general corporate, capital investment and expenditures and working capital needs.
Should any of the assumptions, judgements or estimates associated with the valuation components change, the fair value of the assets acquired could vary.
Should any of the assumptions, judgements or estimates associated with the valuation components change, the fair value of the assets acquired could vary. Transaction costs associated with a business combination are expensed as incurred.
If any of those events were to occur, our business, financial condition and results of operations could be materially and adversely affected. 76 Table of Contents Business Combinations We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired, liabilities assumed and noncontrolling interest in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition.
Business Combinations We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired, liabilities assumed and noncontrolling interest in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition.
For additional information regarding our current and prior stock repurchase programs, see Part II, Item 5 and Note 17 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 69 Table of Contents Cercacor Cercacor Laboratories, Inc. (Cercacor) is an independent entity spun off from us to our stockholders in 1998.
For additional information regarding our current and prior stock repurchase programs, see Part II, Item 5 and Note 19 “Equity” to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
There are many uncertainties associated with any litigation, and we cannot provide assurance that any actions or other third-party claims against us will be resolved without costly litigation or substantial settlement charges.
There are many uncertainties associated with any litigation, and we cannot provide assurance that any actions or other third-party claims against us will be resolved without costly litigation or substantial settlement charges. If any of those events were to occur, our business, financial condition and results of operations could be materially and adversely affected.
Additional increases in operating cash resulted from decreases in inventory, accounts payable, accrued liabilities, deferred revenue and other contract-related liabilities, other current assets and income tax payable of $13.5 million, $11.0 million, $7.8 million, $7.1 million, $6.9 million and $6.4 million, r espectively, primarily due to the timing of payments.
This was increased by non-cash activities, including stock-based compensation of $44.7 million, and depreciation and amortization of $35.6 million, partially offset by a deferred income tax benefit of $15.1 million Additional increases in operating cash resulted from decreases in inventory, accounts payable, accrued liabilities, deferred revenue and other contract-related liabilities, other current assets and income tax payable of $13.5 million, $11.0 million $7.8 million, $7.1 million, $6.4 million and $6.4 million, respectively, primarily due to the timing of payments.
Selling, general and administrative expenses for the years ended January 1, 2022 and January 2, 2021 were as follows (dollars in thousands): Selling, General and Administrative Year Ended January 1, 2022 Percentage of Revenues Year Ended January 2, 2021 Percentage of Revenues Increase/ (Decrease) Percentage Change $395,291 31.9% $369,057 32.3% $26,234 7.1% Selling, general and administrative expenses increased $26.2 million, or 7.1%, to $395.3 million for the year ended January 1, 2022 from $369.1 million for the year ended January 2, 2021.
Selling, general and administrative expenses for the years ended December 31, 2022 and January 1, 2022 were as follows: Selling, General and Administrative (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $657.4 32.3% $395.4 31.9% $262.0 66.3% Selling, general and administrative expenses increased $262.0 million, or 66.3%, to $657.4 million for the year ended December 31, 2022 from $395.4 million for the year ended January 1, 2022.
For further details regarding our stock-based compensation see Note 18 to our accompanying consolidated financial statements i ncluded in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Any changes in the assumptions, judgments and estimates mentioned above could cause our actual stock-based compensation expense to vary, resulting in changes to future earnings. For further details regarding our stock-based compensation see Note 20 to our accompanying consolidated financial statements i ncluded in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Our provision for income taxes for the years ended January 1, 2022 and January 2, 2021 were as follows (dollars in thousands): Provision for Income Taxes Year Ended January 1, 2022 Percentage of Revenues Year Ended January 2, 2021 Percentage of Revenues Increase/ (Decrease) Percentage Change $44,733 3.6% $23,454 2.1% $21,279 90.7% Our provision for income taxes was $44.7 million for the year ended January 1, 2022 compared to $23.5 million for the year ended January 2, 2021.
Our provision for income taxes for the years ended December 31, 2022 and January 1, 2022 were as follows: Provision for Income Taxes (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $49.9 2.5% $44.8 3.6% $5.1 11.4% Our provision for income taxes was $49.9 million for the year ended December 31, 2022 compared to $44.8 million for the year ended January 1, 2022.
