What changed in this filing

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Item 1. Financial Statements

2021-01-29 compared with 2020-10-30 · 272 added, 171 removed, 725 unchanged (38% of the section changed)

3 unchanged sentences

(In US$ and in thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Accounts receivable, net of allowances of $ 33,593 and $ 28,508

‎ at September 30, 2020 and June 30, 2020, respectively

‎ at December 31, 2020 and June 30, 2020, respectively

Inventories (note 3)

31 unchanged sentences

Common stock, $ 0.004 par value, 350,000,000 shares authorized;

‎ 186,744,426 issued and 144,908,192 outstanding at September 30, 2020 and

‎ 187,340,332 issued and 145,504,098 outstanding at December 31, 2020 and

‎ 186,723,407 issued and 144,887,175 outstanding at June 30, 2020

1 unchanged sentence

Retained earnings

Treasury stock, at cost, 41,836,234 shares at September 30, 2020 and June 30, 2020

Treasury stock, at cost, 41,836,234 shares at December 31, 2020 and June 30, 2020

( 1,623,256 )

9 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Net revenue - Sleep and Respiratory Care products

10 unchanged sentences

Amortization of acquired intangible assets

Restructuring expenses (note 11)

Litigation settlement expenses

Total operating expenses

17 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Other comprehensive income (loss):

19 unchanged sentences

( 1,623,256 )

Common stock issued on exercise of options

Common stock issued on vesting of restricted stock units, net of shares withheld for tax

Common stock issued on employee stock purchase plan

Stock-based compensation costs

Other comprehensive income

Dividends declared

Balance, December 31, 2020

( 1,623,256 )

See the accompanying notes to the unaudited condensed consolidated financial statements.

15 unchanged sentences

( 1,623,256 )

Common stock issued on exercise of options

Common stock issued on vesting of restricted stock units, net of shares withheld for tax

Common stock issued on employee stock purchase plan

Stock-based compensation costs

Other comprehensive income

Dividends declared

Balance, December 31, 2019

( 1,623,256 )

See the accompanying notes to the unaudited condensed consolidated financial statements.

3 unchanged sentences

(In US$ and in thousands)

September 30, 2020

September 30, 2019

Six Months Ended

‎ December 31,

Cash flows from operating activities:

5 unchanged sentences

(Gain) loss on equity investments (note 5)

Restructuring expenses (note 11)

Changes in fair value of business combination contingent consideration

7 unchanged sentences

Patent registration costs

Business acquisitions, net of cash acquired

Purchases of investments (note 5)

Payments on maturity of foreign currency contracts

Proceeds on maturity of foreign currency contracts

Net cash used in investing activities

33 unchanged sentences

The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending June 30, 2021.

The condensed consolidated financial statements for the three months ended September 30, 2020 and September 30, 2019 are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended June 30, 2020.

The condensed consolidated financial statements for the three and six months ended December 31, 2020 and December 31, 2019 are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended June 30, 2020.

Revenue Recognition

7 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

U.S., Canada and Latin America

24 unchanged sentences

The following table summarizes our contract balances (in thousands):

September 30,

Balance sheet caption

40 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Sales-type lease revenue

46 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Net revenue by segment

6 unchanged sentences

Software as a Service

Amortization of acquired intangible assets and corporate costs

Amortization of acquired intangible assets and corporate assets

Net operating profit by segment (2)

4 unchanged sentences

Amortization of acquired intangible assets

Restructuring expenses

Litigation settlement expenses

Deferred revenue fair value adjustment (1)

3 unchanged sentences

(1) The deferred revenue fair value adjustment is a purchase price accounting adjustment related to MatrixCare which was acquired on November 13, 2018.

(2) During the three months ended September 30, 2020, we recorded $ 2.8 million of impairment for our operating lease right-of-use asset.

(2) During the three and six months ended December 31, 2020, we recorded $ 0.0 million and $ 2.8 million of impairment for our operating lease right-of-use asset, respectively.

The impairment related to leases for office space and was recorded within net operating profit.

The impairment for the three months ended September 30, 2020 attributable to Sleep and Respiratory Care was $ 1.6 million and $ 1.2 million for SaaS .

The impairment for the six months ended December 31, 2020 attributable to Sleep and Respiratory Care was $ 1.6 million and $ 1.2 million for SaaS .

(3) Supplemental Balance Sheet Information

Components of selected captions in the condensed consolidated balance sheets consisted of the following (in thousands):

September 30,

Raw materials

6 unchanged sentences

Property, Plant and Equipment

September 30,

Property, plant and equipment, at cost

2 unchanged sentences

Other Intangible Assets

September 30,

Developed/core product technology

11 unchanged sentences

A reconciliation of changes in our goodwill by reportable segment is as follows (in thousands):

Three Months Ended September 30, 2020

Six Months Ended December 31, 2020

‎ Respiratory Care

3 unchanged sentences

(5) Investments

We have a number of equity investments in privately held companies that are unconsolidated entities.

We have equity investments in privately held companies that are unconsolidated entities.

The following discusses our investments in marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities, as well as our equity securities accounted for under the equity method.

9 unchanged sentences

Measurement category

September 30,

Measurement alternative

3 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

The following table shows a reconciliation of the changes in all of our non-marketable equity investments (in thousands):

Three Months Ended

‎ September 30,

The following table shows a reconciliation of the changes in our non-marketable equity investments (in thousands):

Six Months Ended

‎ December 31,

Non-marketable securities

3 unchanged sentences

Carrying value of non-marketable securities

(1) In September 2020, one of our investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value and the recognition of an unrealized gain of $ 8.5 million for the three months ended September 30, 2020.

Net unrealized gains recognized in the three months ended September 30, 2020 for equity investments held as of September 30, 2020 were $ 8.5 million, which related to gains on publicly traded marketable equity securities.

Net unrealized losses recognized in the three months ended September 30, 2019 for equity investments held as of September 30, 2019 were $ 2.6 million, which related to impairments of privately held non-marketable securities.

(1) During the six months ended December 31, 2020, one of our investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value.

Net unrealized gains and losses recognized for equity investments held as of December 31, 2020 were a loss of $ 3.7 million for three months ended December 31, 2020 and a gain of $ 4.8 million for six months ended December 31, 2020, which related to publicly traded marketable equity securities.

Net unrealized losses recognized for equity investments held as of December 31, 2019 for the three and six months ended December 31, 2019 were $ 2.8 million and $ 5.4 million, respectively, which related to impairments of privately held non-marketable securities.

The following table shows a reconciliation of the changes in our equity securities accounted for under the equity method (in thousands):

Three Months Ended

‎ September 30,

Six Months Ended

‎ December 31,

Equity method investments

14 unchanged sentences

In June 2018, we received a notice from the ATO claiming penalties of 50 % of the additional income tax that was assessed, or $ 75.9 million.

As of September 30, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

As of December 31, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

We do not agree with the ATO’s assessments and we continue to believe we are more likely than not to be successful in defending our position.

5 unchanged sentences

Changes in the liability for warranty costs, which is included in accrued expenses in our condensed consolidated balance sheets, are as follows (in thousands):

Three Months Ended

‎ September 30,

Six Months Ended

‎ December 31,

Balance at the beginning of the period

4 unchanged sentences

Debt consisted of the following (in thousands):

September 30,

Short-term debt

19 unchanged sentences

The outstanding principal amounts will bear interest at a rate equal to LIBOR plus 0.75 % to 1.50 % (depending on the then-applicable leverage ratio) or the Base Rate (as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0 % to 0.50 % (depending on the then-applicable leverage ratio).

At September 30, 2020, the interest rate that was being charged on the outstanding principal amounts was 1.1 %.

At December 31, 2020, the interest rate that was being charged on the outstanding principal amounts was 1.1 %.

An applicable commitment

3 unchanged sentences

fee of 0.100 % to 0.175 % (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving credit facility.

As of September 30, 2020, we had $ 1.2 billion available for draw down under the revolving credit facility.

As of December 31, 2020, we had $ 1.4 billion available for draw down under the revolving credit facility.

We are required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets.

As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at September 30, 2020 and June 30, 2020, which was $ 560.0 million and $ 680.0 million, respectively.

As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at December 31, 2020 and June 30, 2020, which was $ 329.0 million and $ 680.0 million, respectively.

Quoted market prices in active markets for identical liabilities based inputs (Level 1) were used to estimate fair value.

6 unchanged sentences

As of September 30, 2020, the Senior Notes have a carrying amount of $ 500.0 million, excluding deferred borrowing costs, and an estimated fair value of $ 548.5 million.

As of December 31, 2020, the Senior Notes have a carrying amount of $ 500.0 million, excluding deferred borrowing costs, and an estimated fair value of $ 546.1 million.

Quoted market prices in active markets for identical liabilities based inputs (Level 1) were used to estimate fair value.

At September 30, 2020, we were in compliance with our debt covenants and there was $ 1,060.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

At December 31, 2020, we were in compliance with our debt covenants and there was $ 829.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

(9) Earnings Per Share

1 unchanged sentence

For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options and restricted stock units.

The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings per share were 109,475 and 693 for the three months ended September 30, 2020 and September 30, 2019 , respectively, as the effect would have been anti-dilutive.

The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings per share were 196,856 and 73,509 for the three months ended December 31, 2020 and 2019 , respectively, and 154,888 and 88,624 for the six months ended December 31, 2020 and 2019, respectively as the effect would have been anti-dilutive.

Basic and diluted earnings per share are calculated as follows (in thousands except per share data):

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Basic weighted-average common shares outstanding

16 unchanged sentences

In June 2018, we received a notice from the ATO claiming penalties of 50 % of the additional income tax that was assessed, or $ 75.9 million.

As of September 30, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

As of December 31, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

We do not agree with the ATO’s assessments and we continue to believe we are more likely than not to be successful in defending our position.

6 unchanged sentences

This is applied to receivables sold with recourse and is recorded in accrued expenses.

During the three months ended September 30, 2020 and September 30, 2019, receivables sold with limited recourse were $ 30.6 million and $ 33.7 million, respectively.

As of September 30, 2020, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 24.5 million and $ 7.3 million, respectively.

During the six months ended December 31, 2020 and December 31, 2019, receivables sold with limited recourse were $ 72.6 million and $ 59.3 million, respectively.

As of December 31, 2020, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 27.0 million and $ 7.9 million, respectively.

As of June 30, 2020, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 22.8 million and $ 6.6 million, respectively.

(11 ) Restructuring Expenses

In November 2020, we closed our Portable Oxygen Concentrator business, which was part of the Sleep and Respiratory Care segment.

During the three and six months ended December 31, 2020, we recognized restructuring expenses of $ 13.9 million primarily related to inventory write-downs of $ 5.2 million, accelerated amortization of acquired intangible assets of $ 5.1 million, asset impairments of $ 2.3 million, employee-related costs of $ 0.7 million and contract cancellation costs of $ 0.6 million.

Of the total expense recognized during the three and six months ended December 31, 2020, the inventory write-down of $ 5.2 million is presented within cost of sales and the remaining $ 8.7 million in restructuring costs is separately disclosed as restructuring expenses on the condensed consolidated statements of income.

As of December 31, 2020, an outstanding, unpaid balance of $ 2.6 million had been recorded as a liability in accrued expenses.

We do not expect to incur additional expenses in connection with this activity in the future.

PART I – FINANCIAL INFORMATION

19 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is an overview of our results of operations for the three months ended September 30, 2020.

The following is an overview of our results of operations for the three and six months ended December 31, 2020.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition.

7 unchanged sentences

We are committed to ongoing investment in research and development and product enhancements.

During the three months ended September 30, 2020, we invested $54.5 million on research and development activities, which represents 7.3% of net revenues, with a continued focus on the development and commercialization of new, innovative products and solutions that improve patient outcomes, create efficiencies for our customers and help physicians and providers better manage chronic disease and lower healthcare costs.

During the three months ended December 31, 2020, we invested $54.9 million on research and development activities, which represents 6.9% of net revenues, with a continued focus on the development and commercialization of new, innovative products and solutions that improve patient outcomes, create efficiencies for our customers and help physicians and providers better manage chronic disease and lower healthcare costs.

Due to multiple acquisitions, including Brightree in April 2016, HEALTHCAREfirst in July 2018 and MatrixCare in November 2018, our operations now include out-of-hospital software platforms designed to support the professionals and caregivers who help people stay healthy in the home or care setting of their choice.

2 unchanged sentences

We have determined that we have two operating segments, which are the sleep and respiratory disorders sector of the medical device industry (“Sleep and Respiratory Care”) and the supply of business management software as a service to out-of-hospital health providers (“SaaS”).

During the three months ended September 30, 2020, our net revenue increased by 10% compared to the three months ended September 30, 2019.

