8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

FORM 8-K

__________________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 23, 2016

_______________________

MASIMO CORPORATION

(Exact name of registrant as specified in its charter)

_______________________

Delaware	001-33642	33-0368882
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

52 Discovery Irvine, California	92618
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 297-7000

Not Applicable

(Former name or former address, if changed since last report)

 _______________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On February 23, 2016, Masimo Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended January 2, 2016. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

In accordance with General Instructions B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) The following item is filed as an exhibit to the Current Report on Form 8-K.

Exhibit  No.	Description
99.1	Press Release, dated February 23, 2016, Reporting Fourth Quarter 2015 Financial Results

SIGNATURES

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

	MASIMO CORPORATION
Date: February 23, 2016	By:	/s/ MARK P. DE RAAD
		Mark P. de Raad
		Executive Vice President & Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX
Exhibit No.	Description
99.1	Press Release, dated February 23, 2016, Reporting Fourth Quarter 2015 Financial Results

EX-99.1

Exhibit 99.1

Masimo Reports Fourth Quarter and Fiscal Year 2015 Financial Results

Q42015 Highlights (compared to Q42014):

■ Total revenue, including royalties, rose 3.4% to $167.3 million and grew 6.0% on a constant currency basis and with one less selling week versus the prior year period

■ Product revenue rose 3.8% to $159.8 million and grew 6.5% on a constant currency basis and with one less selling week versus the prior year period

■ Masimo rainbow^® revenue rose 35.0% to $19.1 million

■ SET^® and rainbow SET^™ units shipments were 48,500

■ GAAP net income of $24.1 million or $0.46 per diluted share versus $21.2 million or $0.40 per diluted share in the year-ago period. Included in the $0.46 per diluted share is a net gain of $0.06 resulting from various Q4 2015 adjustments.

■ Non-GAAP net income of $7.7 million, or $0.15 per diluted share versus $21.5 million or $0.40 per diluted share in the year-ago period

FY 2015 Highlights (compared to FY 2014):

■ Total revenue, including royalties, rose 7.4% to $630.1 million and grew 10.6% on a constant currency basis and with one less selling week versus the prior year

■ Product revenue rose 7.6% to $599.3 million and grew 11.0% on a constant currency basis and with one less selling week versus the prior year

■ Masimo rainbow^® revenue rose 19.4% to $61.8 million

■ SET^® and rainbow SET^™ units shipments were 182,600

■ GAAP net income of $83.3 million, or $1.55 per diluted share versus $72.5 million or $1.30 per diluted share in the year-ago period. Included in the $1.55 per diluted share is a net gain of $0.06 resulting from various Q4 2015 adjustments.

■ Non-GAAP net income of $74.3 million, or $1.38 per diluted share versus $68.7 million or $1.24 per diluted share in the year-ago period

Irvine, California, February 23, 2016- Masimo (NASDAQ: MASI) today announced its financial results for the fourth quarter ended January 2, 2016.

Fourth quarter 2015 product revenues rose 3.8% to $159.8 million, compared to $153.9 million for the fourth quarter of fiscal year 2014, and total revenue, including royalties, rose 3.4% to $167.3 million, up from $161.8 million for the fourth quarter of fiscal year 2014. The unfavorable effect of foreign currency movements reduced fourth quarter product revenues by approximately $4.2 million. Fourth quarter 2015 product revenues rose by 6.5% and total revenues rose by 6.0%, both in constant currency and with one less selling week versus the prior year period. The extra selling week in the fourth quarter of 2014 was the result of the company’s 52-53 week fiscal year calendar, and the company estimates that such an extra selling week, which was a short working week due to holidays, contributed approximately $5.0 million of additional product revenue.

The company’s worldwide direct product revenue in the fourth quarter of 2015rose by 4.3% compared to the same period in 2014 and represented 86.3% of product revenue. OEM sales, which accounted for 13.7% of product revenue, rose by 0.6% to $21.9 million in the fourth quarter of 2015 compared to the same period in 2014. Revenue from sales of Masimo rainbow^® products rose by 35.0% to $19.1 million in the fourth quarter of 2015, compared to the same period in 2014.

GAAP net income for the fourth quarter of 2015 was $24.1 million, or $0.46 per diluted share, compared to GAAP net income of $21.2 million, or $0.40 per diluted share, in the fourth quarter of 2014. Net income for the fourth quarter of 2015 included a net after tax benefit of $0.06 per diluted share related to the combined impact of a favorable $25.0 million legal settlement, offset by a $9.7 million inventory valuation adjustment, a $6.1 million accrual for a recent legal decision and a $5.0 million charitable contribution to the Masimo Foundation. Non-GAAP net income for the fourth quarter was $7.7 million, or $0.15 per diluted share, versus non-GAAP net income of $21.5 million or $0.40 per diluted share in the year-ago period. During the fourth quarter of 2015, the company shipped approximately 48,500 SET^® pulse oximetry and rainbow^® Pulse CO-Oximetry^™ units, excluding

handheld units. Masimo estimates its worldwide installed base as of January 2, 2016 to be 1,414,000 units, up 7.7% from 1,313,000 units as of January 3, 2015.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “We ended 2015 with a strong fourth quarter that included record shipments of our SET^® Pulse Oximetry and rainbow SET^™ Pulse CO-Oximetry technology. I am proud that our technologies are making a very positive impact to patient care and happy that we were able to exceed many of the financial and operational metrics that we set at the start of the year and we look forward to realizing a continuation of that momentum through 2016.”

As of January 2, 2016, the company’s total cash and cash investments were $132.3 million compared to $134.5 million as of January 3, 2015. During the fourth quarter, the company repurchased approximately 0.6 million shares of stock for $24.8 million, of which $20.0 million settled during the quarter, resulting in a total 2015 stock repurchases of approximately 4.1 million shares for $155.0 million, of which $150.2 million settled during the year.

2016 Financial Guidance

Masimo today is providing 2016 financial guidance. Masimo expects fiscal 2016 total product revenues to be approximately $670.0 million including approximately $640.0 million in product revenues and $30.0 million in royalty revenues. The $640.0 million in projected 2016 product revenues include an estimated $4.0 million revenue reduction due to the impact of our planned 2016 foreign exchange rates as compared to the actual 2015 foreign exchange rates. Masimo expects fiscal 2016 GAAP earnings per diluted share to be approximately $1.69. Due to the impact of foreign exchange rates and various other non-GAAP adjustments, Masimo also expects fiscal 2016 non-GAAP earnings per diluted share to be approximately $1.74. Masimo will provide additional financial information during the conference call today. Each of the components of Masimo’s guidance set forth above is an estimate only and actual performance could differ.

Conference Call

Masimo will hold a conference call today at 1:30 p.m. PT (4:30 p.m. ET) to discuss the results. A live webcast of the call will be available online from the investor relations page of the company’s website at www.masimo.com. The dial-in numbers are (888) 520-7182 for domestic callers and +1 (706) 758-3929 for international callers. The reservation code for both dial-in numbers is 40429223. After the live webcast, the call will be available on Masimo’s website through March 22, 2016. In addition, a telephonic replay of the call will be available through March 8, 2016. The replay dial-in numbers are (855) 859-2056 for domestic callers and +1 (404) 537-3406 for international callers. Please use reservation code 40429223.

About Masimo

Masimo (NASDAQ: MASI) is a global leader in innovative noninvasive monitoring technologies. Our mission is to improve patient outcomes and reduce the cost of care by taking noninvasive monitoring to new sites and applications. In 1995, the company debuted Masimo SET^® Measure-through Motion and Low Perfusion^™ pulse oximetry, which has been shown in multiple studies to significantly reduce false alarms and accurately monitor for true alarms. The benefits of Masimo SET^® have been proven in more than 100 independent and objective studies and it is estimated to be used on more than 100 million patients in leading hospitals and other healthcare settings around the world. In 2005, Masimo introduced rainbow^® Pulse CO-Oximetry technology, allowing noninvasive and continuous monitoring of blood constituents that previously could only be measured invasively, including total hemoglobin (SpHb^®), oxygen content (SpOC^™), carboxyhemoglobin (SpCO^®), methemoglobin (SpMet^®), and more recently, Pleth Variability Index (PVI^®) and Oxygen Reserve Index (ORI^™), in addition to SpO2, pulse rate, and perfusion index (PI). In 2014, Masimo introduced Root^®, an intuitive open architecture patient monitoring and connectivity platform designed to speed the pace of innovation and reduce the cost of care. Masimo is also taking an active leadership role in mHealth with products such as the Radius-7^™ wearable patient monitor and the MightySat^™ fingertip pulse oximeter. Additional information about Masimo and its products may be found at www.masimo.com.

Forward-Looking Statements

All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expectations for full fiscal year 2016 total product and royalty revenues; the impact of 2016 foreign exchange rates; GAAP and non-GAAP earnings per diluted share; demand for our products; anticipated revenue and earnings growth; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET^® and Masimo rainbow^® SET^® products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors’ assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and

related matters; and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC’s website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

# # #

Investor Contact: Eli Kammerman	Media Contact: Irene Paigah
(949) 297-7077	(858) 858-7001
ekammerman@masimo.com	irenap@masimo.com

Masimo, SET, Signal Extraction Technology, Improving Patient Outcome and Reducing Cost of Care... by Taking Noninvasive Monitoring to New Sites and Applications, rainbow, SpHb, SpOC, SpCO, SpMet, PVI are trademarks or registered trademarks of Masimo Corporation

MASIMO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited, in thousands)
	January 2, 2016			January 3, 2015
ASSETS
Current assets
Cash and cash equivalents	$	132,317		$	134,453
Accounts receivable, net of allowance for doubtful accounts	80,960			71,017
Inventories	62,038			69,718
Prepaid income taxes	2,404			417
Other current assets	21,423			21,471
Total current assets	299,142			297,076
Deferred cost of goods sold	66,844			67,485
Property and equipment, net	132,466			101,952
Intangible assets, net	27,556			27,771
Goodwill	20,394			20,979
Deferred income taxes, noncurrent	44,320			42,258
Other assets	11,013			7,485
Total assets	$	601,735		$	565,006
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	25,865		$	38,045
Accrued compensation	38,415			33,600
Accrued liabilities	44,222			24,541
Income taxes payable	2,777			6,562
Deferred revenue	21,280			21,067
Current portion of capital lease obligations	74			79
Total current liabilities	132,633			123,894
Deferred revenue	298			453
Long term debt	185,071			125,145
Other liabilities	8,021			7,773
Total liabilities	326,023			257,265
Commitments and contingencies
Equity
Masimo Corporation stockholders’ equity:
Common stock	50			52
Treasury stock	(340,873		)	(185,906		)
Additional paid-in capital	332,417			288,686
Accumulated other comprehensive loss	(4,739		)	(2,093		)
Retained earnings	288,560			205,260
Total Masimo Corporation stockholders’ equity	275,415			305,999
Noncontrolling interest	297			1,742
Total equity	275,712			307,741
Total liabilities and equity	$	601,735		$	565,006

4

MASIMO CORPORATION  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share amounts)
	Three Months Ended					Twelve Months Ended
	January 2, 2016			January 3, 2015		January 2, 2016			January 3, 2015
Revenue:
Product	$	159,762		$	153,897	$	599,334		$	556,764
Royalty	7,511			7,891		30,777			29,879
Total revenue	167,273			161,788		630,111			586,643
Cost of goods sold	65,528			52,629		220,128			195,864
Gross profit	101,745			109,159		409,983			390,779
Operating expenses:
Selling, general and administrative	70,653			61,483		252,725			241,016
Research and development	13,809			15,029		56,617			56,581
Litigation settlement, award and/or defense costs	(19,609		)	—		(19,609		)	(10,331		)
Total operating expenses	64,853			76,512		289,733			287,266
Operating income	36,892			32,647		120,250			103,513
Non-operating expense	1,883			1,429		3,905			1,472
Income before provision for income taxes	35,009			31,218		116,345			102,041
Provision for income taxes	9,956			9,432		34,845			27,678
Net income including noncontrolling interest	25,053			21,786		81,500			74,363
Net income (loss) attributable to noncontrolling interest	952			565		(1,800		)	1,845
Net income attributable to Masimo Corporation stockholders	$	24,101		$	21,221	$	83,300		$	72,518
Net income per share attributable to Masimo Corporation stockholders:
Basic	$	0.48		$	0.40	$	1.62		$	1.33
Diluted	$	0.46		$	0.40	$	1.55		$	1.30
Weighted-average shares used in per share calculations:
Basic	50,286			52,438		51,311			54,708
Diluted	52,944			53,142		53,707			55,571