Additional increases to net income were changes in operating assets, including an increase in accounts receivable, lease receivables, and deferred cost and other contract assets of $60.8 million, $16.1 million and $6.9 million, respectively. Cash provided by operating activities for the year ended January 2, 2021 was $211.0 million and was primarily driven by net income of $240.3 million.
Additional increases to net income were changes in operating assets, including an increase in accounts receivable, lease receivables, and deferred cost and other contract assets of $60.8 million, $16.1 million and $6.9 million, respectively. 69 Table of Contents Investing Activities .
Non-operating (loss) income for the years ended January 1, 2022 and January 2, 2021 were as follows (dollars in thousands): Non-operating (Loss) Income Year Ended January 1, 2022 Percentage of Revenues Year Ended January 2, 2021 Percentage of Revenues Increase/ (Decrease) Percentage Change $(1,442) (0.1)% $7,913 0.7% $(9,355) (118.2)% Non-operating (loss) was $1.4 million for the year ended January 1, 2022, as compared to $7.9 million of non-operating income for the year ended January 2, 2021.
Non-operating loss for the years ended December 31, 2022 and January 1, 2022 was as follows: Non-operating Loss (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $(16.6) (0.8)% $(1.4) (0.1)% $(15.2) 1,085.7% Non-operating loss was $16.6 million for the year ended December 31, 2022 compared to $1.4 million of non-operating loss for the year ended January 1, 2022.
Cash provided by operating activities for the year ended January 1, 2022 was $264.8 million and was primarily driven by net income of $229.6 million. This was increased by non-cash activities, including stock-based compensation of $44.6 million, and depreciati on and amortization of $35.6 million, partially offset by a deferred income tax benefit of $15.1 million.
Cash provided by operating activities for the year ended December 31, 2022 was $29.4 million which was primarily driven by net income of $143.5 million. This was increased by non-cash activities, including and depreciation and amortization of $136.1 million and stock-based compensation of $47.7 million, partially offset by a deferred income tax benefit of $39.3 million.
Product revenue increased $95.4 million, or 8.3%, to $1,239.2 million for the year ended January 1, 2022, from $1,143.7 million for the year ended January 2, 2021.
Revenue increased $796.6 million, or 64.3%, to $2,035.8 million for the year ended December 31, 2022, from $1,239.2 million for the year ended January 1, 2022.
In addition to net working capital, we had approximately $148.3 million of available borrowing capacity (net of outstanding letters of credit) under our Credit Facility as compared to approximately $867.3 million in working capital and approximately $641.4 million in cash and cash equivalents at January 2, 2021. We currently maintain a Credit Facility with JPMorgan Chase Bank, N.A.
In addition to net working capital, we had approximately $52.1 million of available borrowing capacity (net of outstanding letters of credit) under our credit facility as compared to approximately $970.8 million in working capital and approximately $745.3 million in cash and cash equivalents at January 1, 2022. We currently maintain a credit facility which provides $705.0 million of unsecured borrowings.
As of January 1, 2022, we had cash totaling $102.6 million held outside of the U.S., of which approximately $59.8 million was accessible without additional tax cost and approximately $42.8 million was accessible at an incremental estimated tax cost of up to $0.4 million.
As of December 31, 2022, we had cash totaling $106.6 million held outside of the U.S., of which approximately $25.7 million was accessible without additional tax cost and approximately $37.7 million was accessible at an incremental estimated tax cost of up to $0.2 million. The tax cost on the remaining $43.3 million is not determinable at this time.
Cash Flows The following table summarizes our cash flows (in thousands): Year Ended January 1, 2022 January 2, 2021 Net cash provided by (used in): Operating activities $ 264,754 $ 210,963 Investing activities (37,529) (82,787) Financing activities (122,404) (54,307) Effect of foreign currency exchange rates on cash (1,448) 3,060 Increase in cash, cash equivalents, and restricted cash $ 103,373 $ 76,929 Operating Activities .
Cash Flows The following table summarizes our cash flows (in millions): Year Ended December 31, 2022 January 1, 2022 Net cash provided by (used in): Operating activities $ 29.4 $ 264.6 Investing activities (1,057.7) (37.5) Financing activities 520.4 (122.4) Effect of foreign currency exchange rates on cash (30.9) (1.3) Increase in cash, cash equivalents, and restricted cash $ (538.8) $ 103.4 Operating Activities .
When a standalone selling price is not readily observable, we estimate the standalone selling price by considering multiple factors including, but not limited to, features and functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, our pricing and discount practices, and other market conditions. 74 Table of Contents Sales under deferred equipment agreements are generally structured such that we agree to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three to six years.
Sales under deferred equipment agreements are generally structured such that we agree to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three to six years.
This increase was primarily attributable to higher compensation and other employee-related costs of approximately $20.4 million, higher legal and professional fees of approximately $16.7 million, higher occupancy and other office-related costs of approximately $5.2 million and higher travel costs of approximately $2.1 million, which were partially offset by a reduction in advertising and marketing-related expenses of approximately $19.2 million, and a reduction in contributions of approximately $0.9 million.
This increase was primarily attributable to the Sound United Acquisition in the form of higher compensation and other employee-related costs of approximately $77.2 million, higher legal and professional fees of approximately $47.5 million, higher advertising and marketing-related expenses of approximately $43.9 million, higher occupancy and other office-related costs of approximately $38.1 million and higher transaction-related costs of approximately $34.6 million.
Research and development expenses for the years ended January 1, 2022 and January 2, 2021were as follows (dollars in thousands): Research and Development Year Ended January 1, 2022 Percentage of Revenues Year Ended January 2, 2021 Percentage of Revenues Increase/ (Decrease) Percentage Change $137,234 11.1% $118,659 10.4% $18,575 15.7% Research and development expenses increased $18.6 million, or 15.7%, to $137.2 million for the year ended January 1, 2022 from $118.7 million for the year ended January 2, 2021, primarily due to higher compensation-related costs of approximately $12.3 million, higher engineering project costs of approximately $3.9 million and higher occupancy and office fees of $2.6 million, which were partially offset by lower professional fees of approximately $0.7 million.
Research and development expenses for the years ended December 31, 2022 and January 1, 2022 were as follows: Research and Development (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $191.4 9.4% $137.2 11.1% $54.2 39.5% Research and development expenses increased $54.2 million, or 39.5%, to $191.4 million for the year ended December 31, 2022 from $137.2 million for the year ended January 1, 2022, primarily due to the Sound United Acquisition in the form of higher compensation and employee-related costs of approximately $29.3 million, higher engineering project costs of approximately $13.2 million, higher occupancy and other office-related costs of approximately $4.2 million and higher professional fees of approximately $1.1 million. 67 Table of Contents Non-operating Loss .
Additional increases in operating cash resulted from increases in accrued compensation, deferred revenue and other contract-related liabilities, accrued liabilities and accounts payable of $15.5 million, $10.9 million, $9.4 million and $7.6 million, respectively, primarily due to the timing of payments.
Additional increases in operating cash resulted from changes in accounts payable, deferred costs and other contract assets and lease receivables of approximately $60.5 million, $28.1 million and $12.8 million, respectively, primarily due to the timing of payments.
Product revenue generated through our direct and distribution sales channels increased $140.3 million, or 14.6%, to $1,099.1 million for the year ended January 1, 2022, compared to $958.8 million for the year ended January 2, 2021.
Dollar translation of foreign sales that were denominated in various foreign currencies. Revenue generated through our direct and distribution sales channels increased $93.6 million, or 8.5%, to $1,192.7 million for the year ended December 31, 2022, compared to $1,099.1 million for the year ended January 1, 2022.
We provide our products to hospitals, emergency medical service (EMS) providers, home care providers, long-term care facilities, physician offices, veterinarians and consumers through our direct sales force, distributors and original equipment manufacturers (OEM) partners. We were incorporated in California in May 1989 and reincorporated in Delaware in May 1996.
We primarily sell our healthcare products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through our direct sales force, distributors and original equipment manufacturer (OEM) partners, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control and Zoll, just to name a few.
Executive Overview We are a global medical technology company that develops, manufactures and markets a variety of noninvasive monitoring technologies and hospital automation ™ solutions. Our mission is to improve patient outcomes and reduce the cost of patient care. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables.
Healthcare Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation and connectivity solutions, remote monitoring devices and consumer health products. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services.
Stock Repurchase Program In October 2021, our Board approved a stock repurchase program, authorizing us to purchase up to 3.0 million shares of our common stock over a period of up to three years (2021 Repurchase Program).
Stock Repurchase Program In June 2022, the Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (2022 Repurchase Program).
In general, to the extent that the fair market value of our stock increases, the overall cost of granting these options will also increas e. Any changes in the assumptions, judgments and estimates mentioned above could cause our actual stock-based compensation expense to vary, resulting in changes to future earnings.
Changes in the types and quantity of equity awards, as well as the fair market value of our stock may impact the cost of future stock option grants. In general, to the extent that the fair market value of our stock increases, the overall cost of granting these options will also increas e.
Year Ended January 1, 2022 Year Ended January 2, 2021 Amount % of Revenue Amount % of Revenue Product revenue $ 1,239,153 100.0 % $ 1,143,744 100.0 % Cost of goods sold 430,806 34.8 400,679 35.0 Gross profit 808,347 65.2 743,065 65.0 Operating expenses: Selling, general and administrative 395,291 31.9 369,057 32.3 Research and development 137,234 11.1 118,659 10.4 Litigation awards, settlements/or defense costs — — (474) — Total operating expenses 532,525 43.0 487,242 42.6 Operating income 275,822 22.3 255,823 22.4 Non-operating (loss) income (1,442) (0.1) 7,913 0.7 Income before provision for income taxes 274,380 22.1 263,736 23.1 Provision for income taxes 44,733 3.6 23,454 2.1 Net income $ 229,647 18.5 % $ 240,282 21.0 % Comparison of the Year ended January 1, 2022 to the Year ended January 2, 2021 Revenue .
Dollar amounts and as a percentage of revenue: Year Ended December 31, 2022 Year Ended January 1, 2022 Amount (in millions) % of Revenue Amount (in millions) % of Revenue Revenue $ 2,035.8 100.0 % $ 1,239.2 100.0 % Cost of goods sold 977.0 48.0 430.8 34.8 Gross profit 1,058.8 52.0 808.4 65.2 Operating expenses: Selling, general and administrative 657.4 32.3 395.4 31.9 Research and development 191.4 9.4 137.2 11.1 Total operating expenses 848.8 41.7 532.6 43.0 Operating income 210.0 10.2 275.8 22.2 Non-operating loss (16.6) (0.8) (1.4) (0.1) Income before provision for income taxes 193.4 9.5 274.4 22.1 Provision for income taxes 49.9 2.5 44.8 3.6 Net income $ 143.5 7.0 % $ 229.6 18.5 % Comparison of the Year ended December 31, 2022 to the Year ended January 1, 2022 Revenue .
Cash used in investing activities for the year ended January 2, 2021 was $82.8 million, consisting primarily of $120.0 million for maturities of short-term investments, $112.7 million of business combin ations, $72.5 million for purchases of property and 73 Table of Contents equipment, of which $16.4 million related to the purchase of a building, $7.4 million for intangible assets related to capitalized patent and trademark costs and $6.8 million related to the acquisition of a strategic investment.
Cash used in investing activities for the year ended December 31, 2022 was approximately $1,057.7 million, consisting primarily of approximately $999.7 million for business combinations, net of cash acquired, approximately $52.8 million for purchases of property and equipment, approximately $3.5 million for intangible assets related to capitalized patent and trademark costs and approximately $1.7 million related to the acquisition of a strategic investment.
Please see Part I, Item 1 of this Annual Report on Form 10-K for additional information related to our business, products and technologies. COVID-19 Pandemic The COVID-19 pandemic has created significant uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business.
These collaborations will translate into products that broaden our access to untapped consumer demographics around the world. Please see Part I, Item 1 of this Annual Report on Form 10-K for additional information related to our business, products and technologies.
Gross profit as a percentage of revenues increased to 65.2% for the year ended January 1, 2022 from 65.0% for the year ended January 2, 2021, primarily due to an increase in product revenue and favorable revenue mix. Selling, General and Administrative .
Our gross profit for the years ended December 31, 2022 and January 1, 2022 were as follows: Gross Profit (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $1,058.8 52.0% $808.4 65.2% $250.4 31.0% Gross profit as a percentage of revenue decreased to 52.0% for the year ended December 31, 2022, from 65.2% for the year ended January 1, 2022, primarily due to change in product revenue mix from the inclusion of non-healthcare product sales.
Cost of goods sold increased $30.1 million to $430.8 million for the year ended January 1, 2022, from $400.7 million for the year ended January 2, 2021, primarily due to higher material, manufacturing and distribution costs associated with the mix of products sold.