Gross margin was 58.3% for the three months ended September 30, 2020 compared to 57.5% for the three months ended September 30, 2019.

Diluted earnings per share for the three months ended September 30, 2020 was $1.22 per share, compared to $0.83 per share for the three months ended September 30, 2019 .

At September 30, 2020, our cash and cash equivalents totaled $421.4 million, our total assets were $4.6 billion and our stockholders’ equity was $2.7 billion.

During the three months ended December 31, 2020, our net revenue increased by 9% compared to the three months ended December 31, 2019.

Gross margin was 57.8% for the three months ended December 31, 2020 compared to 58.0% for the three months ended December 31, 2019.

Diluted earnings per share for the three months ended December 31, 2020 was $1.23 per share, compared to $1.10 per share for the three months ended December 31, 2019 .

At December 31, 2020, our cash and cash equivalents totaled $255.9 million, our total assets were $4.6 billion and our stockholders’ equity was $2.9 billion.

In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we provide certain financial information on a “constant currency” basis, which is in addition to the actual financial information presented.

9 unchanged sentences

We have prioritized protecting the health and safety of our employees and continuing to use our employees’ talents and our resources to help society meet and overcome the challenges the pandemic poses.

We have observed increased demand for our ventilator devices and masks, which can be used to treat COVID-19 patients.

Due to governments’ varying restrictions on international and domestic travel, access to labor for our manufacturing facilities was impacted as was the availability of raw materials and components, which constrained our manufacturing capacity and restricted our ability to initially meet the substantial demand for ventilators.

Our primary focus is maximizing the availability of our ventilators and other respiratory support devices for the patients that need them the most in the countries facing the greatest challenges.

The global increase in our sales for these respiratory care products during fiscal year 2020 generally followed infection patterns around the world.

We believe the global demand for these devices has largely been met, however, this may change depending on the ability for regions to contain and control infection rates, which remains highly uncertain.

Additionally, as more becomes known about the virus and as governments pursue testing and vaccines, we may see an overall reduction in demand, and then face a corresponding risk of oversupply by us and by our competitors.

While further outbreaks in the future are highly uncertain, we expect lower demand for ventilator products for the fiscal year ending June 30, 2021.

As anticipated, we observed lower demand for our sleep devices during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, and we continue to expect COVID-19 will lead to a temporary decrease in demand for these products from new patients for some or all of the remainder of our fiscal year 2021.

Specifically, diagnostic pathways for sleep apnea treatment, including HME suppliers and sleep clinics, have been impacted and, in some instances, been required, or in the future may be required, to temporarily close due to governments’ “shelter-in-place” orders, quarantines or similar orders or restrictions enacted to control the spread of COVID-19.

During the three months ended December 31, 2020, we observed minimal incremental demand for our ventilator devices and masks associated with the COVID-19 pandemic.

Although there is still substantial uncertainty, we believe the global demand for ventilators and other respiratory support devices, used to treat COVID-19 patients, has largely been met.

As such, we expect minimal COVID-19 generated demand for our ventilator products for the second half of the fiscal year ending June 30, 2021.

Diagnostic pathways for sleep apnea treatment, including HME suppliers and sleep clinics, have been impacted and, in some instances, been required, or in the future may be required, to temporarily close due to governments’ “shelter-in-place” orders, quarantines or similar orders or restrictions enacted to control the spread of COVID-19.

In some countries, new patients are prescribed sleep apnea treatment through hospitals that are directing their resources to critical care, including COVID-19 treatment.

The impact on these diagnostic and prescription pathways has likely resulted in a decrease in demand from new patients for our products designed to treat sleep apnea.

Given the ongoing uncertainty regarding the duration and extent of the COVID-19 pandemic and measures taken to control the spread of COVID-19, we are uncertain as to the duration and extent of decreased demand for our sleep devices.

However, due to the nature of the installed base of existing patients using our devices, we expect the demand for re-supply of our masks to be less impacted compared to devices.

Our SaaS business may also be affected by COVID-19 and measures taken to control the spread of COVID-19.

The impact on these diagnostic and prescription pathways has resulted in a decrease in demand from new patients for our products designed to treat sleep apnea.

However, due to the nature of the installed base of existing patients using our devices, we have not seen any significant adverse impact on demand for re-supply of our masks.

Our SaaS business has also been affected by COVID-19 and measures taken to control the spread of COVID-19.

Some of our existing and potential SaaS customers are HME distributors and, therefore, have been impacted, or may be impacted, by the same temporary business closures noted above.

We also have existing and potential SaaS customers that operate care facilities and are either receiving and treating patients infected with COVID-19 or are implementing significant measures to safeguard their facilities against a potential COVID-19 outbreak.

Given these challenging business conditions and the uncertain economic environment, we expect businesses will be deterred from adopting new or changing SaaS platforms, which may adversely impact our ability to engage new customers for our SaaS businesses, or expand the services used by existing customers.

Given these challenging business conditions and the uncertain economic environment, we believe businesses have been less willing to adopt new or change SaaS platforms, which has adversely impacted our ability to engage new customers for our SaaS businesses, or expand the services used by existing customers.

Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees.

We have endeavored and continue to follow recommended actions of government and health authorities to protect our employees worldwide, but since COVID-19 was declared a pandemic in March 2020, we were able to broadly maintain our operations, and we are beginning the slow and careful process of progressively returning to work in our offices around the world.

The pandemic has not negatively impacted our liquidity position.

2 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Net revenue for the three months ended September 30, 2020 increased to $751.9 million from $681.1 million for the three months ended September 30, 2019, an increase of $70.9 million or 10% (a 9% increase on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region for the three months ended September 30, 2020 compared to September 30, 2019 (in thousands):

Three Months Ended December 31, 2020 Compared to the Three Months Ended December 31, 2019

Net revenue for the three months ended December 31, 2020 increased to $800.0 million from $736.2 million for the three months ended December 31, 2019, an increase of $63.9 million or 9% (a 7% increase on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region for the three months ended December 31, 2020 compared to December 31, 2019 (in thousands):

Three Months Ended

‎ September 30,

‎ December 31,

Constant Currency*

12 unchanged sentences

Sleep and Respiratory Care

Net revenue from our Sleep and Respiratory Care business for the three months ended September 30, 2020 was $659.8 million, an increase of 11% compared to net revenue for the three months ended September 30, 2019.

Net revenue from our Sleep and Respiratory Care business for the three months ended December 31, 2020 was $708.2 million, an increase of 9% compared to net revenue for the three months ended December 31, 2019.

Movements in international currencies against the U.S.

dollar positively impacted net revenues by approximately $9.4 million for the three months ended September 30, 2020.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended September 30, 2020 increased 9% compared to the three months ended September 30, 2019.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks, including as a result of increased demand for our ventilators due to COVID-19.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the three months ended September 30, 2020 increased to $403.2 million from $370.3 million for the three months ended September 30, 2019, an increase of $32.8 million or 9%.

The increase was primarily due to an increase in unit sales of our devices and masks, including as a result of increased demand for our ventilators due to COVID-19.

Net revenue in combined Europe, Asia and other markets increased for the three months ended September 30, 2020 to $256.6 million from $223.9 million for the three months ended September 30, 2019, an increase of $32.7 million or 15% (a 10% increase on a constant currency basis).

The constant currency increase in sales in combined Europe, Asia and other markets predominantly reflects an increase in unit sales of our devices and masks, including as a result of increased demand for our ventilators due to COVID-19.

Net revenue from devices for the three months ended September 30, 2020 increased to $373.4 million from $338.8 million for the three months ended September 30, 2019, an increase of $34.6 million or 10%, including an increase of 6% in the United States, Canada and Latin America and an increase of 16% in combined Europe, Asia and other markets (an 11% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the three months ended September 30, 2020 increased by 8%.

Net revenue from masks and other for the three months ended September 30, 2020 increased to $286.4 million from $255.4 million for the three months ended September 30, 2019, an increase of $31.0 million or 12%, including an increase of 12% in the United States, Canada and Latin America and an increase of 12% in combined Europe, Asia and other markets (an 8% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 11%, compared to the three months ended September 30, 2019.

dollar positively impacted net revenue by approximately $14.9 million for the three months ended December 31, 2020.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended December 31, 2020 increased 7% compared to the three months ended December 31, 2019.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the three months ended December 31, 2020 increased to $426.8 million from $408.0 million for the three months ended December 31, 2019, an increase of $18.8 million or 5%.

The increase was primarily due to an increase in unit sales of our masks.

Net revenue in combined Europe, Asia and other markets increased for the three months ended December 31, 2020 to $281.4 million from $241.5 million for the three months ended December 31, 2019, an increase of $39.9 million or 17% (a 10% increase on a constant currency basis).

The constant currency increase in sales in combined Europe, Asia and other markets predominantly reflects an increase in unit sales of our devices and masks.

Net revenue from devices for the three months ended December 31, 2020 increased to $393.0 million from $365.8 million for the three months ended December 31, 2019, an increase of $27.2 million or 7%, including an increase of 1% in the U.S., Canada and Latin America and an increase of 16% in combined Europe, Asia and other markets (a 10% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the three months ended December 31, 2020 increased by 5%.

Net revenue from masks and other for the three months ended December 31, 2020 increased to $315.2 million from $283.7 million for the three months ended December 31, 2019, an increase of $31.5 million or 11%, including an increase of 8% in the U.S., Canada and Latin America and an increase of 18% in combined Europe, Asia and other markets (a 12% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 9%, compared to the three months ended December 31, 2019.

Software as a Service

Net revenue from our SaaS business for the three months ended September 30, 2020 was $92.1 million, an increase of 6% compared to the three months ended September 30, 2019.

The increase was predominantly due to continued growth in resupply service offerings and stabilizing patient flow in out-of-hospital care settings.

Net revenue from our SaaS business for the three months ended December 31, 2020 was $91.8 million, an increase of 6% compared to the three months ended December 31, 2019.

The increase was predominantly due to continued growth in resupply service offerings.

PART I – FINANCIAL INFORMATION

1 unchanged sentence

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Six Months Ended December 31, 2020 Compared to the Six Months Ended December 31, 2019

Net revenue for the six months ended December 31, 2020 increased to $1,552.0 million from $1,417.2 million for the six months ended December 31, 2019, an increase of $134.8 million or 10% (an 8% increase on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region for the six months ended December 31, 2020 compared to December 31, 2019 (in thousands):

Six Months Ended

‎ December 31,

Constant Currency*

U.S., Canada and Latin America

Masks and other

Total Sleep and Respiratory Care

Software as a Service

Combined Europe, Asia and other markets

Masks and other

Total Sleep and Respiratory Care

Global revenue

Masks and other

Total Sleep and Respiratory Care

Software as a Service

* Constant currency numbers exclude the impact of movements in international currencies.

Sleep and Respiratory Care

Net revenue from our Sleep and Respiratory Care business for the six months ended December 31, 2020 was $1,368.0 million, an increase of 10% compared to net revenue for the six months ended December 31, 2019.

Movements in international currencies against the U.S.

dollar positively impacted net revenues by approximately $24.3 million for the six months ended December 31, 2020.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the six months ended December 31, 2020 increased by 8% compared to the six months ended December 31, 2019.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the six months ended December 31, 2020 increased to $829.9 million from $778.2 million for the six months ended December 31, 2019, an increase of $51.7 million or 7%.

The increase was primarily due to an increase in unit sales of our masks.

Net revenue in combined Europe, Asia and other markets increased for the six months ended December 31, 2020 to $538.1 million from $465.4 million for the six months ended December 31, 2019, an increase of $72.7 million or 16% (a 10% increase on a constant currency basis).

The constant currency increase in sales in combined Europe, Asia and other markets predominantly reflects an increase in unit sales of our devices and masks.

Net revenue from devices for the six months ended December 31, 2020 increased to $766.4 million from $704.6 million for the six months ended December 31, 2019, an increase of $61.8 million or 9%, including an increase of 3% in the U.S., Canada and Latin America and an increase of 16% in combined Europe, Asia and other markets (a 11% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the six months ended December 31, 2020 increased by 6%.

Net revenue from masks and other for the six months ended December 31, 2020 increased to $601.6 million from $539.0 million for the six months ended December 31, 2019, an increase of $62.6 million or 12%, including an increase of 10% in the U.S., Canada and Latin America and an increase of 15% in combined Europe, Asia and other markets (an 10% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 10%, compared to the six months ended December 31, 2019.

Software as a Service

Net revenue from our SaaS business for the six months ended December 31, 2020 was $184.0 million, an increase of 6% compared to the six months ended December 31, 2019.

The increase was predominantly due to continued growth in resupply service offerings.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Gross Profit and Gross Margin

Gross profit increased for the three months ended September 30, 2020 to $438.7 million from $391.6 million for the three months ended September 30, 2019, an increase of $47.0 million or 12%.

Gross margin, which is gross profit as a percentage of net revenue, for the three months ended September 30, 2020 was 58.3% compared to 57.5% for the three months ended September 30, 2019.

The increase in gross margin for the three months ended September 30, 2020 compared to three months ended September 30, 2019 was due primarily to favorable product mix and foreign currency movements, which were partially offset by an increase in procurement and logistics related costs as a result of the COVID-19 pandemic.

Gross profit increased for the three months ended December 31, 2020 to $462.5 million from $427.1 million for the three months ended December 31, 2019, an increase of $35.4 million or 8%.

Gross margin, which is gross profit as a percentage of net revenue, for the three months ended December 31, 2020 was 57.8% compared to 58.0% for the three months ended December 31, 2019.

The decrease in gross margin for the three months ended December 31, 2020 compared to three months ended December 31, 2019 was due primarily to restructuring expense of $5.2 million associated with inventory write-downs following the closure of the Portable Oxygen Concentrator (“POC”) business, partially offset by favorable product mix, foreign currency movement and lower amortization of acquired intangibles.

Gross profit increased for the six months ended December 31, 2020 to $901.1 million from $818.7 million for the six months ended December 31, 2019, an increase of $82.4 million or 10%.

Gross margin for the six months ended December 31, 2020 was 58.1% compared to 57.8% for the six months ended December 31, 2019.

The increase in gross margin for the six months ended December 31, 2020 compared to the six months ended December 31, 2019 was due primarily to favorable product mix, foreign currency movements and lower amortization of acquired intangibles, partially offset by restructuring expense of $5.2 million associated with inventory write-downs following the closure of the POC business.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased for the three months ended September 30, 2020 to $159.0 million from $167.4 million for the three months ended September 30, 2019, a decrease of $8.5 million or 5%.

Selling, general and administrative expenses decreased for the three months ended December 31, 2020 to $169.5 million from $171.4 million for the three months ended December 31, 2019, a decrease of $2.0 million or 1%.

Selling, general and administrative expenses were unfavorably impacted by the movement of international currencies against the U.S.

dollar, which increased our expenses by approximately $3.9 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general and administrative expenses for the three months ended September 30, 2020 decreased by 7% compared to the three months ended September 30, 2019.

As a percentage of net revenue, selling, general and administrative expenses were 21.1% for the three months ended September 30, 2020, compared to 24.6% for the three months ended September 30, 2019.

The constant currency decrease in selling, general and administrative expenses was primarily due to decreases in travel, marketing and bad debt expenses, partially offset by a $2.8 million impairment charge related to our right-of-use asset during the three months ended September 30, 2020.

Excluding the impact of foreign currency movements, selling, general and administrative expenses for the three months ended December 31, 2020 decreased by 3% compared to the three months ended December 31, 2019.

As a percentage of net revenue, selling, general and administrative expenses were 21.2% for the three months ended December 31, 2020, compared to 23.3% for the three months ended December 31, 2019.

The constant currency decrease in selling, general and administrative expenses was primarily due to decreases in travel, marketing and bad debt expenses during the three months ended December 31, 2020.

Selling, general and administrative expenses decreased for the six months ended December 31, 2020 to $328.5 million from $338.9 million for the six months ended December 31, 2019, a decrease of $10.4 million or 3%.

Selling, general and administrative expenses were unfavorably impacted by the movement of international currencies against the U.S.

dollar, which increased our expenses by approximately $6.6 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general and administrative expenses for the six months ended December 31, 2020 decreased by 5% compared to the six months ended December 31, 2019.

As a percentage of net revenue, selling, general and administrative expenses were 21.2% for the six months ended December 31, 2020, compared to 23.9% for the six months ended December 31, 2019.

Research and Development Expenses

Research and development expenses increased for the three months ended September 30, 2020 to $54.5 million from $48.0 million for the three months ended September 30, 2019, an increase of $6.5 million, or 14%.

Research and development expenses increased for the three months ended December 31, 2020 to $54.9 million from $49.9 million for the three months ended December 31, 2019, an increase of $5.0 million, or 10%.

Research and development expenses were unfavorably impacted by the movement of international currencies against the U.S.

dollar, which increased our expenses by approximately $0.9 million for the three months ended September 30, 2020, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 12% compared to the three months ended September 30, 2019.

As a percentage of net revenue, research and development expenses were 7.3% for the three months ended September 30, 2020, compared to 7.1% for the three months ended September 30, 2019.

The increase in research and development expenses in constant currency terms was primarily due to an increase in the number of research and development personnel to facilitate development of new products and solutions.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets for the three months ended September 30, 2020 totaled $8.2 million compared to $5.0 million for the three months ended September 30, 2019.

Total Other Income (Loss), Net

Total other income (loss), net for the three months ended September 30, 2020 was a loss of $1.0 million compared to a loss of $20.5 million for the three months ended September 30, 2019.

The decrease was partially due to a decrease in interest expense to $6.8 million for the three months ended September 30, 2020 compared to $11.0 million for the three months ended September 30, 2019.

Additionally, one of our investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value and the recognition of an unrealized gain of $8.5 million for the three months ended September 30, 2020.

We also recorded losses attributable to equity method investments for the three months ended September 30, 2020 of $2.3 million compared to $6.9 million for the three months ended September 30, 2019.

The losses attributable to equity method investments relate to our joint venture with Verily, which is accounted for using the equity method, whereby we recognize our share of the joint venture’s losses.

dollar, which increased our expenses by approximately $1.4 million for the three months ended December 31, 2020, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 7% compared to the three months ended December 31, 2019.

As a percentage of net revenue, research and development expenses were 6.9% for the three months ended December 31, 2020, compared to 6.8% for the three months ended December 31, 2019.

The increase in research and development expenses in constant currency terms was primarily due to increases in the number of research and development personnel to facilitate development of new products and solutions.

Research and development expenses increased for the six months ended December 31, 2020 to $109.5 million from $98.0 million for the six months ended December 31, 2019, an increase of $11.5 million, or 12%.

Research and development expenses were unfavorably impacted by the movement of international currencies against the U.S.

dollar, which increased our expenses by approximately $2.2 million for the six months ended December 31, 2020, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 9% compared to the six months ended December 31, 2019.

As a percentage of net revenue, research

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our effective income tax rate for the three months ended September 30, 2020 was 17.4% respectively, as compared to 20.2% for the three months ended September 30, 2019.

The decrease in our effective income tax rate was primarily related to changes in the geographic mix of our earnings.

and development expenses were 7.1% for the six months ended December 31, 2020, compared to 6.9% for the six months ended December 31, 2019.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets for the three months ended December 31, 2020 totaled $7.7 million compared to $8.6 million for the three months ended December 31, 2019.

Amortization of acquired intangible assets for the six months ended December 31, 2020 totaled $15.9 million compared to $13.6 million for the six months ended December 31, 2019.

The decrease in amortization of acquired intangible assets is due to historical assets becoming fully amortized.

Restructuring Expenses

In November 2020, we closed our POC business, which was part of the Sleep and Respiratory Care segment.

During the three and six months ended December 31, 2020, we recognized restructuring expenses of $13.9 million primarily related to inventory write-downs of $5.2 million, accelerated amortization of acquired intangible assets of $5.1 million, asset impairments of $2.3 million, employee-related costs of $0.7 million and contract cancellation costs of $0.6 million.

Of the total expense recognized during the three and six months ended December 31, 2020, the inventory write-down of $5.2 million is presented within cost of sales and the remaining $8.7 million in restructuring costs is separately disclosed as restructuring expenses on the condensed consolidated statements of income.

We do not expect to incur additional expenses in connection with this activity in the future.

Total Other Income (Loss), Net

Total other income (loss), net for the three months ended December 31, 2020 was a loss of $11.1 million compared to a loss of $19.1 million for the three months ended December 31, 2019.

The decrease was partially due to a decrease in interest expense to $5.9 million for the three months ended December 31, 2020 compared to $10.2 million for the three months ended December 31, 2019.

We also recorded losses attributable to equity method investments for the three months ended December 31, 2020 of $2.6 million compared to $6.9 million for the three months ended December 31, 2019.

Total other income (loss), net for the six months ended December 31, 2020 was a loss of $12.2 million compared to a loss of $39.6 million for the six months ended December 31, 2019.

The decrease was partially due to a decrease in interest expense to $12.8 million for the six months ended December 31, 2020 compared to $21.2 million for the six months ended December 31, 2019.

Additionally, we recognized an unrealized gain of $4.8 million on our marketable securities for the six months ended December 31, 2020, whereas during the six months ended December 31, 2019, we recorded an impairment of $5.4 million on our non-marketable equity securities.

We also recorded lower losses attributable to equity method investments for the six months ended December 31, 2020 of $4.9 million compared to $13.8 million for the six months ended December 31, 2019.

Our effective income tax rate for the three and six months ended December 31, 2020 was 14.8% and 16.1%, respectively, as compared to 10.2% and 14.8% for the three and six months ended December 31, 2019.

Our effective tax rate was impacted by windfall tax benefits related to the vesting or settlement of employee share-based awards, which reduced our income tax expenses by $10.9 million and $11.5 million, for the three and six months ended December 31, 2020, respectively, as compared to $20.3 million and $22.1 million for the three and six months ended December 31, 2019, respectively.

Our Singapore operations operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030.

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federal tax, if repatriated.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Finally, we are under audit by the Australian Tax Office (the “ATO”) in three different cycles:

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In June 2018, we received a notice from the ATO claiming penalties of 50% of the additional income tax that was assessed, or $75.9 million.

As of September 30, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

As of December 31, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid in April 2018 as we ultimately expect this will be refunded by the ATO.

We do not agree with the ATO’s assessments and we continue to believe we are more likely than not to be successful in defending our position.

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Net Income and Earnings per Share

As a result of the factors above, our net income for the three months ended September 30, 2020 was $178.4 million compared to net income of $120.1 million for the three months ended September 30, 2019, an increase of 48% over the three months ended September 30, 2019.

Our diluted earnings per share for the three months ended September 30, 2020 were $1.22 per diluted share compared to $0.83 for the three months ended September 30, 2019, an increase of 47% .

As a result of the factors above, our net income for the three months ended December 31, 2020 was $179.5 million compared to net income of $160.6 million for the three months ended December 31, 2019, an increase of 12% over the three months ended December 31, 2019.

Our net income for the six months ended December 31, 2020 was $357.9 million compared to net income of $280.7 million for the six months ended December 31, 2019, an increase of 27% over the six months ended December 31, 2019.

Our diluted earnings per share for the three months ended December 31, 2020 were $1.23 per diluted share compared to $1.10 for the three months ended December 31, 2019, an increase of 12% .

Our diluted earnings per share for the six months ended December 31, 2020 were $2.45 per diluted share compared to $1.93 for the six months ended December 31, 2019, an increase of 27%.

Summary of Non-GAAP Financial Measures

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For these reasons, we use non-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current period and in comparing it to past periods.

Generally, our non-GAAP financial measures include adjustments for items such as amortization of acquired intangible assets, fair value adjustments recognized on publicly traded marketable equity securities , and certain acquisition related fair value adjustments.

These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, GAAP financial measures.

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Non-GAAP financial measures as presented herein may not be comparable to similarly titled measures used by other companies.

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The measure “non-GAAP revenue” is equal to GAAP net revenue once adjusted for deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations.

The measure “non-GAAP cost of sales” is equal to GAAP cost of sales less amortization of acquired intangible assets relating to cost of sales.

The measure “non-GAAP cost of sales” is equal to GAAP cost of sales less amortization of acquired intangible assets relating to cost of sales and restructuring expense associated with inventory write-downs following the closure of the POC business.

The measure “non-GAAP gross profit” is the difference between non-GAAP revenue and non-GAAP cost of sales, and “non-GAAP gross margin” is the ratio of non-GAAP gross profit to non-GAAP revenue.

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Three Months Ended

September 30,

Six Months Ended

GAAP Net revenue

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Amortization of acquired intangibles

Restructuring - cost of sales

Non-GAAP cost of sales

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Non-GAAP gross margin

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles and deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles, restructuring expense associated with the closure of the POC business, deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations and litigation settlement expenses.

Non-GAAP income from operations reconciled with GAAP income from operations below (in thousands):

Three Months Ended

September 30,

Six Months Ended

GAAP income from operations

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Amortization of acquired intangibles - operating expenses

Restructuring - cost of sales

Restructuring - operating expenses

Deferred revenue fair value adjustment

Litigation settlement expenses

Non-GAAP income from operations

The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles (net of tax), deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations (net of tax) and fair value adjustments recognized on publicly traded marketable equity securities.

The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles (net of tax), restructuring expense associated with the closure of the POC (net of tax), deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations (net of tax), restructuring expenses (net of tax), litigation settlement expenses (net of tax) and fair value adjustments recognized on publicly traded marketable equity securities.

The measure “non-GAAP diluted earnings per share” is the ratio of non-GAAP net income to diluted shares outstanding.

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Three Months Ended

September 30,

Six Months Ended

GAAP net income

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Amortization of acquired intangibles - operating expenses, net of tax

Restructuring - cost of sales, net of tax

Restructuring - operating expenses, net of tax

Deferred revenue fair value adjustment, net of tax

Litigation settlement expenses, net of tax

Fair value adjustment of investment

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Liquidity and Capital Resources

As of September 30, 2020 and June 30, 2020, we had cash and cash equivalents of $421.4 million and $463.2 million, respectively.

Working capital was $932.7 million and $920.7 million at September 30, 2020 and June 30, 2020, respectively.

As of September 30, 2020, we had $1.1 billion of borrowings compared to $1.2 billion of borrowings at June 30, 2020.

As of September 30, 2020, we had $1.2 billion available for draw down under the revolver credit facility and a combined total of $1.6 billion in cash and available liquidity under the revolving credit facility.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As of September 30, 2020 and June 30, 2020, our cash and cash equivalent balances held within the United States amounted to $204.9 million and $158.8 million, respectively.

Our remaining cash and cash equivalent balances at September 30, 2020 and June 30, 2020, were $216.5 million and $304.4 million, respectively.

As of December 31, 2020 and June 30, 2020, we had cash and cash equivalents of $255.9 million and $463.2 million, respectively.

In response to the uncertainty associated with the COVID-19 pandemic, we had previously increased our cash and cash equivalents position by drawing down from our Revolving Credit Agreement.

As we have not observed a significant impact to our cash flows due the pandemic, we have reduced our cash and cash equivalents and accordingly repaid our Revolving Credit Agreement.

Working capital was $874.2 million and $920.7 million at December 31, 2020 and June 30, 2020, respectively.

As of December 31, 2020, we had $0.8 billion of borrowings compared to $1.2 billion of borrowings at June 30, 2020.

As of December 31, 2020, we had $1.4 billion available for draw down under the revolver credit facility and a combined total of $1.7 billion in cash and available liquidity under the revolving credit facility.

We believe that cash generated from operations and available borrowings under our credit facility will be sufficient to fund our operations, including expected capital expenditures, for the next 12 months and beyond.

As of December 31, 2020 and June 30, 2020, our cash and cash equivalent balances held within the United States amounted to $54.2 million and $158.8 million, respectively.

Our remaining cash and cash equivalent balances at December 31, 2020 and June 30, 2020, were $201.7 million and $304.4 million, respectively.

Our cash and cash equivalent balances are held at highly rated financial institutions .

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federal tax if repatriated.

Inventories at September 30, 2020 were $478.0 million, an increase of $61.1 million or 15% from the June 30, 2020 balance of $416.9 million.

Inventories at December 31, 2020 were $474.8 million, an increase of $57.9 million or 14% from the June 30, 2020 balance of $416.9 million.

The increase in inventories was required to support our revenue growth and respond to additional complexity and elongation of our supply chain resulting from ongoing COVID-19 impacts.

Accounts receivable at September 30, 2020 were $464.9 million, a decrease of $9.8 million or 2% compared to the June 30, 2020, balance of $474.6 million.

Accounts receivable days outstanding of 57 days at September 30, 2020, were lower the days outstanding of 65 days at June 30, 2020.

Our allowance for doubtful accounts as a percentage of total accounts receivable at September 30, 2020, was 6.0%, compared to 5.7% at June 30, 2020.

As of September 30, 2020, we have recognized a right-of-use asset (“ROU”) of $124.5 million and a lease liability of $132.5 million on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.

During the three months ended September 30, 2020, we generated cash of $144.0 million from operations compared to $162.4 million for the three months ended September 30, 2019.

The decrease in cash generated from operations during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019 was primarily due to the increase in working capital driven by higher inventory levels and the timing of income tax payments, partially offset by the increase in operating profit.

Movements in foreign currency exchange rates during the three months ended September 30, 2020, had the effect of increasing our cash and cash equivalents by $11.6 million, as reported in U.S.

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Accounts receivable at December 31, 2020 were $509.4 million, an increase of $34.8 million or 7% compared to the June 30, 2020, balance of $474.6 million.

Accounts receivable days outstanding of 56 days at December 31, 2020, were lower than days outstanding of 65 days at June 30, 2020.

Our allowance for doubtful accounts as a percentage of total accounts receivable at December 31, 2020, was 6.2%, compared to 5.7% at June 30, 2020.

As of December 31, 2020, we have recognized a right-of-use asset (“ROU”) of $131.3 million and a lease liability of $140.1 million on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.

During the six months ended December 31, 2020, we generated cash of $313.9 million from operations compared to $232.3 million for the six months ended December 31, 2019.

The increase in cash generated from operations during the six months ended December 31, 2020, as compared to the six months ended December 31, 2019 was primarily due to the increase in operating profit, partially offset by the increase in working capital driven by higher inventory levels.

Movements in foreign currency exchange rates during the six months ended December 31, 2020, had the effect of increasing our cash and cash equivalents by $22.6 million, as reported in U.S.

We have temporarily suspended our share repurchase program due to acquisitions, and more recently, as a response to the COVID-19 pandemic.

Accordingly, we did not repurchase any shares during the three months ended September 30, 2020 and 2019.

In addition, during the three months ended September 30, 2020 and 2019, we paid dividends to holders of our common stock totaling $56.5 million and $56.1 million, respectively.

Capital expenditures for the three months ended September 30, 2020 and 2019, amounted to $13.5 million and $22.7 million, respectively.

The capital expenditures for the three months ended September 30, 2020, primarily reflected investment in production tooling, leasehold improvements, equipment and machinery, and computer hardware and software.

At September 30, 2020, our balance sheet reflects net property, plant and equipment of $424.8 million compared to $417.3 million at June 30, 2020.

Accordingly, we did not repurchase any shares during the three and six months ended December 31, 2020 and 2019.

In addition, during the six months ended December 31, 2020 and 2019, we paid dividends to holders of our common stock totaling $113.2 million and $112.2 million, respectively.

Capital expenditures for the six months ended December 31, 2020 and 2019, amounted to $48.4 million and $47.8 million, respectively.

The capital expenditures for the six months ended December 31, 2020, primarily reflected investment in production tooling, leasehold improvements, equipment and machinery, and computer hardware and software.

