For the Calendar Year Ended December 31, 2016
This Conflict Minerals Report (this “Report”) is being filed in compliance with Rule 13p-1 of the Securities Exchange Act of 1934, as amended (“Rule 13p-1”), for the calendar year ended December 31, 2016; and pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd- Frank Act”). Rule 13p-1 requires companies to publicly disclose certain information relating to their use of “Conflict Minerals” that originated in the Democratic Republic of the Congo or an adjoining country (collectively, the “DRC Countries”) that may be contributing to human rights abuses, if those minerals are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by those companies. Rule 13p-1 requires companies to report whether Conflict Minerals that originated in the DRC Countries exist in their supply chains. “Conflict Minerals” are defined as cassiterite, columbite-tantalite (coltan), gold, wolframite and their derivatives, which are limited to tin, tantalum and tungsten, or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the DRC Countries.
During a registrant’s supply chain review, if it is determined that Conflict Minerals are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by the registrant, the registrant is required to perform, in good faith, a reasonable country of origin inquiry (“RCOI”) regarding those Conflict Minerals. The purpose of the inquiry is to determine whether any of the Conflict Minerals originated in the DRC Countries or from recycled or scrap sources. Based on current Securities and Exchange Commission (“SEC”) guidance and court rulings, Masimo has decided not to voluntarily describe our products as “DRC conflict free”, and, therefore, an independent private sector audit of this Report is not required and has not been conducted.
Masimo Corporation (“Masimo”, “we”, “us” or “our”) is a global medical technology company that develops, manufactures and markets a variety of noninvasive monitoring technologies. We provide our technologies and products directly, as well as through distributors and original equipment manufacturer partners, to hospitals, emergency medical service providers, physician offices, veterinarians, long term care facilities and consumers. Our mission is to improve patient outcomes and reduce the cost of care by taking noninvasive monitoring to new sites and applications™. We were incorporated in California in May 1989 and reincorporated in Delaware in May 1996.
Our core business is Measure-through Motion and Low Perfusion™ pulse oximetry monitoring, known as Masimo Signal Extraction Technology® (SET® ) pulse oximetry. Our product offerings have expanded significantly over the years to also include monitoring blood constituents with an optical signature, optical organ oximetry monitoring, electrical brain function monitoring, acoustic respiration monitoring, exhaled gas monitoring, patient monitoring with connectivity platforms, bedside and portable patient monitors and wearable wireless patient monitors. We have also developed a remote patient surveillance monitoring system, which currently allows up to 200 patients to be monitored simultaneously and remotely through a PC-based viewing station or by care providers through their pagers, voice-over-IP phones or smartphones.
Our solutions and related products are based upon our proprietary Masimo SET® and rainbow® algorithms. This software-based technology is incorporated into a variety of product platforms depending on our customers’ specifications. Our technology is supported by a substantial intellectual property portfolio that we have built through internal development and, to a lesser extent, acquisitions and license agreements. In addition, we have exclusively licensed certain rainbow® technology from Cercacor Laboratories, Inc. and have the right to incorporate such rainbow® technology into products that are intended for use by professional caregivers, including, but not limited to, hospital caregivers and alternate facility caregivers.
We develop, manufacture and market patient monitoring technologies and related products that incorporate a monitor or circuit board, sensors, including proprietary single-patient use, reusable and ReSposable® sensors, and patient cables. In addition, we offer a variety of remote alarm/monitoring solutions, software and connectivity solutions.
Materials and Supply Chain Overview
Masimo has determined that certain of its products may contain Conflict Minerals due to the anticipated presence of these minerals in parts obtained from suppliers or from the use of Conflict Minerals in the manufacturing processes employed by Masimo. Masimo is not a vertically integrated manufacturer, does not make direct purchases of raw ore or unrefined Conflict Minerals from the DRC Countries and is, therefore, several levels removed from the actual mining of Conflict Minerals. As a result, in order to comply with Rule 13p-1, we rely upon our suppliers to provide information on the origin of the Conflict Minerals contained in components and materials supplied to us, including the sources of Conflict Minerals that are supplied to them from sub-tier suppliers. We have adopted responsible sourcing of minerals requirements with our Conflict Minerals Policy and our suppliers are expected to provide Conflict Minerals sourcing information to us in accordance with such policy. A copy of our Conflict Minerals Policy is available on our website at: http://masimocorp.gcs-web.com/corporate-governance/governance-overview
Reasonable Country of Origin Inquiry (RCOI)
Masimo has continued its supplier and parts based risk assessment in determining which suppliers/parts were “in scope” for the 2016 RCOI survey. Masimo ultimately identified 606 suppliers that provided or can potentially provide components and/or materials which are included in the products that Masimo offers to our customers. The RCOI was intended to determine which Masimo-utilized parts contain Conflict Minerals and whether those Conflict Minerals originated in DRC Countries. Masimo asked suppliers to provide information regarding: (1) the Conflict Minerals contained in each of the parts supplied by that supplier, and (2) the source of those Conflict Minerals, including smelter or refinery information and the location of mines. These suppliers were asked to complete the Electronic Industry Citizenship Coalition Conflict Free Sourcing Initiative (EICC-CFSI) Conflict Minerals Reporting Template (ver. 4.20). Due to the breadth and complexity of our products and supply chain, we expected that it would take significant time for many of our suppliers to collect and verify the origin of Conflict Minerals in the products they supply to us. While this has proven to be true, Masimo continues to make year-over-year progress in the quality and depth of responses received from our supplier base.
Of the 606 suppliers that were surveyed in 2016, Masimo has received responses from 456 suppliers as of the date of filing of this Report, all of which have completed a Conflict Minerals Reporting Template (CMRT) and/or provided a declaration and/or a policy.
Of the 456 suppliers that completed a CMRT and/or provided a declaration and/or a policy, 258 declared that they were DRC Conflict Free, 66 declared that they were DRC Conflict undeterminable, 69 declared that they were outof-scope, 15 provided partial responses such that their status remains unknown, and 48 provided a policy only. None of the suppliers that responded specifically declared that they were not DRC Conflict Free.
Masimo is continuing to work with our suppliers that were either non-responsive or provided incomplete or partial responses to our requests in order to obtain a satisfactory response.
Due Diligence Process
Masimo has implemented a due diligence process regarding the source and chain of custody of our Conflict Minerals. We have designed our due diligence framework to conform in all material respects with the framework provided by The Organization for Economic Co-operation and Development Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, an internationally-recognized due diligence framework. Our due diligence process includes:
Risk Mitigation - Improvement Program
We are committed to further improving our supply chain due diligence processes, driving accountability within the supply chain by leveraging the industry standard CFSI CMRT and continuing our outreach efforts in order to further develop transparency in our supply chain and mitigate the risk that Masimo’s use of Conflict Minerals benefits or finances armed groups.
During calendar year 2016, Masimo took the following steps to further this commitment:
A list of parts used in Masimo monitor, printed circuit board and sensor products for which Masimo surveyed suppliers for Conflict Mineral content or Conflict Mineral use in production is attached as Exhibit A. Masimo continues to gather and assess the smelters and refineries used to process the Conflict Minerals used in Masimo’s products, and the countries of origin of those Conflict Minerals. However, despite our due diligence efforts, we do not have sufficient information to conclusively determine the countries of origin of all of the Conflict Minerals used in the products described above or whether the Conflict Minerals were obtained from recycled or scrap sources as of the date of filing of this Report.
Conflict Minerals Status Analysis and Conflict Status Conclusion
Based on current SEC guidance and court rulings, Masimo has decided not to voluntarily describe our products as “DRC conflict free,” “not having been found to be DRC conflict free” or “DRC conflict undeterminable”. However, we are continuing our due diligence process of working with our suppliers to gather sufficient smelter information, as well as using other sources to determine the country of origin of the Conflict Minerals used in our products or to identify the facilities used to process those Conflict Minerals. Masimo also plans to further integrate Conflict Minerals supplier information and data collection/retrieval into Masimo automated systems to support supply chain transparency, internal audit efficiency and conflict free sourcing efforts. In addition, we continue to integrate Conflict Minerals transparency requirements into our supplier qualification and evaluation process, including the requirement for suppliers to disclose their Conflict Minerals status and policy via our Supplier Self-Assessment form.
Description of Masimo Corporation’s 2016 Products (Parts/Supplies)
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