Cost of goods sold increased $546.2 million to $977.0 million for the year ended December 31, 2022, from 430.8 million for the year ended January 1, 2022, primarily due to higher material, manufacturing and distribution costs associated with the overall increase in sales, the impact of the higher proportion of these types of costs inherent in the newly added non-healthcare segment and transaction costs incurred related to the Sound United Acquisition.
Inventory valuation reserves are recorded for materials that have become obsolete or are no longer used in current production and for inventory that has a net realizable value less than the carrying value in inventory. We generally purchase raw materials in quantities that we anticipate will be fully used within one year.
Cost is determined using a standard cost method, which approximates first-in, first-out method and includes material, labor and overhead costs. Inventory valuation reserves are recorded for materials that have become excess or obsolete or are no longer used in current production and for inventory items that have a market price less than the carrying value in inventory.
This net decrease of approximately $9.4 million was primarily due to approximately 71 Table of Contents $4.6 million in lower interest income and approximately $4.5 million of net realized and unrealized loss on foreign currency denominated transactions during the year ended January 1, 2022. Provision for Income Taxes .
This net increase of approximately $15.2 million was primarily due to approximately $1.8 million of interest income on cash deposits in combination with approximately $7.2 million of net realized and unrealized foreign currency denominated transactions, which were offset by interest expense incurred under our credit facility of approximately $25.7 million during the year ended December 31, 2022.
Our gross profit for the years ended January 1, 2022 and January 2, 2021 were as follows (dollars in thousands): Gross Profit Year Ended January 1, 2022 Percentage of Revenues Year Ended January 2, 2021 Percentage of Revenues Increase/ (Decrease) Percentage Change $808,347 65.2% $743,065 65.0% $65,282 8.8% Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products.
Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products.
Given the uncertainties related to the COVID-19 pandemic, we cannot predict the extent to which the fluctuations in product demand we have experienced will continue or any resulting changes in our product mix, as well as the associated gross margin impact from those fluctuations in boards and instruments sales.
COVID-19 Pandemic The COVID-19 pandemic continues to create uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business. Given the continuing uncertainties related to the COVID-19 pandemic, we cannot predict how it will continue to affect our product demand or our product mix.
Revenues from our OEM channel decreased $44.9 million, or 24.3%, to $140.1 million for the year ended January 1, 2022 as compared to $185.0 million for the year ended January 2, 2021. 70 Table of Contents Gross Profit . Gross profit consists of product revenue less cost of goods sold.
Revenues from our OEM channel increased $7.5 million, or 5.4%, to $147.6 million for the year ended December 31, 2022 as compared to $140.1 million for the year ended January 1, 2022.
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Our core business is Measure-through Motion and Low Perfusion ™ pulse oximetry, known as Masimo Signal Extraction Technology ® (SET ® ) pulse oximetry. Our product offerings have expanded significantly over the years to also include noninvasive monitoring of blood constituents with an optical signature, optical regional oximetry monitoring, electrical brain function monitoring, acoustic respiration monitoring and exhaled gas monitoring.
Added
Executive Overview We are a global technology company dedicated to improving lives. In connection with the acquisition of Viper Holdings Corporation d/b/a Sound United, LLC (Sound United), we announced an organizational structure change designed to accelerate our growth strategies and strengthen our focus on patient care, thereby creating two reportable segments: healthcare and non-healthcare.
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In addition, we have developed the Root ® patient monitoring and connectivity platform, the Radical-7 ® and Rad-97 ® bedside and portable patient monitors and the Radius-7 ® wearable wireless patient monitor.
Added
We commenced reporting under this new structure effective for the quarter ended July 2, 2022. The new non-healthcare segment was created as a result of the Sound United Acquisition. Please see Note 18 “Business Combinations”, accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Removed
We have also developed hospital automation ™ and connectivity solutions, such as the Masimo Patient SafetyNet ™ supplemental remote patient surveillance and monitoring system, which currently allows up to 200 patients to be monitored and viewed simultaneously and remotely through a PC-based monitor or by care providers through their pagers, voice-over-IP phones or smartphones; Iris ® and Iris ® Gateway, which allow the transfer of data from Masimo and third-party devices to hospital electronic medical records; and UniView ™ , which provides an integrated display of real-time data from Masimo and third-party devices.
Added
Our core measurement technologies are our breakthrough Measure-through Motion and Low Perfusion ™ pulse oximetry, known as Masimo Signal Extraction Technology ® (SET ® ) pulse oximetry, and advanced rainbow ® Pulse CO-Oximetry parameters such as noninvasive hemoglobin (SpHb ® ), alongside many other modalities, including brain function monitoring, hemodynamic monitoring, regional oximetry, acoustic respiration rate monitoring, capnography and gas monitoring, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology solutions.
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We are committed to being as transparent as possible with our investors, employees, customers, suppliers and business partners as we collectively work to respond to this crisis.
Added
Our measurement technologies are available on many types of devices, from bedside hospital monitors like the Root ® Patient Monitoring and Connectivity Hub, to various handheld and portable devices, and to the tetherless Radius-PPG ® , Radius-VSM ® and Masimo SafetyNet ™ remote patient surveillance solution.
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In response to this situation, we have implemented a number of precautionary measures at our facilities, including requiring certain personnel to work remotely from home and enacting social distancing, requiring face masks and mandatory screening for symptoms associated with COVID-19 for critical personnel that are required to report to our facilities to work.
Added
The Masimo Hospital Automation ™ Platform facilitates data integration, connectivity and interoperability through solutions like Patient SafetyNet ™(1) , Iris ™ , iSirona ™ , Replica ® and UniView ™ to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely.
Removed
We have introduced new products, such as Masimo SafetyNet ™ , Masimo SafetyNet-Open ™ and Masimo SafetyNet Alert ™ , to help combat the COVID-19 pandemic, and continue to make charitable pledges to various global health organizations to support global COVID-19 relief efforts.
Added
Leveraging our expertise in hospital-grade technologies, we are also expanding our suite of products intended for use both inside and outside the hospital and products for personal home wellness , including Masimo Sleep ™ , a sleep quality solution, the Radius Tº ™, a wireless wearable continuous thermometer, the Radius C ® wireless thetherless capnograph and the Masimo W1 ™ a wrist-worn continuous biosensing health watch.
Removed
Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor. We are a party to a cross-licensing agreement with Cercacor, which was amended and restated effective January 1, 2007 (the Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies.
Added
Non-healthcare Our non-healthcare consumer audio business develops, manufactures, markets, sells and licenses premium and luxury audio sound products and related integration technologies. Our consumer audio products are sold direct-to-consumers or through authorized retailers and wholesalers.
Removed
See Note 3 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information related to Cercacor. Results of Operations The following table sets forth, for the periods indicated, our results of operations expressed as U.S. Dollar amounts and as a percentage of revenue (dollars in thousands).
Added
We also license certain audio technologies to select luxury automotive manufacturers such as BMW ® , Maserati ® , McLaren ® , Polestar ® and Volvo ® . In addition, we maintain partnerships with certain airlines for bespoke headphones, allowing for the best in-flight audio experience.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+8 added−0 removed8 unchanged
Biggest changeDollar and other foreign currencies, including the Canadian Dollar, the Euro, the British Pound, the Australian Dollar and the South Korean Won, favorably impacted our revenues by $8.2 million. We currently do not enter into forward exchange contracts to hedge exposures denominated in foreign currencies and do not use derivative financial instruments for trading or speculative purposes.
Biggest changeDollar and other foreign currencies, including the Euro, the Japanese Yen, the British Pound, the Chinese Yuan, the Hong Kong Dollar, the South Korean Won, the Australian Dollar, the Turkish Lira, and the Canadian Dollar, unfavorably impacted our revenues by $80.6 million. We currently do not enter into forward exchange contracts to hedge exposures denominated in foreign currencies.
Dollars, can vary depending on average exchange rates during a respective period. In addition, certain of our foreign subsidiaries transact in their respective country’s local currency, which is also their functional currency. As a result, expenses of these foreign subsidiaries when converted into U.S. Dollars can also vary depending on average monthly exchange rates during a respective period.
In addition, certain of our foreign subsidiaries transact in their respective country’s local currency, which is also their functional currency. As a result, expenses of these foreign subsidiaries when converted into U.S. Dollars can also vary depending on average monthly exchange rates during a respective period.
Our primary foreign currency exchange rate exposures are with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexico Peso, Turkish Lira and Australian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the year ended January 1, 2022, we estimate that fluctuations in the exchange rates between the U.S.
Our primary foreign currency exchange rate exposures are with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexico Peso, Turkish Lira and Australian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the year ended December 31, 2022, we estimate that fluctuations in the exchange rates between the U.S.
Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred. The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S.
Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred. 74 Table of Contents The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S.
Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations. 78 Table of Contents
Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We estimate that the potential impact of a hypothetical 10% adverse change in all applicable foreign currency exchange rates from the rates in effect as of January 1, 2022 would have resulted in an estimated reduction of $15.3 million in reported pre-tax income for the year ended January 1, 2022.
We estimate that the potential impact of a hypothetical 10% adverse change in all applicable foreign currency exchange rates from the rates in effect as of December 31, 2022 would have resulted in an estimated reduction of $44.3 million in reported pre-tax income for the year ended December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks that may arise from adverse changes in market rates and prices, such as interest rates, foreign exchange fluctuations and inflation. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks that may arise from adverse changes in market rates and prices, such as interest rates, foreign exchange fluctuations and inflation.
Foreign Currency Exchange Rate Risk A majority of our assets and liabilities are maintained in the United States in U.S. Dollars and a majority of our sales and expenditures are transacted in U.S. Dollars. However, we also transact with foreign customers in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S.
Dollars and a majority of our sales and expenditures are transacted in U.S. Dollars. However, we also transact with foreign customers in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on average exchange rates during a respective period.
We do not believe our cash equivalents are subject to significant interest rate risk due to their short terms to maturity. As of January 1, 2022, the carrying value of our cash equivalents approximated fair value. We currently do not have any significant risks associated with interest rates fluctuations related to interest expense.
We do not believe our cash equivalents are subject to significant interest rate risk due to their short terms to maturity. As of December 31, 2022, the carrying value of our cash equivalents approximated fair value. Therefore, declines in interest rates over time will reduce our interest income while increases in interest rates will increase our interest income.
Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Therefore, declines in interest rates over time will reduce our interest income while increases in interest rates will increase our interest income.
We have entered, and in the future may continue to enter, into interest rate swaps to manage our interest rate risk. Therefore, increases in interest rates over time will increase our interest expense while decreases in interest rates will decrease our interest expense.
Added
We are exposed to risks associated with changes in interest rates, as the interest rates on our revolving lines of credit and term debt may vary with the federal funds rate and LIBOR. As of December 31, 2022, we had outstanding debt for an aggregate carrying amount of $956.7 million.
Added
Our ultimate realized gain or loss with respect to interest rate fluctuations will depend on interest rates, the exposures that arise during the period and our hedging strategies at that time.
Added
A hypothetical 100 basis point change in interest rates would increase or decrease our annual interest expense by approximately $0.6 million based on average debt outstanding, after consideration of our interest rate swap contracts, for the quarter ended December 31, 2022 and approximately $2.9 million based on average debt outstanding, after consideration of our interest rate swap contracts for the year ended December 31, 2022.
Added
We sponsor multiple defined benefit pension plans covering certain international employees. The aggregate fair value of the plans’ investments was $22.2 million as of December 31, 2022. The plans’ assets may be subject to market risk, interest rate risk, and credit risk, which may affect the value of the plans’ assets and the funding of the plans.
Added
Increases in interest rates globally may impact the value of pension plan assets held by us. When interest rates increase, the value of fixed income securities, such as bonds, may decrease, which can negatively impact the fair value of the pension plan assets.
Added
However, interest rate increases may also improve the funded status of plan by increasing the discount rate used to measure the present value of the pension obligations, and potentially decreasing our requirement to make contributions to the plan. The most significant actuarial assumption affecting pension expense and pension obligations is discount rates.
Added
A hypothetical increase of 100 basis point in discount rates would result in a decrease of approximately $0.3 million in the projected benefit obligation. The impact of interest rate increases on the pension plan assets and funded status may not be predictable and may vary from period to period.
Added
See Notes 2, “Summary of Significant Accounting Policies” and 21, “Employee Benefits” to our accompanying consolidated financial statements i ncluded in Part IV, Item 15(a) of this Annual Report on Form 10-K. for further discussion of these assets. Foreign Currency Exchange Rate Risk A majority of our assets and liabilities are maintained in the United States in U.S.

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