At December 31, 2020, our balance sheet reflects net property, plant and equipment of $459.5 million compared to $417.3 million at June 30, 2020.

Contractual Obligations

Details of contractual obligations at September 30, 2020, are as follows (in thousands):

Payments Due by September 30,

Details of contractual obligations at December 31, 2020, are as follows (in thousands):

Payments Due by December 31,

Interest on debt

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Purchase obligations

Details of other commercial commitments at September 30, 2020, are as follows (in thousands) :

Details of other commercial commitments at December 31, 2020, are as follows (in thousands) :

Amount of Commitment Expiration Per Period

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On April 17, 2018, we entered into an amended and restated credit agreement (as amended from time to time, the “Revolving Credit Agreement”), as borrower, with lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger, joint book runner, swing line lender and letter of credit issuer, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner.

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Revolving Credit Agreement, among other things, provided a senior unsecured revolving credit facility of $800.0 million, with an uncommitted option to increase the revolving credit facility by an additional $300.0 million.

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subsidiaries.

The Revolving Credit Agreement and Term Credit Agreement contain customary covenants, including, in each case, a financial covenant that requires that we maintain a maximum leverage ratio of funded debt to EBITDA (as defined in the Revolving Credit Agreement and Term Credit Agreement, as applicable).

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Revolving Credit Agreement and Term Credit Agreement contain customary covenants, including, in each case, a financial covenant that requires that we maintain a maximum leverage ratio of funded debt to EBITDA (as defined in the Revolving Credit Agreement and Term Credit Agreement, as applicable).

The entire principal amounts of the revolving credit facility and term credit facility, and, in each case, any accrued but unpaid interest may be declared immediately due and payable if an event of default occurs, as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable.

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The outstanding principal amounts will bear interest at a rate equal to LIBOR plus 0.75% to 1.50% (depending on the then-applicable leverage ratio) or the Base Rate (as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0% to 0.50% (depending on the then-applicable leverage ratio).

On September 30, 2020, the interest rate that was being charged on the outstanding principal amounts was 1.1%.

On December 31, 2020, the interest rate that was being charged on the outstanding principal amounts was 1.1%.

An applicable commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving credit facility.

As of September 30, 2020, we had $1.2 billion available for draw down under the revolving credit facility.

As of December 31, 2020, we had $1.4 billion available for draw down under the revolving credit facility.

On July 10, 2019, we entered into a Note Purchase Agreement with the purchasers to that agreement, in connection with the issuance and sale of $250.0 million principal amount of our 3.24% senior notes due July 10, 2026, and $250.0 million principal amount of our 3.45% senior notes due July 10, 2029 (“Senior Notes”).

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We also agreed that, subject to limited exceptions, we will maintain a ratio of consolidated funded debt to consolidated EBITDA of no more than 3.50 to 1.00 as of the last day of any fiscal quarter, and will not at any time permit the amount of all priority secured and unsecured debt of us and our subsidiaries to exceed 10% of our consolidated tangible assets, determined as of the end of our most recently ended fiscal quarter.

On September 30, 2020, we were in compliance with our debt covenants and there was a total of $1,060.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

On December 31, 2020, we were in compliance with our debt covenants and there was a total of $829.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

We expect to satisfy all of our liquidity and long-term debt requirements through a combination of cash on hand, cash generated from operations and debt facilities.

Since the inception of our share repurchase programs and through September 30, 2020, we have repurchased a total of 41.8 million shares for an aggregate of $1.6 billion.

Since the inception of our share repurchase programs and through December 31, 2020, we have repurchased a total of 41.8 million shares for an aggregate of $1.6 billion.

We have temporarily suspended our share repurchase program due to recent acquisitions, and more recently, as a response to the COVID-19 pandemic.

Accordingly, we did not repurchase any shares during the three months ended September 30, 2020 and 2019.

Accordingly, we did not repurchase any shares during the three and six months ended December 31, 2020 and 2019.

Shares that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share.

There is no expiration date for this program, and the program may be accelerated, suspended, delayed

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

or discontinued at any time at the discretion of our board of directors.

At September 30, 2020, 12.9 million additional shares can be repurchased under the approved share repurchase program.

There is no expiration date for this program, and the program may be accelerated, suspended, delayed or discontinued at any time at the discretion of our board of directors.

At December 31, 2020, 12.9 million additional shares can be repurchased under the approved share repurchase program.

Critical Accounting Principles and Estimates

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Actual results could vary from those estimates under different assumptions or conditions.

PART I – FINANCIAL INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended June 30, 2020.

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Off-Balance Sheet Arrangements

As of September 30, 2020, we are not involved in any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC .

As of December 31, 2020, we are not involved in any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC .

PART I – FINANCIAL INFORMATION

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The table below provides information (in U.S.

dollars) on our foreign currency denominated operating assets and liabilities and after considering our foreign currency hedging activities as of September 30, 2020 (in thousands):

Great Britain

dollars) on our foreign currency denominated operating assets and liabilities and after considering our foreign currency hedging activities as of December 31, 2020 (in thousands):

AUD Functional:

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dollar equivalents.

The table summarizes information on instruments and transactions that are sensitive to foreign currency exchange rates, including foreign currency call options, collars and forward contracts held at September 30, 2020.

The table presents the notional amounts and weighted average exchange rates by contractual maturity dates for our foreign currency derivative financial instruments, including the forward contracts used to hedge our foreign currency denominated assets and liabilities.

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Foreign Exchange Contracts

September 30,

Contract amount

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We are exposed to risk associated with changes in interest rates affecting the return on our cash and cash equivalents and debt.

At September 30, 2020, we held cash and cash equivalents of $421.4 million principally comprised of bank term deposits and at-call accounts and are invested at both short-term fixed interest rates and variable interest rates.

At September 30, 2020, there was $560.0 million outstanding under the Revolving Credit Agreement and Term Credit Agreement, which are subject to variable interest rates.

A hypothetical 10% change in interest rates during the three months ended September 30, 2020, would not have had a material impact on pretax income.

At December 31, 2020, we held cash and cash equivalents of $255.9 million principally comprised of bank term deposits and at-call accounts and are invested at both short-term fixed interest rates and variable interest rates.

At December 31, 2020, there was $329.0 million outstanding under the Revolving Credit Agreement and Term Credit Agreement, which are subject to variable interest rates.

A hypothetical 10% change in interest rates during the three and six months ended December 31, 2020, would not have had a material impact on pretax income.

We have no interest rate hedging agreements.

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As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020.

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements