XML 23 R9.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Summary of Significant Accounting Policies | 9 Months Ended
--- | ---
Oct. 01, 2022
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, including normal recurring accruals, necessary to present fairly the Company’s condensed consolidated financial statements. The accompanying condensed consolidated balance sheet as of January 1, 2022 was derived from the Company’s audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (fiscal year 2021), filed with the SEC on February 15, 2022. The results for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 (fiscal year 2022) or for any other interim period or for any future year. Fiscal Periods The Company follows a conventional 52/53 week fiscal year. Under a conventional 52/53 week fiscal year, a 52 week fiscal year includes four quarters of 13 weeks while a 53 week fiscal year includes three 13 week fiscal quarters and one 14 week fiscal quarter. The Company’s last 53 week fiscal year was fiscal year 2020. Fiscal year 2022 is a 52 week fiscal year ending December 31, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted. Use of Estimates The Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s use of estimates includes the determination of standalone selling prices, variable consideration, total consideration allocated to each performance obligation within a contract, inventory valuation, valuation of the Company’s equity awards, valuation of identifiable assets and liabilities connected with business combinations, derivative instruments, deferred taxes and any associated valuation allowances, deferred revenue, accounting for pensions, uncertain income tax positions, litigation costs and related accruals. Actual results could differ from such estimates. Business Combinations The Company accounts for business combinations using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) Topic 805, Business Combinations, which requires that once control is obtained, the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition, with the exception of acquired contract assets and contract liabilities (i.e., deferred revenue) from contracts with customers. These are recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. The excess of the purchase price over fair values of identifiable assets, liabilities and noncontrolling interests in the acquired entity, if applicable, is recorded as goodwill. Fair Value Measurements The Company accounts for certain financial instruments at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its financial instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, and considers the estimated amount the Company would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and the Company’s creditworthiness for unrealized loss positions. In certain instances, the Company may utilize financial models to measure the fair value of its financial instruments. In doing so, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means. Recurring Fair Value Measurement On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. Authoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value: ● Level 1—Quoted prices in active markets for identical assets or liabilities. ● Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities. ● Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at October 1, 2022:
| Total carrying value |  | Fair Value Measurement Hierarchy
(in millions) |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 162.5 |  |  | $ | 162.5 |  |  | $ | — |  |  | $ | — |
Money market funds | 57.0 |  |  | 57.0 |  |  | — |  |  | — |
Derivative instruments - cash flow hedges | 19.4 |  |  | — |  |  | 19.4 |  |  | — |
Total assets | $ | 238.9 |  |  | $ | 219.5 |  |  | $ | 19.4 |  |  | $ | — |
Liabilities |  |  |  |  |  |  |
None | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at January 1, 2022:
| Total carrying value |  | Fair Value Measurement Hierarchy
(in millions) |  | Level 1 |  | Level 2 |  | Level 3
Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 745.3 |  |  | $ | 745.3 |  |  | $ | — |  |  | $ | — |
Money market funds | — |  |  | — |  |  | — |  |  | — |
Total assets | $ | 745.3 |  |  | $ | 745.3 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |
None | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The Company invests in checking, savings and money market fund accounts, which are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices. These investments are classified as cash and cash equivalents within the Company’s accompanying condensed consolidated balance sheets, in accordance with GAAP and its accounting policies. Non-Recurring Fair Value Measurements For certain other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances. The Company also measures certain non-financial assets at fair value on a non-recurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment. Furthermore, the Company did not elect to apply the fair value option to specific assets or liabilities on a contract-by-contract basis. The Company did not have any transfers between Level 2 and Level 3 during the nine months ended October 1, 2022. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less, or highly liquid investments that are readily convertible into known amounts of cash, to be cash equivalents. The Company carries cash and cash equivalents at cost, which approximates fair value, and are Level 1 under the fair value hierarchy. Accounts Receivable and Allowance for Credit Losses Accounts receivable consist of trade receivables recorded at the time of invoicing of product sales, reduced by reserves for estimated bad debts and returns. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of the customer’s financial condition. Collateral is generally not required. The Company records an allowance for credit losses that it does not expect to collect based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Accounts are charged off against the allowance when the Company believes they are uncollectible. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified receivables for U.S. customers and receivables from international customers each as a portfolio, and measures expected credit losses on such receivables using an aging methodology. Inventory Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates the first in, first out method, and includes material, labor and overhead costs. Inventory valuation adjustments are recorded for inventory items 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 carrying value in inventory. The Company generally determines inventory valuation adjustments based on an evaluation of the expected future use of its inventory on an item by item basis and applies historical obsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. The Company also records other specific inventory valuation adjustments when it becomes aware of unique events or circumstances that result in an expected recovery value below cost. For inventory items that have been written down, the reduced value becomes the new cost basis. Property and Equipment Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:
| Useful Lives
Buildings and building improvements | 7 to 39 years
Computer equipment and software | 1 to 12 years
Demonstration units | 2 to 3 years
Furniture and office equipment | 2 to 15 years
Leasehold improvements | Lesser of useful life or term of lease
Machinery, equipment and tooling | 3 to 20 years
Operating lease assets | Lesser of useful life or term of lease
Transportation, vehicles and other | 1 to 20 years
Land is not depreciated and construction-in-progress is not depreciated until placed in service. Normal repair and maintenance costs are expensed as incurred, whereas significant improvements that materially increase values or extend useful lives are capitalized and depreciated over the remaining estimated useful lives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss on the sale or retirement is recognized in income. Lessee Right-of-Use (ROU) Assets and Lease Liabilities The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an asset underlying an operating lease for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company generally estimates the applicable discount rate used to determine the net present value of lease payments based on available information at the lease commencement date. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its lease terms unless they are reasonably certain to be exercised. The Company utilizes a portfolio approach to account for the ROU assets and liabilities associated with certain equipment leases. The Company has also made an accounting policy election not to separate lease and non-lease components for its real estate leases and to exclude short-term leases with a term of twelve months or less from its ROU assets and lease liabilities. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. Intangible Assets Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships, licenses and acquired technology. Costs related to patents and trademarks, which include legal and application fees, are ca pitalized and amortized over the estimated useful lives using the straight-line method. Patent and trademark amortization commences once final approval of the patent or trademark has been obtained. Patent costs are amortized over the lesser of 10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over a range of 10 years to 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The Company’s policy is to renew its patents and trademarks. Costs to renew patents and trademarks are capitalized and amortized over the remaining useful life of the intangible asset. The Company periodically evaluates the amortization period and carrying basis of patents and trademarks to determine whether any events or circumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined that the patent or trademark will not be obtained or is abandoned. Intangibles purchased as part of an asset acquisition or business combination historically have included patents, trademarks, customer relationships, developed technologies and contractual licenses. In certain circumstances the Company also has acquired non-compete agreements tied to certain employment relationships. The useful life for all of these is largely determined by valuation estimates of remaining economic life. In connection with the Sound United acquisition, the Company acquired certain trademarks/tradenames, which are intangible assets with indefinite useful lives. These brands are expected to maintain brand value for an indefinite period of time. Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, or if the Company elects to bypass the qualitative analysis, then the Company performs a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of such reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to such reporting unit. The annual impairment test is performed during the fourth fiscal quarter. Similar to Goodwill, indefinite-lived intangible assets are not amortized but instead are subject to annual impairment testing, unless circumstances dictate more frequent testing, if impairment indicators exist. Impairment for indefinite-lived assets exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. Determining whether impairment indicators exist and estimating the fair value of the Company’s indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors. The Company reviews finite lived intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Employee Defined Benefit Plans The Company maintains noncontributory defined benefit pension plans that cover employees in various countries throughout Europe and Asia. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the condensed consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, the difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the condensed consolidated statement of operations. The liabilities and annual income or expense is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices. See Note 21, “Employee Benefits”, for further details. Income Taxes The Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold are recognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-not recognition threshold is recorded at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in that period. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in the period they become known. The Company records potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As a multinational corporation, the Company is subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets when, in the judgment of management, it is more likely than not that all or part of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies. Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about the Company’s future income over the lives of its deferred tax assets (DTA) and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could result in changes to the Company’s results of operations. Revenue Recognition, Deferred Revenue and Other Contract Liabilities The Company generally recognizes revenue following a single, principles-based five-step model to be applied to all contracts with customers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, when control over the promised goods or services are transferred to the customer. Healthcare segment While the majority of the Company’s Healthcare segment revenue contracts and transactions contain standard business terms and conditions, there are some transactions that contain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriate accounting, including: (i) the amount of the total consideration, as well as variable consideration, (ii) whether the arrangement contains an embedded lease, and if so, whether such embedded lease is a sales-type lease or an operating lease, (iii) the identification of the distinct performance obligations contained within the arrangement, (iv) how the arrangement consideration should be allocated to each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, and (v) when to recognize revenue on the performance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. Revenue from fixed lease payments related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue from fixed lease payments related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease and variable lease payments are recognized as they occur. The Company derives the majority of its Healthcare segment revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where the Company provides 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 original equipment manufacturer (OEM) customers who incorporate the Company’s embedded software technology into their multiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standard payment terms based on the geography within which the specific customer is located. The Company enters into agreements to sell its monitoring solutions and services, sometimes as a part of arrangements with multiple performance obligations that include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that the total consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is not readily observable, the Company estimates 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, the Company’s pricing and discount practices, and other market conditions. Sales under deferred equipment agreements are generally structured such that the Company agrees 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 years to six years. The Company allocates contract consideration under deferred equipment agreements containing fixed annual sensor purchase commitments to the underlying lease and non-lease components at contract inception. In determining whether any underlying lease components are related to a sales-type lease or an operating lease, the Company evaluates the customer’s rights and ability to control the use of the underlying equipment throughout the contract term, including any equipment substitution rights retained by the Company, as well as the Company’s expectations surrounding potential contract/lease extensions or renewals and the customer’s likelihood to exercise any purchase options. Beginning January 2, 2022, for contracts that contain variable lease payments, the Company also classifies as operating leases any components that would result in a day one selling loss should they be otherwise classified as a sales-type lease. Revenue allocable to non-lease performance obligations is generally recognized as such non-lease performance obligations are satisfied. Revenue allocable to lease components under sales-type lease arrangements is generally recognized when control over the equipment is transferred to the customer. Revenue allocable to lease components under operating lease arrangements is generally recognized over the term of the operating lease. The Company generally does not expect to derive any significant value in excess of such asset’s unamortized book value from equipment underlying its operating lease arrangements after the end of the agreement. Revenue from the sale of products to end-user hospitals, emergency medical response organizations, other direct customers, distributors and OEM customers, is recognized by the Company when control of such products transfer to the customer based upon the terms of the contract or underlying purchase order. Revenue related to OEM rainbow® parameter software licenses is recognized by the Company upon the OEM’s shipment of its product to its customer, as reported to the Company by the OEM. The Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company records estimates related to these programs as a reduction to revenue at the time of sale. In general, customers do not have a right of return for credit or refund. However, the Company allows returns under certain circumstances. At the end of each period, the Company estimates and accrues for these returns as a reduction to revenue. The Company estimates 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. Non-healthcare segment Non-healthcare segment revenue is related to hardware and embedded software that is integrated into final products that are manufactured and sold by the Company. Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. Non-healthcare segment revenue is recognized upon transfer of control of promised products or service to customers, which is either upon shipment or upon delivery to the customers, depending on delivery terms. The Company offers sales incentives and has customer programs consisting primarily of discounts and market development fund programs, and records them as a contra revenue. Estimates for sales incentives are developed using most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. In developing its estimates, the Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts. Reductions in revenue related to discounts are allocated to products on a relative basis based on their respective standard selling price if there are undelivered products in a contract. Judgement is required to determine the timing and amount of recognition of marketing funds which the Company estimates based on past practice of providing similar funds. Payment terms and conditions vary among the Company’s distribution channels although terms generally include a requirement of payment within 30 to 60 days of product shipment. Sales directly to customers from the Company’s website are paid at the time of product shipment. Prior to determining payment terms for each customers, an evaluation of such customer’s credit risk is performed. Contractual allowances are an offset to accounts receivable. Shipping and Handling Costs and Fees All shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. Charges for shipping and handling billed to customers are included as a component of revenue. Taxes Collected From Customers and Remitted to Governmental Authorities The Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities. Deferred Costs and Other Contract Assets The costs of monitoring-related equipment provided to customers under operating lease arrangements within the Company’s deferred equipment agreements are generally deferred and amortized to cost of goods sold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain allowances to be made directly to the end-user hospital customer at the inception of the arrangement. These allowances are generally allocated to the lease and non-lease components and recognized as a reduction to revenue as the underlying performance obligations are satisfied. The Company generally invoices its customers under deferred equipment agreements as sensors are provided to the customer. However, the Company may recognize revenue for certain non-lease performance obligations under deferred equipment agreements with fixed annual commitments at the time such performance obligations are satisfied and prior to the customer being invoiced. When this occurs, the Company records an unbilled contract receivable related to such revenue until the customer has been invoiced pursuant to the terms of the underlying deferred equipment agreement. The incremental costs of obtaining a contract with a customer are capitalized and deferred if the Company expects such costs to be recoverable over the life of the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by the Company’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term of the underlying contract. In connection with the Sound United acquisition, the Company recognized non-healthcare royalty revenue associated with certain prepaid license arrangements. The Company recognizes non-healthcare revenue from the prepaid license arrangements based upon sales-based royalties when a subsequent sale occurs. Warranty The Company generally provides a warranty against defects in material and workmanship for a period ranging from six months to forty-eight months, depending on the product type. In traditional sales activities, including direct and OEM sales, the Company establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to cost of goods sold. Customers may also purchase extended warranty coverage or service level upgrades separately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage and service level upgrades is generally recognized over the life of the contract, which reasonably approximates the period over which such services will be provided. The related extended warranty and service level upgrade costs are expensed as incurred. Changes in the warranty accrual were as follows:
| Nine Months Ended
(in millions) | October 1, 2022 |  | October 2, 2021
Warranty accrual, beginning of period | $ | 2.5 |  |  | $ | 2.7 |
Increase related to acquisition, net of reserve | 8.0 |  |  | — |
Accrual for warranties issued | 1.9 |  |  | 3.4 |
Changes in pre-existing warranties (including changes in estimates) | 1.5 |  |  | (2.3) |
Settlements made | (4.5) |  |  | (0.9) |
Warranty accrual, end of period | $ | 9.4 |  |  | $ | 2.9 |
Litigation Costs and Contingencies The Company records 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. The determination of whether a loss contingency or litigation settlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and other litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigation expenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries are only recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements. Foreign Currency Translation The Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries, and the largest transactions in foreign currency translations occur in Japanese Yen, the British Pou nd, Chinese Yuan a nd the European Euro. The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the average exchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect as of the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functional currency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying condensed consolidated balance sheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are not denominated in the underlying functional currency are included as a component of non-operating income (loss) within the accompanying condensed consolidated statements of operations. Derivatives Instruments & Hedging Activities The Company addresses market risk from changes in foreign currency and interest rates risks through risk management programs which include the use of derivative and nonderivative instruments. The Company’s exposure to the counterparty’s credit risk is generally limited to the amounts of the net obligation to the counterparty. The Company established policies to enter into contracts only with major investment-grade financial institutions to mitigate such counterparty credit risk. The Company also established a policy to further monitor the counterparty risks throughout the life of the instruments. None of the derivative instruments currently held by the Company were entered into for speculative trading purposes. All derivative financial instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the tenor of the instrument. The Company has elected not to separate a derivative instrument into current and long-term portions. A derivative instrument whose fair value is a net liability is classified as current in total. A derivative instrument whose fair value is a net asset and whose current portion is an asset is classified as noncurrent in total. For a derivative instrument that meets the criteria to qualify for hedge accounting, the Company marks the fair value of the derivative instrument to market periodically through other comprehensive income (loss). When the hedged items hit income (expense), associated deferred gains (losses) of the derivatives in accumulated other comprehensive income (loss) will be reclassified into earnings. For a derivative instrument that does not meet the criteria for hedge accounting, any fluctuation in the fair value is reflected in earnings in the period it occurs. Comprehensive Income Comprehensive income includes foreign currency translation adjustments, changes to pension benefits, unrealized gains or (losses) on cash flow hedges and any related tax benefits (expenses) that have been excluded from net income and reflected in stockholders’ equity. Net Income Per Share Computation of basic and diluted net income per share is as follows:
| Three Months Ended |  | Nine Months Ended
(in millions, except per share amounts) | October 1, 2022 |  | October 2, 2021 |  | October 1, 2022 |  | October 2, 2021
Net income | $ | 37.9 |  |  | $ | 57.8 |  |  | $ | 102.6 |  |  | $ | 161.4 |
Basic net income per share: |  |  |  |  |  |  |
Weighted-average shares outstanding - basic | 52.5 |  |  | 55.1 |  |  | 54.0 |  |  | 55.1 |
Net income per basic share | $ | 0.72 |  |  | $ | 1.05 |  |  | $ | 1.90 |  |  | $ | 2.93 |
Diluted net income per share: |  |  |  |  |  |  |
Weighted-average shares outstanding - basic | 52.5 |  |  | 55.1 |  |  | 54.0 |  |  | 55.1 |
Diluted share equivalents: stock options, RSUs and PSUs | 1.6 |  |  | 2.6 |  |  | 1.6 |  |  | 2.6 |
Weighted-average shares outstanding - diluted | 54.1 |  |  | 57.7 |  |  | 55.6 |  |  | 57.7 |
Net income per diluted share | $ | 0.70 |  |  | $ | 1.00 |  |  | $ | 1.85 |  |  | $ | 2.80 |
Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income per diluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if the effect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of both restricted share units (RSUs) and performance stock units (PSUs). For the three months ended October 1, 2022 and October 2, 2021, weighted options to purchase 1.0 million and 0.1 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the nine months ended October 1, 2022 and October 2, 2021, weighted options to purchase 0.8 million and 0.2 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. Certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain future events. Since such events had not occurred and were not considered probable of occurring as of each of October 1, 2022 and October 2, 2021, 2.7 million weighted-average shares related to such RSUs have been excluded from the calculation of potential shares for each of the three and nine month periods then ended. Supplemental Cash Flow Information Supplemental cash flow information includes the following:
| Nine Months Ended
(in millions) | October 1, 2022 |  | October 2, 2021
Cash paid during the year for: |  |  |
Interest expense | $ | 11.9 |  |  | $ | 0.2 |
Income taxes | 71.1 |  |  | 36.9 |
Operating lease liabilities | 12.0 |  |  | 5.6 |
Non-cash operating activities: |  |  |
ROU assets obtained in exchange for lease liabilities | $ | 9.8 |  |  | $ | 4.9 |
Non-cash investing activities: |  |  |
Unpaid purchases of property and equipment | $ | 4.8 |  |  | $ | 3.2 |
Unpaid strategic investments | 1.5 |  |  | 3.4 |
Deposit release to acquire noncontrolling interest(1) | — |  |  | 3.4 |
Non-cash financing activities: |  |  |
Unsettled common stock proceeds from option exercises | $ | — |  |  | $ | 0.1 |
Reconciliation of cash, cash equivalents and restricted cash: |  |  |
Cash and cash equivalents | $ | 219.5 |  |  | $ | 652.3 |
Restricted cash | 2.6 |  |  | 1.6 |
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows | $ | 222.1 |  |  | $ | 653.9 |
______________ (1) During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The Company made a deposit to acquire the noncontrolling interest of the acquiree. During the first quarter of 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented. Recently Adopted Accounting Pronouncements In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). The standard requires companies to apply ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC Topic 805. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022, and for interim periods within those years, and should be adopted prospectively. Early adoption is permitted. The Company’s early adoption of this standard, effective January 3, 2021, did not have a material impact on its consolidated financial statements. Subsequently, upon the closing of the Sound United acquisition, the Company recognized and measured acquired contract assets and contract liabilities (i.e., deferred revenue) in accordance with the ASC Topic 606. In July 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). The new standard amends the original ASU No. 2016-02 lease standard by requiring lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement if they were classified as sales-type. ASU 2021-05 is effective for annual reporting periods beginning after December 15, 2021, and for interim periods within those years, and may be adopted either prospectively or on a retrospective basis for leases that commenced or were modified after the date of initial adoption of ASC 842. On January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption. As a result, certain leases which would have previously been classified as lease receivables (sales-type leases) were classified as operating leases, as they were determined to have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement. For leases that are classified as operating leases, the Company recorded these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis, rather than being immediately recognized upon lease commencement. Similarly, revenue associated with such new operating leases is now being recognized over the term of the lease, rather than being immediately recognized at the date of the lease commencement. See Notes 6, 8 and 11 of these condensed consolidated financial statements for further details. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The standard provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply this standard prospectively through December 31, 2022. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new standard clarified the scope and application of the original guidance. ASU 2021-01 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. On April 11, 2022, the Company adopted ASU 2020-04 and ASU 2021-01 prospectively, in conjunction with the termination of the Company’s Credit Facility and execution of a new Credit Facility, which included both term loans and a revolving line of credit. At the time of transition, the Company no longer held any debt based upon the then-current reference rate, thus, it did not elect any optional practical expedients for contract modifications. Ultimately, the Company transitioned away from an interest rate based on LIBOR to SOFR, and such adoption did not have a material impact on its condensed consolidated fi nancial statements.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=126899994&loc=d3e18726-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI https://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration