What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-08-17 compared with 2020-08-13 · 200 added, 317 removed, 874 unchanged (37% of the section changed)

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dollars) on our significant foreign-currency-denominated financial assets by legal entity functional currency as of June 30, 2021 (in thousands):

Great Britain

AUD Functional:

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Foreign Currency Hedges

EURO Functional:

Foreign Currency Hedges

SGD Functional:

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contractual exchange rate

‎ Euro 0.6307

‎ Euro 0.6700

‎ Euro 0.6382

Contract amount

contractual exchange rate

‎ Euro 0.6379

Contract amount

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contractual exchange rate

Contract amount

contractual exchange rate

Interest Rate Risk

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Quarterly Financial Information (unaudited)—The quarterly results for the years ended June 30, 2021 and 2020 are summarized below (in thousands, except per share amounts):

Gross profit*

Basic earnings per share

Diluted earnings per share

Gross profit*

Net income (loss)

Basic earnings (loss) per share

Diluted earnings (loss) per share

Basic earnings per share

Diluted earnings per share

* Within our consolidated statements of income for the years ended June 30, 2020 and 2019, cost of sales has been adjusted to include amortization of acquired intangible assets directly applicable to revenue.

As a result, gross profit includes amortization of acquired intangible assets relating to cost of sales and operating expenses have been reduced by this amount.

There was no impact on income from operations, income before taxes or net income, as a result of this reclassification

the amounts for each quarter are computed independently and, due to the computation formula, the sum of the four quarters may not equal the year.

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Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases beginning July 1, 2019 due to the adoption of the FASB’s Accounting Standards Codification Topic 842, Leases .

The Company has changed its method of accounting for leases as of July 1, 2019 due to the adoption of the FASB’s Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of goodwill triggering events

As discussed in Notes 1(i) and 5 to the consolidated financial statements, the carrying amount of goodwill as of June 30, 2020 was $1,890 million.

The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit, including goodwill, might exceed the fair value of the reporting unit.

In the current year, the Company performed qualitative,

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the uncertain tax position related to Australian Tax Office audits

As discussed in Note 14 to the consolidated financial statements, the Company’s tax filings in Australia for the years 2009 through 2018 (the Audit Period) are under audit by the Australian Tax Office (ATO).

The Company believes it is more likely than not (greater than a 50% likelihood) that its tax position would be upheld in litigation.

However, the Company is engaged

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or Step 0, assessments to determine whether there was a greater than 50 percent likelihood that the fair value of each reporting unit was less than its carrying value.

We identified the evaluation of goodwill triggering events as a critical audit matter because such events indicate possible impairment of goodwill, which required the application of greater auditor judgment.

Potential triggering events, such as macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, market capitalization and events specific to the entity and reporting units, required a higher degree of auditor judgment to evaluate.

These possible triggering events could have a significant effect on the Company’s Step 0 assessment and the determination of whether further quantitative analysis of goodwill impairment was required.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of internal controls related to the critical audit matter.

This included a control related to the Company’s assessment of possible goodwill triggering events.

We evaluated the Company’s Step 0 assessment for its reporting units by:

 Considering macroeconomic indicators such as gross domestic product and inflation by key regions around the world;

 Evaluating information from analyst reports in the enterprise software and sleep and respiratory care industries, which are compared to industry and market considerations used by the Company;

 Analyzing information including changes in the costs of raw materials and labor, the financial performance of the reporting units, the Company’s market capitalization, and other entity and reporting-unit specific events.

Evaluation of uncertain tax positions related to Australian Tax Office audits

As discussed in Note 14 to the consolidated financial statements, the Company’s tax filings in Australia for the years 2009 through 2017 are under audit by the Australian Tax Office (ATO).

The Company has been assessed $266 million of additional income tax, penalties, and interest for tax years 2009 through 2013 in connection with this tax audit.

Certain of these amounts have been paid by the Company to the ATO.

However, the Company has not recorded any expense relating to the ongoing audit, or these assessments, as the Company believes it is more likely than not (more than a 50% likelihood) that its tax positions will be upheld.

We identified the evaluation of uncertain tax positions related to Australian Tax Office audits as a critical audit matter.

This critical audit matter required challenging auditor judgment due to the nature and the subjectivity of the applicable tax rules and regulations.

in advanced discussions with the ATO to settle the dispute for the entire Audit Period and has recorded $395.3 million of gross unrecognized tax benefits, adjusted for tax credits and deductions of $146.6 million.

We identified the evaluation of the uncertain tax position and related tax credits and deductions related to the ATO audits as a critical audit matter.

This critical audit matter required challenging auditor judgment due to the nature and the complexity of the applicable tax laws and regulations and involved tax professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls over the Australian tax calculation and assessment of uncertain tax positions.

We involved tax professionals with specialized skills and knowledge of Australian tax laws, who assisted in:

 Reading formal notices and assessments, and other correspondence received by the Company from the ATO in connection with the audit, as well as responses and information the Company submitted to the ATO in response to its requests for information;

 Evaluating the Company’s analysis and conclusions regarding its assertion, which included an assessment of the Company’s analysis of Australian tax laws and regulations related to the specific audit findings, and an evaluation of the facts, assumptions, and representations made;

 Reading legal opinions obtained by the Company from third parties, and inquiring of third-party legal counsel about the likelihood of the Company’s tax position being ultimately upheld.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the uncertain tax position related to the ATO audits, including the gross unrecognized tax benefits and related tax credits and deductions.

We involved tax professionals with specialized skills and knowledge, who assisted in:

 reading notices, assessments, and other correspondence between the Company and the ATO in connection with the Audit Period

 evaluating the Company’s analysis of the applicable tax laws with the facts, assumptions, and representations made by the Company

 recalculating the Company’s determination of the gross unrecognized tax benefits and the related tax credits and deductions

 inquiring of third-party legal and tax advisors about the Company’s determination to adjust the gross unrecognized tax benefit related to the ATO audits for certain tax credits and deductions.

We have served as the Company’s auditor since 1994.