The following table presents details of the share-based compensation expense that is included in each functional line item in the condensed consolidated statements of income (in thousands):

	Three Months Ended				Twelve Months Ended
	January 2, 2016		January 3, 2015		January 2, 2016		January 3, 2015
Cost of goods sold	$	78	$	103	$	348	$	436
Selling, general and administrative	2,087		2,498		8,139		8,812
Research and development	528		614		2,338		1,757
Total	$	2,693	$	3,215	$	10,825	$	11,005

5

MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)
	Twelve Months Ended
	January 2, 2016			January 3, 2015
Cash flows from operating activities:
Net income including noncontrolling interest	$	81,500		$	74,363
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:
Depreciation and amortization	15,684			12,818
Share-based compensation	10,825			11,005
Loss on disposal of property, equipment and intangibles	608			918
Provision for doubtful accounts	342			583
Benefit from deferred income taxes	(1,974		)	(320		)
Income tax benefit from exercise of stock options granted prior to January 1, 2006	2,055			264
Excess tax (benefit) deficit from share-based compensation arrangements	(3,003		)	396
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(9,900		)	4,862
Decrease (increase) in inventories	7,505			(13,434		)
Decrease (increase) in deferred cost of goods sold	452			(5,888		)
(Increase) decrease in prepaid income taxes	(1,992		)	3,316
Increase in other assets	(3,542		)	(2,619		)
Decrease in accounts payable	(4,319		)	(1,375		)
Increase in accrued compensation	5,334			4,948
Increase in accrued liabilities	19,902			1,837
(Decrease) increase in income taxes payable	(739		)	3,909
Increase in deferred revenue	58			199
(Decrease) increase in other liabilities	(4,587		)	227
Net cash provided by operating activities	114,209			96,009
Cash flows from investing activities:
Purchases of property and equipment	(50,393		)	(75,061		)
Increase in intangible assets	(4,201		)	(3,903		)
Net cash used in investing activities	(54,594		)	(78,964		)
Cash flows from financing activities:
Borrowings under revolving line of credit	130,000			125,000
Repayments under revolving line of credit	(70,000		)	—
Debt issuance costs	—			(436		)
Repayments on capital lease obligations	(80		)	(111		)
Proceeds from issuance of common stock	28,285			4,680
Payroll tax withholdings on behalf of employee for stock options	(472		)	—
Excess tax benefit (deficit) from share-based compensation arrangements	3,003			(396		)
Repurchases of common stock	(150,152		)	(102,453		)
Net equity issuances (repurchases) by noncontrolling interest	346			(38		)
Net cash provided by (used in) financing activities	(59,070		)	26,246
Effect of foreign currency exchange rates on cash	(2,681		)	(4,304		)
Net increase (decrease) in cash and cash equivalents	(2,136		)	38,987
Cash and cash equivalents at beginning of period	134,453			95,466
Cash and cash equivalents at end of period	$	132,317		$	134,453

6

MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except percentages and per share amounts)
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME ATTRIBUTABLE TO MASIMO SHAREHOLDERS:
		Three Months Ended						Twelve Months Ended
		January 2, 2016			January 3, 2015			January 2, 2016			January 3, 2015
GAAP net income attributable to Masimo Corporation stockholders		$	24,101		$	21,221		$	83,300		$	72,518
Non-GAAP adjustments:
	Constant currency F/X adjustments:
	Product revenue	4,154			—			18,640			—
	Cost of goods sold	(1,107		)	—			(4,266		)	—
	Operating expenses	(1,602		)	—			(7,250		)	—
	Non-operating income	(245		)	—			428			—
	Subtotal - Constant currency F/X adjustments	1,200			—			7,552			—
	Amortization of acquisition-related intangible assets:
	Cost of goods sold	115			114			458			458
	Operating expenses	273			274			1,094			1,094
	Subtotal - Amortization of acquisition-related intangible assets	388			388			1,552			1,552
	Litigation settlement awards, damages and/or defense costs:
	Operating expenses	(19,609		)	—			(19,609		)	(10,331		)
	Non-operating income	741			—			741			—
	Noncontrolling interest	—			—			—			2,321
	Subtotal - Litigation settlement awards, damages and/or defense costs	(18,868		)	—			(18,868		)	(8,010		)
	Net tax impact of above items	913			(88		)	764			2,979
	Net tax impact of noncontrolling interest	—			—			—			(341		)
	Net tax impact of above items	913			(88		)	764			2,638
	Total non-GAAP adjustments	(16,367		)	300			(9,000		)	(3,820		)
Non-GAAP net income attributable to Masimo Corporation stockholders		$	7,734		$	21,521		$	74,300		$	68,698
Net income per diluted share attributable to Masimo Corporation stockholders:
	GAAP net income per diluted share	$	0.46		$	0.40		$	1.55		$	1.30
	Non-GAAP Adjustments per diluted share	(0.31		)	—			(0.17		)	(0.06		)
	Non-GAAP net income per diluted share	$	0.15		$	0.40		$	1.38		$	1.24

7

RECONCILIATION OF GAAP TO NON-GAAP EPS GUIDANCE:
		Fiscal Year Ending
		December 31, 2016
GAAP EPS guidance		$	1.69
	Constant currency F/X adjustments	0.03
	Amortization of acquisition-related intangible assets	0.03
	Litigation settlement awards, damages and/or defense costs	—
	Net tax impact of above items	(0.01		)
	Total non-GAAP EPS adjustments	0.05
Non-GAAP EPS guidance		$	1.74

8

Non-GAAP Financial Measures

The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table that are more fully described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies.

The company has presented the following non-GAAP measures on a basis consistent with its historical presentation, to assist investors in understanding the company’s core net operating results on an on-going basis: (i) non-GAAP net income attributable to Masimo Corporation stockholders, (ii) non-GAAP product revenue, (iii) non-GAAP gross profit, (iv) non-GAAP operating expenses, (v) non-GAAP non-operating income (expense), (vi) non-GAAP noncontrolling interest, and (vii) non-GAAP net income per diluted share attributable to Masimo Corporation stockholders. These non-GAAP financial measures may also assist investors in making comparisons of the company’s core operating results with those of other companies. Management believes non-GAAP product revenue, non-GAAP gross profit, non-GAAP net income attributable to Masimo Corporation stockholders and non-GAAP net income per diluted share attributable to Masimo Corporation stockholders are important measures in the evaluation of the Company’s performance and uses these measures to better understand and evaluate our business.

The non-GAAP financial measures reflect adjustments for the following items, as well as the related income tax effects thereof:

Constant currency F/X adjustments. Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. Similarly, certain of our product costs and operating expenses, and the related balance sheet payables and accruals, are denominated in foreign currencies other than the U.S. Dollar. These foreign currency revenues, costs and expenses, receivables, payables and accruals, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues, costs and expenses, receivables, payables and accruals by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and these related constant currency and other foreign exchange adjustments will continue to occur in future periods.

Amortization of acquisition-related intangibles. Amortization of intangibles generally represents costs incurred by an acquired company or other third party to build value prior to our acquisition of the intangible assets. As such, it is effectively part of the transaction costs of the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Amortization of intangibles will recur in future periods.

Litigation settlement awards, damages and/or defense costs. In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages and directly-related legal fees, reversals of such damages and directly-related legal fee expenses upon a court vacating a prior award against us, and re-accruals of such damages, as well as estimated interest, based on our reassessment of the probable outcome of the subsequent appeal. In addition, we have also recorded recoveries of damages and directly-related legal fees as a plaintiff in litigation proceedings. We believe that exclusion of these expenses, expense reversals and recoveries is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses, expense reversals and recoveries are generally unrelated to our core business and/or infrequent in nature.

9

Reconciliations between the GAAP and non-GAAP amounts for each financial statement line item are as follows:

RECONCILIATION OF GAAP REVENUE TO NON-GAAP REVENUE:
		Three Months Ended				Twelve Months Ended
		January 2, 2016		January 3, 2015		January 2, 2016		January 3, 2015
GAAP product revenue		$	159,762	$	153,897	$	599,334	$	556,764
Non-GAAP adjustments
	Constant currency F/X adjustments	4,154		—		18,640		—
	Total non-GAAP product revenue adjustments	4,154		—		18,640		—
Non-GAAP product revenue		$	163,916	$	153,897	$	617,974	$	556,764
GAAP royalty revenue		$	7,511	$	7,891	$	30,777	$	29,879
Non-GAAP total revenue		$	171,427	$	161,788	$	648,751	$	586,643

RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT:
		Three Months Ended						Twelve Months Ended
		January 2, 2016			January 3, 2015			January 2, 2016			January 3, 2015
GAAP gross profit		$	101,745		$	109,159		$	409,983		$	390,779
	GAAP product gross profit %	59.0		%	65.8		%	63.3		%	64.8		%
	GAAP total gross profit %	60.8		%	67.5		%	65.1		%	66.6		%
Non-GAAP adjustments
	Constant currency F/X adjustments	3,047			—			14,374			—
	Amortization of acquisition-related intangible assets	115			114			458			458
	Total non-GAAP gross profit adjustments	3,162			114			14,832			458
Non-GAAP gross profit		$	104,907		$	109,273		$	424,815		$	391,237
	Non-GAAP product gross profit %	59.4		%	65.9		%	63.8		%	64.9		%
	Non-GAAP total gross profit %	61.2		%	67.5		%	65.5		%	66.7		%

RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES:
		Three Months Ended						Twelve Months Ended
		January 2, 2016			January 3, 2015			January 2, 2016			January 3, 2015
GAAP operating expenses		$	64,853		$	76,512		$	289,733		$	287,266
Non-GAAP adjustments
	Constant currency F/X adjustments	1,602			—			7,250			—
	Amortization of acquisition-related intangible assets	(273		)	(274		)	(1,094		)	(1,094		)
	Litigation settlement awards, damages and/or defense costs	19,609			—			19,609			10,331
	Total non-GAAP operating expenses adjustments	20,938			(274		)	25,765			9,237
Non-GAAP operating expenses		$	85,791		$	76,238		$	315,498		$	296,503

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RECONCILIATION OF GAAP NON-OPERATING INCOME TO NON-GAAP NON-OPERATING INCOME:
		Three Months Ended					Twelve Months Ended
		January 2, 2016			January 3, 2015		January 2, 2016			January 3, 2015
GAAP non-operating income (expense)		1,883			1,429		3,905			1,472
Non-GAAP adjustments
	Constant currency F/X adjustments	245			—		(428		)	—
	Litigation settlement awards, damages and/or defense costs	(741		)	—		(741		)	—
	Total non-GAAP non-operating income adjustments	(496		)	—		(1,169		)	—
Non-GAAP non-operating income (expense)		$	1,387		$	1,429	$	2,736		$	1,472

RECONCILIATION OF GAAP NONCONTROLLING INTEREST TO NON-GAAP NONCONTROLLING INTEREST:
		Three Months Ended				Twelve Months Ended
		January 2, 2016		January 3, 2015		January 2, 2016			January 3, 2015
GAAP noncontrolling interest		952		565		(1,800		)	1,845
Non-GAAP adjustments
	Litigation settlement awards, damages and/or defense costs	—		—		—			(2,321		)
	Tax impact of above items	—		—		—			341
	Total non-GAAP noncontrolling interest adjustments	—		—		—			(1,980		)
Non-GAAP noncontrolling interest		$	952	$	565	$	(1,800	)	$	(135	)

RECONCILIATION OF GAAP NET INCOME PER DILUTED SHARE TO NON-GAAP NET INCOME PER DILUTED SHARE:
		Three Months Ended						Twelve Months Ended
		January 2, 2016			January 3, 2015			January 2, 2016			January 3, 2015
GAAP net income per diluted share attributable to Masimo Corporation stockholders		$	0.46		$	0.40		$	1.55		$	1.30
Non-GAAP adjustments
	Constant currency F/X adjustments	0.02			—			0.14			—
	Amortization of acquisition-related intangible assets	0.01			0.01			0.03			0.03
	Litigation settlement awards, damages and/or defense costs	(0.36		)	—			(0.35		)	(0.14		)
	Net tax impact of above items	0.02			(0.01		)	0.01			0.05
	Total non-GAAP net income per diluted share adjustments	(0.31		)	—			(0.17		)	(0.06		)
Non-GAAP net income per diluted share attributable to Masimo Corporation stockholders		$	0.15		$	0.40		$	1.38		$	1.24

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