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Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 28,508 and $ 25,171

Accounts receivable, net of allowances of $ 32,138 and $ 28,508

‎ at June 30, 2021 and June 30, 2020, respectively

Inventories (note 4)

Prepaid taxes

Prepaid expenses and other current assets

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Cost of sales - Software as a Service

Cost of sales

Cost of sales (exclusive of amortization shown separately below)

Amortization of acquired intangible assets - Sleep and Respiratory Care products

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Income before income taxes

Income taxes (note 14)

Basic earnings per share (note 12)

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(In US$ thousands)

Years Ended June 30,

Other comprehensive (loss) income:

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Other comprehensive income (loss)

Cumulative effect of change in accounting standards

Dividends declared

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Common stock issued on employee stock purchase plan (note 11)

Treasury stock purchases

Stock-based compensation costs

Other comprehensive income (loss)

Cumulative effect of change in accounting standards

Dividends declared

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Common stock issued on employee stock purchase plan (note 11)

Treasury stock purchases

Stock-based compensation costs

Other comprehensive income (loss)

Cumulative effect adjustment from adoption of the credit loss standard, net of tax

Dividends declared

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Amortization of right-of-use assets

Stock-based compensation costs

Stock-based compensation costs (note 11)

Loss attributable to equity method investments (note 6)

Impairment of equity investments (note 6)

Gain on previously held equity interest (note 18)

(Gain) loss on equity investments (note 6)

Restructuring expenses (note 19)

Gain on previously held equity interest

Changes in fair value of business combination contingent consideration

Changes in operating assets and liabilities, net of effect of acquisitions:

Changes in operating assets and liabilities:

Accounts receivable

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Purchases of investments (note 6)

Payments on maturity of foreign currency contracts

Proceeds on maturity of foreign currency contracts

Net cash used in investing activities

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( 1,284,012 )

( 1,146,242 )

Dividends paid

Net cash provided by (used in) financing activities

( 1,026,694 )

Net cash used in financing activities

Effect of exchange rate changes on cash

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The preparation of financial statements in conformity with U.S.

generally accounting principles requires management estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.

generally accepted accounting principles requires management estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.

Actual results could differ from management’s estimates.

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See note 15 – Segment Information for our net revenue disaggregated by segment, product and region for the years ended June 30, 2021, 2020 and 2019.

Effective in the fourth quarter of the fiscal year ended June 30, 2020, our consolidated statements of income separately present the revenues and related costs of the Sleep and Respiratory Care and SaaS segments.

Net revenues and cost of sales were previously presented on an aggregate basis.

This change separately states net sales of products and revenues from services, which materially aligns with net revenues associated with our Sleep and Respiratory Care and SaaS segments, respectively.

While this change has been applied retrospectively to the consolidated statements of income for the years ended June 30, 2019 and 2018, there was no impact on net revenue, cost of sales, income from operations, income before taxes or net income as a result of this change.

Performance obligations and contract balances

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Foreign currency hedging instruments are marked to market and therefore reflect their fair value.

In addition, we measure investments in publicly held equity securities and privately held equity securities for which there has been an observable price change in an identical or similar security, at fair value.

We do not hold or issue financial instruments for trading purposes.

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We compute depreciation expense using the straight-line method over the estimated useful lives of the assets.

Useful lives are generally two years to ten years except for buildings which are depreciated over an estimated useful life of 40 years and leasehold improvements, which we amortize over the lease term.

We charge maintenance and repairs to expense as we incur them.

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Notes to the Consolidated Financial Statements

We conducted our annual review for goodwill impairment during the final quarter of 2020.

We conduct our annual review for goodwill impairment during the final quarter of the fiscal year.

Our goodwill impairment review is performed at our reporting unit level, which is one level below our operating segments and involves the following steps:

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If a reporting unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary.

During the annual review, we completed a Step 0 or Qualitative assessment and determined it was more likely than not that the fair value of our reporting units exceeded their carrying amounts, including goodwill and, therefore, goodwill was no t impaired.

During the annual reviews for the years ended June 30, 2021, 2020 and 2019, we completed a Step 0 or Qualitative assessment and determined it was more likely than not that the fair value of our reporting units exceeded their carrying amounts, including goodwill, and therefore goodwill was no t impaired.

(j) Equity investments

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

The following discusses our accounting for investments in marketable equity securities, non-marketable equity securities, and investments accounted for under the equity method.

Our marketable equity securities are publicly traded stocks measured at fair value and classified within Level 1 in the fair value hierarchy because we use quoted prices for identical assets in active markets.

Marketable equity securities are recorded in prepaid expenses and other current assets on the consolidated balance sheets.

Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values and are recorded in prepaid taxes and other non-current assets on the consolidated balance sheets.

Non-marketable equity securities are reported at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

We assess non-marketable equity securities at least quarterly for impairment and consider qualitative and quantitative factors including the investee's financial metrics, product and commercial outlook and cash usage .

All gains and losses on marketable and non-marketable equity securities, realized and unrealized, are recognized in other, net on the consolidated statements of operations.

Equity investments whereby we have significant influence but not control over the investee, and are not the primary beneficiary of the investee’s activities, are accounted for under the equity method.

Under this method, we record our share of gains or losses attributable to equity method investments.

Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values, and are reported at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

We estimate the fair value of our equity investments using Level 3 inputs to assess whether impairment losses shall be recorded.

Under this method, we record our share of gains or losses attributable to equity method investments as a component of other, net on the consolidated statements of operations.

(k) Research and Development

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We reflect gains and losses on transactions denominated in other than the functional currency of an entity in our results of operations.

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Notes to the Consolidated Financial Statements

(m) Foreign Exchange Risk Management

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Under this program, increases or decreases in our foreign currency denominated financial assets, liabilities, and firm commitments are partially offset by gains and losses on the hedging instruments.

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Notes to the Consolidated Financial Statements

We do not designate these foreign currency contracts as hedges.

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Should actual product failure rates or estimated costs to repair those product failures differ from our estimates, we would be required to revise our estimated warranty provision.

(p) Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments, which results in bad debt expense.

We determine the adequacy of this allowance by periodically evaluating individual customer receivables, considering a customer’s financial condition, credit history and current economic conditions.

(p) Allowance for Credit Losses

We maintain an allowance for credit losses on customer receivables based on our historical write-off experience, an assessment of our customers’ financial conditions and available information that is relevant to assessing the collectability of cash flows, which includes current conditions and forecasts about future economic conditions.

Customer receivables are charged against the allowance when they are deemed uncollectible.

Refer to Note 3(b) below for information regarding our adoption of the credit loss standard effective July 1, 2020 .

We are also contingently liable, within certain limits, in the event of a customer default, to independent financing companies in connection with customer financing programs.

We monitor the collection status of these installment receivables and provide for estimated losses separately under accrued expenses within our consolidated balance sheets based upon our historical collection experience with such receivables and a current assessment of our credit exposure.

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Notes to the Consolidated Financial Statements

(q) Impairment of Long-Lived Assets

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We did not recognize impairment charges in relation to long-lived assets during the fiscal years ended June 30, 2021, 2020 and 2019.

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Notes to the Consolidated Financial Statements

(r) Contingencies

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(a) Recently issued accounting standards not yet adopted

2020-04 “Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

In March 2020, the FASB issued ASU No.

2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848), which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The guidance is effective for us as of March 12, 2020 through December 31, 2022.

We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

The ASU is currently not expected to have a material impact on our consolidated financial statements.

(b) Recently adopted accounting pronouncements

2016-13 “Financial Instruments - Credit Losses:

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Measurement of Credit Losses on Financial Instruments” (Topic 326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The guidance is effective for us beginning in the first quarter of the fiscal year ending June 30, 2021 and will be adopted using a modified retrospective approach, with a cumulative-effect adjustment recorded directly to retained earnings.

We do not expect the adoption to have a material impact on our consolidated financial statements.

The guidance was adopted effective July 1, 2020 using the modified retrospective approach.

We recognized the cumulative effect of adopting this guidance as an adjustment to the opening balance of retained earnings of $1.1 million, net of tax, related to our allowance for credit losses for accounts receivable.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

2018-15 “Intangibles-Goodwill and Other-Internal-Use Software:

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Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The guidance is effective for us beginning in the first quarter of the fiscal year ending June 30, 2021 and will be applied prospectively.

Under the new ASU, capitalized implementation costs will be presented as other non-current assets on our consolidated balance sheets and within operating cash flows on our consolidated statements of cash flows.

The adoption of this ASU is not expected to have a material effect on our consolidated financial statements.

2020-04 “Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

In March 2020, the FASB issued ASU No.

2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848), which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The guidance is effective for us as of March 12, 2020 through December 31, 2022.

We are currently evaluating the impact that this guidance, if elected, will have on our consolidated financial statements.

(b) Recently adopted accounting pronouncements

2016-02, “Leases”

In February 2016, the FASB issued ASU No.

2016-02, “Leases” (Topic 842).

Under the new guidance, lessees are required to recognize a right-of-use asset (“ROU”) and a lease liability on the balance sheet for all leases, other than those that meet the definition of a short-term lease.

This update establishes a lease asset and lease liability by lessees for those leases classified as operating under prior GAAP.

Leases are classified as either operating or finance under the new guidance.

Operating leases result in straight-line expense in the income statement, similar to prior operating lease treatment, and finance leases result in more expense being recognized in the earlier years of the lease term, similar to prior capital lease treatment.

For lessors, the update more closely aligns lease accounting to comparable guidance in the new revenue standards described.

Effective, July 1, 2019, we adopted the new standard on a modified retrospective transition basis for leases existing at, or entered into after, the date of adoption.

In addition, we elected the package of practical expedients permitted under the transition guidance to not reassess (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases.

In preparation for and upon adoption of this guidance, we have designed and operated internal controls over its implementation, which includes a system solution for lease administration, accounting and disclosures of financial information surrounding our leasing arrangements.

The guidance was adopted effective July 1, 2020 and applied prospectively.

Under the new ASU, capitalized implementation costs are presented as other non-current assets on our consolidated balance sheets and within operating cash flows on our consolidated statements of cash flows.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

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Notes to the Consolidated Financial Statements

The adoption of the guidance on July 1, 2019 resulted in the recognition of ROU assets of $ 77.6 million and lease liabilities of $ 81.3 million, which all related to operating leases.

The ROU assets were lower than the lease liabilities due to the de-recognition of deferred rent balances of $ 3.7 million.

We did not recognize any adjustment to the comparative period presented in the financial statements in accordance with our adoption method.

The guidance did not have a material impact on our consolidated statements of income.

See note 10 - Leases for further disclosures related to our leases under the new guidance.

2017-04 “Intangibles-Goodwill and Other:

Simplifying the Test for Goodwill Impairment”

In January 2017, the FASB issued ASU No.

2017-04, “Intangibles-Goodwill and Other:

Simplifying the Test for Goodwill Impairment” (Topic 350).

ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.

Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed.

We adopted this guidance in the fourth quarter of fiscal year June 30, 2020.

The adoption did not have a material impact on our consolidated financial statements.

As noted at note 2b) – Disaggregation of revenue, we now present revenue and cost of sales for our Sleep and Respiratory Care and SaaS segments on the consolidated statements of income.

Additionally, within our consolidated statements of income for the years ended June 30, 2020, 2019 and 2018, cost of sales has been adjusted to include amortization of acquired intangible assets directly applicable to revenue.

As a result, gross profit now includes amortization of acquired intangible assets relating to cost of sales and operating expenses have been reduced by this amount.

There was no impact on income from operations, income before taxes or net income, as a result of this reclassification.

The adjustments to the previously reported amounts are not material.

The table below presents a reconciliation of amortization of acquired intangible assets by income statement caption summing to total amortization of acquired intangible assets as previously reported for the years ended June 30, 2019 and June 30, 2018 (in thousands):

Amortization of acquired intangible assets related to cost of sales

Amortization of acquired intangible assets related to operating expenses

Total as previously reported

The table below presents a reconciliation of gross profit as previously reported for the years ended June 30, 2019 and June 30, 2018 adjusted for the amortization of acquired intangible assets now included in cost of sales (in thousands):

Gross profit as previously reported

Amortization of acquired intangible assets related to cost of sales

(4) Supplemental Balance Sheet Information

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Property, plant and equipment, net

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Notes to the Consolidated Financial Statements

(5) Goodwill and Other Intangible Assets, net

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Business acquisitions

Adjustment to fair values of preliminary purchase price allocations

Foreign currency translation adjustments

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There are no expected residual values related to these intangible assets.

Refer to note 18 of the consolidated financial statements for details of acquisitions.

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Notes to the Consolidated Financial Statements

Amortization expense related to identified intangible assets for the years ended June 30, 2021 and June 30, 2020 was $ 76.2 million and $ 79.7 million, respectively.

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Estimated amortization expense

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Notes to the Consolidated Financial Statements

(6) Investments

We have a number of equity investments in privately held companies that are unconsolidated entities and are recorded in the non-current balance of other assets on the consolidated balance sheets.

The following table shows a reconciliation of the changes in all of our investments during the years ended June 30, 2020 and June 30, 2019 (in thousands):

Equity investments by measurement category as of June 30, 2021 and June 30, 2020 were as follows (in thousands):

Measurement category

Measurement alternative

Equity method

The following table shows a reconciliation of the changes in our equity investments for the year ended June 30, 2021 (in thousands):

Non-marketable securities

Marketable securities

Equity method investments

Balance at the beginning of the period

Observable price adjustments on non-marketable equity securities

Ongoing mark-to-market adjustments on marketable equity securities

Reclassifications (1)

Loss attributable to equity method investments

Carrying value of equity method investments

Carrying value at the end of the period

(1) During the year ended June 30, 2021, 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.

The following table shows a reconciliation of the changes in our equity investments for the year ended June 30, 2020 (in thousands):

Non-marketable securities

Marketable securities

Equity method investments

Balance at the beginning of the period

Impairment of investments

Acquisition of controlling interest in previously held investment

Carrying value of non-marketable securities

Total investments in unconsolidated entities

Loss attributable to equity method investments

Carrying value at the end of the period

Net unrealized gains and losses recognized in the years ended June 30, 2021, 2020 and 2019 for equity investments in non-marketable and marketable securities still held as of those respective dates were a gain of $14.5 million, a loss of $14.5 million, and a loss of $15.0 million, respectively.

(7) Accrued Expenses

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Employee related costs

Hedging instruments

Liability on receivables sold with recourse (note 17)

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Inventory in transit

Business acquisition contingent consideration

Litigation settlement expenses (note 20)

Restructuring expenses (note 19)

Total accrued expenses

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Notes to the Consolidated Financial Statements

(8) Product Warranties

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Balance at the end of the period

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Notes to the Consolidated Financial Statements

Debt at June 30, 2021 and June 30, 2020 consists of the following (in thousands):

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Events of default under the Revolving Credit Agreement and the Term Credit Agreement include, in each case, failure to make payments when due, the occurrence of a default in the performance of any covenants in the respective agreements or related documents, or certain changes of control of us, or the respective guarantors of the obligations borrowed under the Revolving Credit Agreement and Term Credit Agreement.

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Notes to the Consolidated Financial Statements

The Revolving Credit Agreement and Term Credit Agreement each terminate on April 17, 2023, when all unpaid principal and interest under the loans must be repaid.

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

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Notes to the Consolidated Financial Statements

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 (collectively referred to as the “Senior Notes”).

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Under the terms of the Note Purchase Agreement, we agreed to customary covenants including with respect to our corporate existence, transactions with affiliates, and mergers and other extraordinary transactions.

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.

We also agreed that, subject to limited exceptions, we will maintain a ratio of consolidated funded debt to consolidated EBITDA (as defined in the Note Purchase Agreement) 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.

This ratio is calculated at the end of each reporting period for which the Note Purchase Agreement requires us to deliver financial statements, using the results of the 12 consecutive month period ending with such reporting period.

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.

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ROU assets also include any lease payments made at or before lease commencement and any initial direct costs incurred, and exclude any lease incentives received.

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Notes to the Consolidated Financial Statements

We determine the lease term as the non-cancellable period of the lease, and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

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We lease certain office space, warehouses and distribution centers, manufacturing facilities, vehicles, and equipment with remaining lease terms ranging from less than 1 year to 15 years, some of which include options to extend or terminate the leases.

Operating lease costs for the year ended June 30, 2020 were $ 26.5 million.

Short-term and variable lease costs were not material for the year ended June 30, 2020.

Future minimum lease payments under non-cancellable leases as of June 30, 2020 and for the periods ending June 30 of the years indicated below were as follows (in thousands):

Operating lease costs were $ 35.5 million for the year ended June 30, 2021 and $ 26.5 million for the year ended June 30, 2020.

Short-term and variable lease costs were not material for the years ended June 30, 2021 and June 30, 2020.

Future lease payments under non-cancellable leases as of June 30, 2021 and for the periods ending June 30 of the years indicated below were as follows (in thousands):

Minimum lease payments

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Total lease liabilities

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Notes to the Consolidated Financial Statements

As of June 30, 2021, we had additional operating lease commitments of $ 0.6 million for office space that have not yet commenced.

These leases will commence during the year ended June 30, 2022 with lease terms of 2 years to 3 years.

The supplemental information related to operating leases for the year ended June 30, 2020 was as follows (in thousands):

The supplemental information related to operating leases for the years ended June 30, 2021 and June 30, 2020 was as follows (in thousands):

Weighted-average inputs:

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Right of use assets obtained in exchange for new lease liabilities:

Disclosures related to periods prior to adopting the new lease guidance

We lease certain facilities and equipment under operating leases expiring at various dates and most contain renewal options.

Total expense for all operating leases was $ 23.4 million, $ 21.1 million, and $ 20.1 million for the years ended June 30, 2019, 2018, and 2017, respectively.

Future minimum lease payments (including interest) under non-cancellable operating leases at June 30, 2019 were as follows (in thousands):

Remaining operating lease payments

(b) Leases where ResMed is the Lessor

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When lease contracts also include the sale of masks and accessories, we allocate contract consideration to those items on a relative standalone price basis and recognize revenue when control transfers to the customer.

The components of lease revenue for the year ended June 30, 2020 were as follows (in thousands):

The components of lease revenue for the years ended June 30, 2021 and June 30, 2020 were as follows (in thousands):

Sales-type lease revenue

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Total lease revenue

Our net investment in sales-type leases were classified in the accompanying consolidated balance sheets captions as of June 30, 2020 as follows (in thousands):

Our net investment in sales-type leases were classified in the consolidated balance sheets as of June 30, 2021 and June 30, 2020 as follows (in thousands):

Accounts receivable, net

Prepaid taxes and other non-current assets

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Maturities of sales-type leases as of June 30, 2021 were as follows (in thousands):

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Present value of remaining lease payments

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(11) Stockholders’ Equity

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All share repurchases since February 21, 2014 have been executed in accordance with this program.

We have temporarily suspended our repurchase program and, accordingly, did not repurchase any shares during fiscal year 2020.

During fiscal year 2019, we repurchased 200,000 shares at a cost of $ 22.8 million shares under our share repurchase program.

We have temporarily suspended our repurchase program and, accordingly, did not repurchase any shares during fiscal years 2021 or 2020.

As of June 30, 2021, we have repurchased a total of 41.8 million shares at a cost of $ 1.6 billion .

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Shares withheld by us as a result of the net settlement are not considered issued and outstanding and are added to the reserves of the 2009 Plan.

The total fair value of RSUs and PRSUs that vested during the years ended June 30, 2020, 2019 and 2018, was $ 56.8 million, $ 52.3 million and $ 34.6 million, respectively.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The total fair value of RSUs and PRSUs that vested during the years ended June 30, 2021, 2020 and 2019, was $ 59.6 million, $ 56.8 million and $ 52.3 million, respectively.

The following table summarizes the activity of RSUs, including PRSUs, during year ended June 30, 2021 (in thousands, except years and per share amounts) :

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We recognize the fair value as compensation expense using the straight-line method over the service period for awards expected to vest.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

We estimate the fair value of stock options granted under our stock option plans and purchase rights granted under the ESPP using the assumptions in the following tables.

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Expected volatility is estimated based upon the historical volatility of ResMed stock.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

We estimate the fair value of stock options granted under our stock option plans and purchase rights granted under the ESPP using the

6 unchanged sentences

1.34 % - 1.46 %

1.46 % - 1.65 %

Expected volatility

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The following table summarizes the total stock-based compensation costs incurred and the associated tax benefit recognized during the years ended June 30, 2021, 2020 and 2019 (in thousands):

Cost of sales - capitalized as part of inventory

Cost of sales

Selling, general and administrative expenses

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Diluted earnings per share

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(13) Other, net

1 unchanged sentence

Gain (loss) on foreign currency transactions and hedging, net

Impairment of equity investments (note 6)

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Unrealized gains (losses) on investments (note 6)

Total Other, net

(14) Income Taxes

Income before income taxes for the years ended June 30, 2021, 2020 and 2019, was taxed under the following jurisdictions (in thousands):

Income before income taxes

The provision for income taxes is presented below (in thousands):

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The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S.

federal income tax rate of 21 % for the years ended June 30, 2020 and June 30, 2019 and 28 % for the year ended June 30, 2018, to pretax income as a result of the following (in thousands):

federal income tax rate of 21 % for the years ended June 30, 2021, 2020 and 2019, to pretax income as a result of the following (in thousands):

Taxes computed at statutory U.S.

Increase (decrease) in income taxes resulting from:

Transition tax

State income taxes, net of U.S.

Research and development credit

Change in statutory tax rates

Change in valuation allowance

2 unchanged sentences

Stock-based compensation expense

(1) In fiscal year 2018, $ 75.5 million of the foreign tax credit is included as a reduction in the transition tax.

Uncertain tax position

Transition tax

Provision for income taxes

We reported net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2021 and June 30, 2020, as follows (in thousands):

Non-current deferred tax asset

Non-current deferred tax liability

Net deferred tax asset

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The components of our deferred tax assets and liabilities at June 30, 2021 and June 30, 2020, are as follows (in thousands):

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Capital loss carryover

Property, plant and equipment

Stock-based compensation expense

1 unchanged sentence

Research and development capitalization

Lease liabilities

Less valuation allowance

2 unchanged sentences

Goodwill and other intangibles

Right of use assets

Deferred tax liabilities

Net deferred tax asset

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

We reported the net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2020 and June 30, 2019, as follows (in thousands):

Non-current deferred tax asset

Non-current deferred tax liability

Net deferred tax asset

As of June 30, 2021, we had $ 25.1 million of U.S.

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We believe that it is more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized.

A substantial portion of our manufacturing operations and administrative functions in Singapore operate under various tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030.

A substantial portion of our manufacturing operations and administrative functions in Singapore operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030.

The end of certain tax holidays may be extended if specific conditions are met.

The net impact of these tax holidays and tax incentive programs increased our net earnings by $ 43.8 million ($ 0.30 per diluted share) for the year ended June 30, 2020 and $ 20.3 million ($ 0.14 per diluted share) for the year ended June 30, 2019.

As a result of the U.S.

The net impact of these tax holidays and tax incentive programs increased our net income by $ 33.6 million ($ 0.23 per diluted share) for the year ended June 30, 2021, $ 43.8 million ($ 0.30 per diluted share) for the year ended June 30, 2020, and $ 20.3 million ($ 0.14 per diluted share) for the year ended June 30, 2019.

As a result of the Tax Cuts and Jobs Act of 2017 (the ”U.S.

Tax Act”), we have treated all non-U.S.

historical earnings as taxable, which resulted in additional tax expense of $ 126.9 million during the year ended June 30, 2018 and $ 6.0 million during the year ended June 30, 2019, which was payable over eight years .

historical earnings as taxable, which resulted in additional tax expense of $ 6.0 million during the year ended June 30, 2019, which related to final treasury regulations issued and temporary guidance published during the year and is payable over eight years .

Therefore, future repatriation of cash held by our non-U.S.

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As a result, in the event our non-U.S.

earnings had not been permanently reinvested, deferred taxes of approximately $ 194.4 million in U.S.

federal deferred tax and $ 5.2 million in U.S.

earnings had not been permanently reinvested, approximately $ 202.6 million in U.S.

federal deferred taxes and $ 5.1 million in U.S.

state deferred taxes would have been recognized in the consolidated financial statements.

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The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for annual periods.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income.

We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income.

Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.

Based on all known facts and circumstances and current tax law, we believe the total amount of unrecognized tax benefits on June 30, 2020, is not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate.

Our income tax returns are based on calculations and assumptions subject to audit by various tax authorities.

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Any final assessment resulting from tax audits may result in material changes to our past or future taxable income, tax payable or deferred tax assets, and may require us to pay penalties and interest that could materially adversely affect our financial results .

In connection with the audit by the Australian Taxation Office (“ATO”) for the tax years 2009 to 2013 , we received Notices of Amended Assessments in March 2018.

Based on these assessments, the ATO asserted that we owe $ 151.7 million in additional income tax and $ 38.4 million in accrued interest, of which $ 75.9 million was paid in April 2018 under a payment arrangement with the ATO.

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

The ATO is currently auditing tax years 2014 to 2018.

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

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Our income tax expense, short-term income taxes payable and long-term income taxes payable were impacted by charges associated with the U.S.

Tax Act enacted on December 22, 2017, which resulted in additional income tax expense of $ 138.0 million during the year ended June 30, 2018.

Specifically, the income tax expense includes the transition tax imposed on our accumulated foreign earnings, which resulted in additional income tax expense of $ 126.9 million for the year ended June 30, 2018.

Additionally, it resulted in the write down in the carrying value of our net deferred tax assets due to the lower corporate tax rate and the reduction in the future value of deferred tax assets, which resulted in additional income tax expense of $ 11.1 million recorded in the year ended June 30, 2018.

During the year ended June 30, 2019, we recorded additional tax expense of $ 6.0 million in transition tax imposed on our accumulated foreign earnings, which related to final treasury regulations issued and temporary guidance published during the year.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No.

118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S.

Tax Act as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law.

Effective December 31, 2018, the accounting relating to the impact of U.S.

legislation was no longer considered provisional.

During the year ended June 30, 2018, we recorded additional tax expense of $ 138.0 million relating to changes in U.S.

tax legislation.

During the year ended June 30, 2019, we recorded additional tax expense of $ 6.0 million in additional transition tax, which related to final treasury regulations issued and temporary guidance published during the year.

However, further adjustments could be required as a result of future legislation, amended tax returns, or tax examinations of the years impacted by the calculation.

We are under audit by the Australian Taxation Office (the “ATO”) for the years 2009 to 2018 (the “Audit Period”).

The audits primarily involve a transfer pricing dispute in which the ATO asserts we should have paid additional Australian taxes on income derived from our Singapore operations.

The ATO issued Notices of Amended Assessments for the tax years 2009 to 2013 seeking a total of $ 266.0 million, consisting of $ 151.7 million in additional income tax and $ 114.3 million in penalties and interest.

The 2014 to 2018 periods are still under audit and we have not yet received any Notices of Amended Assessments relative to those periods.

A total of $ 98.8 million in tax has been prepaid in relation to the Audit Period, which is consistent with ATO procedural audit practice.

We are engaged in advanced discussions with the ATO to settle the dispute for the entire Audit Period.

Given the stage of those discussions, during the year ended June 30, 2021, we recorded $ 395.3 million of gross unrecognized tax benefits, including $ 47.5 million of accrued interest and penalties.

This amount reflects our estimate of the potential tax liability and is subject to change.

Included in the balance of uncertain tax positions as of June 30, 2021 were $ 248.7 million of net unrecognized tax benefits that, if recognized, would reduce the effective income tax rate in future periods.

This amount represents the $ 395.3 million of gross unrecognized tax, adjusted for tax credits and deductions of $ 146.6 million.

If the matter were to progress to litigation, we continue to believe we are more likely than not to be successful in defending our position.

If we are not successful in litigation, we will be required to pay some or all of the additional income tax, accrued interest and penalties, including potential additional amounts relating to the 2014 to 2018 periods.

The timing and resolution of the ATO audits are inherently uncertain, and the amounts we might ultimately pay or receive in credits and deductions, if any, upon resolution of issues raised by the ATO may differ materially from the amounts accrued.

Although it is expected that the amount of unrecognized tax benefits may change in the next 12 months, an estimate of the range of the possible change cannot be made.

Outside the ATO audit described above, tax years 2017 to 2020 remain subject to future examination by the major tax jurisdictions in which we are subject to tax.

(15) Segment Information

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Certain items are maintained at the corporate level and are not allocated to the segments.

The non-allocated items include corporate headquarters costs, stock-based compensation, amortization expense from acquired intangibles, acquisition related expenses, net interest expense and other, net.

The non-allocated items include corporate headquarters costs including stock-based compensation, amortization expense of acquired intangibles, restructuring expenses, litigation settlement expenses, acquisition related expenses, deferred revenue fair value adjustment, net interest expense, loss attributable to equity method investments, and other, net.

We neither discretely allocate assets to our operating segments, nor does our Chief Operating Decision Maker evaluate the operating segments using discrete asset information.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The table below presents a reconciliation of net revenues, depreciation and amortization and net operating profit by reportable segments for the years ended June 30, 2021, 2020 and 2019 (in thousands):

Revenue by segment

Net revenue by segment

Total Sleep and Respiratory Care

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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

4 unchanged sentences

Amortization of acquired intangible assets

Litigation settlement expenses

Restructuring expenses

Litigation settlement expenses

Acquisition related expenses

4 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.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

The following table summarizes our net revenue disaggregated by segment, product and region for the years ended June 30, 2021, 2020 and 2019 (in thousands):

13 unchanged sentences

Rest of the World

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Long-lived assets of geographic areas are those assets used in our operations in each geographical area, and excludes goodwill, other intangible assets, and deferred tax assets.

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Our total contributions to the plan were $ 2.5 million, $ 2.9 million and $ 2.6 million in fiscal 2021, 2020 and 2019, respectively.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(17) Legal Actions, Contingencies and Commitments

2 unchanged sentences

Taxation Matters

As described in note 14 – Income Taxes, we received Notices of Amended Assessments from the ATO for the tax years 2009 to 2013.

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

The ATO is currently auditing tax years 2014 to 2018.

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

We are under audit by the ATO in three different cycles:

tax years 2009 to 2013, tax years 2014 to 2017 and tax year 2018.

Please refer to note 14 – Income Taxes, where we have provided an update in relation to this tax dispute in accordance with ASC 740 Income Taxes .

Contingent Obligations Under Recourse Provisions

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Under these arrangements, if the customer qualifies under the financing institutions’ credit criteria and finances the transaction, the customers repay the financing institution on a fixed payment plan.

For some of these arrangements, the customer’s receivable balance is with recourse, either limited or full, whereby we are responsible for repaying the financing company should the customer default.

For some of these arrangements, the customer’s receivable balance is with limited recourse whereby we are responsible for repaying the financing company should the customer default.

We record a contingent provision, which is estimated based on historical default rates.

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

The following table summarizes the amount of total receivables sold with recourse during the years ended June 30, 2020 and June 30, 2019 (in thousands):

Full recourse

Limited recourse

The following table summarizes the maximum exposure on outstanding receivables sold with recourse and provision for doubtful accounts as at June 30, 2020 and June 30, 2019 (in thousands):

Full recourse

Limited recourse

Contingent provision for receivables with recourse

During the year ended June 30, 2021 and 2020, receivables sold with limited recourse were $ 153.0 million and $ 154.5 million, respectively.

As of June 30, 2021, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 30.2 million and $ 8.2 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.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

In the normal course of business, we enter into agreements to purchase goods or services that are not cancelable without penalty, primarily related to supply arrangements.

2 unchanged sentences

Minimum purchase obligations

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(18) Business Combinations

Fiscal year ended June 30, 2020

On January 31, 2020, we completed the acquisition of 100 % of the membership interests in SnapWorx, LLC (“SnapWorx”), a software company providing patient contact management and workflow optimization for the sleep apnea resupply market.

This acquisition has been accounted for as a business combination using purchase accounting and the results of SnapWorx are included in our consolidated financial statements from the acquisition date.

This acquisition is not considered a material business combination and accordingly pro forma information is not provided.

The acquisition was funded by drawing on our existing revolving credit facility and through cash on-hand.

We completed our purchase price allocation during the quarter ending June 30, 2020, which was not materially different from the preliminary purchase price allocation.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition.

The goodwill recognized as part of the acquisition is reflected in the Software as a Service segment and is deductible for tax purposes.

It mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.

During the year ended June 30, 2020 we did no t record any material acquisition-related expenses.

Fiscal years ended June 30, 2021 and June 30, 2020

During the years ended June 30, 2021 and 2020 we did no t complete any material business combinations or record material acquisition-related expenses.

Fiscal year ended June 30, 2019

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The acquisition was paid for using borrowings under our revolving credit facility.

We completed the purchase price allocation in relation to this acquisition during the quarter ended December 31, 2019.

The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition.

The goodwill recognized as part of the acquisition is reflected in the Software as a Service segment and is not deductible for tax purposes.

It mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.

The fair values of assets acquired and liabilities assumed, and the estimated useful lives of intangible assets acquired are as follows (in thousands):

Preliminary as of

‎ June 30, 2019

‎ useful life

Current assets

Property, plant and equipment

Developed technology

Customer relationships

Assets acquired

Current liabilities

Deferred revenue

Deferred tax liabilities

Total liabilities assumed

Net assets acquired

A reconciliation of the base consideration to the net consideration is as follows (in thousands):

Base consideration

Cash acquired

Net working capital and other adjustments

Net consideration

During the year ended June 30, 2019, revenues of $ 79.2 million and losses from operations of $ 9.1 million related to MatrixCare were included in the consolidated statement of comprehensive income.

The losses from operations for the year ended June 30, 2019 was negatively impacted by $ 19.0 million of amortization of acquired intangible assets and fair value purchase price adjustments relating to

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

deferred revenue of $ 5.3 million.

Excluding the impact of these items, revenue for the year ended June 30, 2019 was $ 84.6 million and income from operations was $ 15.3 million.

The acquisition is considered a material business combination and accordingly unaudited pro forma information presented below for the year ended June 30, 2019, includes the effects of pro forma adjustments as if the acquisition of MatrixCare occurred on July 1, 2017.

The pro forma results were prepared using the acquisition method of accounting and combine our historical results and MatrixCare’s for the years ended June 30, 2019 and June 30, 2018, including the effects of the business combination, primarily amortization expense related to the fair value of identifiable intangible assets acquired, interest expense associated with the financing obtained by us in connection with the acquisition, and the elimination of incurred acquisition-related costs.

The acquisition is considered a material business combination and accordingly unaudited pro forma information is presented below for the year ended June 30, 2019.

The pro forma results were prepared using the acquisition method of accounting and combine our historical results and MatrixCare’s for the year ended June 30, 2019, including the effects of the business combination, primarily amortization expense related to the fair value of identifiable intangible assets acquired, interest expense associated with the financing obtained by us in connection with the acquisition, and the elimination of incurred acquisition-related costs.

The pro forma financial information presented below is not necessarily indicative of the results of operations that would have been achieved if the acquisition occurred at the beginning of the earliest period presented, nor is it intended to be a projection of future results.

The following table summarized unaudited pro forma consolidated results for the years ended June 30, 2019 and 2018 (in thousands, except per share information):

The following table summarized unaudited pro forma consolidated results for the year ended June 30, 2019 (in thousands, except per share information):

Basic earnings per share

Diluted earnings per share

The unaudited pro forma consolidated results for the years ended June 30, 2019 and June 30, 2018 reflect primarily the following pro forma pre-tax adjustments:

 Net amortization expense related to the fair value of identifiable intangible assets acquired of $ 0.6 million and $ 8.3 million for the years ended June 30, 2019 and June 30, 2018, respectively.

 Net interest expense associated with debt that was issued to finance the acquisition of $ 2.6 million and $ 12.7 million for the years ended June 30, 2019 and June 30, 2018, respectively.

 Elimination of pre-tax acquisition-related costs incurred by ResMed and MatrixCare of $ 3.7 million and $ 16.7 million, respectively, for the year ended June 30, 2019.

 Net income tax expense of $ 1.8 million and $ 3.2 million for the years ended June 30, 2019 and June 30, 2018, respectively.

Other acquisitions

During the year ended June 30, 2019, we also completed the following acquisitions:

 On July 6, 2018, we completed the acquisition of 100 % of the shares in HEALTHCAREfirst Holding Company (“HEALTHCAREfirst”), a provider of software solutions and services for home health and hospice agencies, for a total purchase consideration of $ 126.3 million.

 On October 15, 2018, we completed the acquisition of 100 % of the shares in HB Healthcare, a homecare provider in South Korea.

 On December 11, 2018, we completed the acquisition of assets in Interactive Health Network, a provider of integrated clinical and financial management software solution for long-term care companies.

 On December 13, 2018, we completed the acquisition of assets in Apacheta, a provider of cloud-based SaaS software that manages the medical equipment delivery process for HME dealers.

 On January 6, 2019, we completed the acquisition of Propeller Health, a digital therapeutics company providing connected health solutions for people living with chronic obstructive pulmonary disease and asthma, for a total purchase consideration of $ 242.9 million, which adjusts for cash acquired and debt assumed at the time of acquisition.

We previously held a non-controlling interest in Propeller Health’s outstanding shares.

As a result of the acquisition, we recognized a fair value gain of $ 1.9 million in other income during the year ended June 30, 2019 associated with the previous equity investment.

These acquisitions have been accounted for as business combinations using purchase accounting and are included in our consolidated financial statements from the acquisition dates.

These acquisitions, individually and collectively, are not considered a material business combination and accordingly pro forma information is not provided.

The acquisitions were funded by drawing on our existing revolving credit facility and through cash on-hand.

The unaudited pro forma consolidated results for the year ended June 30, 2019 reflects primarily the following pro forma pre-tax adjustments:

 Net amortization expense related to the fair value of identifiable intangible assets acquired of $ 0.6 million.

 Net interest expense associated with debt that was issued to finance the acquisition of $ 2.6 million.

 Elimination of pre-tax acquisition-related costs incurred by ResMed and MatrixCare of $ 3.7 million and $ 16.7 million, respectively.

 Net income tax expense of $ 1.8 million.

AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

We have completed the purchase price allocation in relation to all of these acquisitions.

The cost of the share acquisitions was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition.

The goodwill recognized as part of these acquisitions, which is predominantly not deductible for tax purposes, mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.

Goodwill from these acquisitions has been reflected in the Software as a Service segment except for the goodwill resulting from the HB Healthcare and Propeller Health acquisitions, which have been recorded in the Sleep and Respiratory Care segment.

The fair values of assets acquired and liabilities assumed of acquisitions during the year ended June 30, 2019, excluding MatrixCare, and the estimated useful lives of intangible assets acquired are as follows (in thousands):

‎ useful life

Current assets

Property, plant and equipment

Deferred tax assets

Developed technology

Customer relationships

5 to 15 years

Assets acquired

Current liabilities

Deferred revenue

Deferred tax liabilities

Total liabilities assumed

Net assets acquired

During the year ended June 30, 2019, we recorded acquisition-related expenses of $ 6.1 million.

(19) Restructuring Expenses

During the year ended June 30, 2020, we did not incur material restructuring expenses.

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

During the year ended June 30, 2021, 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 year ended June 30, 2021, 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 consolidated statements of operations.

The restructure was completed as of June 30, 2021.

During the year ended June 30, 2020, we did no t incur material restructuring expenses.

During the year ended June 30, 2019, we incurred restructuring expenses of $ 9.4 million associated with the reorganization, rationalization and relocation of some of our research and development and SaaS operations including the closure of our German research and development site.

1 unchanged sentence

The restructuring expenses consisted primarily of severance payments to employees and contract exit costs associated with several impacted sites.

During the year ended June 30, 2018, we incurred restructuring expenses within the Sleep and Respiratory Care segment of $ 18.4 million associated with a global strategic workforce planning review, which resulted in a reduction in headcount across most of our functions and locations and closure of our Paris site.

We recorded the full amount of $ 18.4 million during the year ended June 30, 2018, within our operating expenses which was separately disclosed as restructuring expenses.

We had $ 1.5 million remaining in our employee related costs accrual at June 30, 2018, which was paid during the year ended June 30, 2019.

The restructuring expenses consisted primarily of severance payments to employees and the remaining expense relating to legal and consulting services associated with the completion of the employee severances and contract exit costs associated with the Paris site.

(20) Litigation Settlement Expenses

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Applied against asset account

Allowance for doubtful accounts

Allowance for trade accounts receivable (1)

Year ended June 30, 2020

Applied against asset account

Allowance for doubtful accounts

Allowance for trade accounts receivable

Year ended June 30, 2019

Applied against asset account

Allowance for doubtful accounts

Allowance for trade accounts receivable

(1) Beginning balance is adjusted to reflect the cumulative pre-tax effect of adopting Accounting Standards Update No.

2016-13, “Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments” (Topic 326), effective July 1, 2021.

Refer to Note 3 - New Accounting Pronouncements of the Notes to the Consolidated Financial Statements (Part II, Item 8) for additional information.

See accompanying report of independent registered public accounting firm.

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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-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk