What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-04-30 · 280 added, 429 removed, 603 unchanged (54% 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 $ 29,917 and $ 32,138

‎ at March 31, 2021 and June 30, 2020, respectively

‎ at September 30, 2021 and June 30, 2021, respectively

Inventories (note 3)

Prepaid taxes

Prepaid expenses and other current assets

30 unchanged sentences

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

‎ 187,352,828 issued and 145,516,594 outstanding at March 31, 2021 and

‎ 187,547,442 issued and 145,711,208 outstanding at September 30, 2021 and

‎ 187,484,592 issued and 145,648,358 outstanding at June 30, 2021

1 unchanged sentence

Retained earnings

Treasury stock, at cost, 41,836,234 shares at March 31, 2021 and June 30, 2020

Treasury stock, at cost, 41,836,234 shares at September 30, 2021 and June 30, 2021

( 1,623,256 )

9 unchanged sentences

Three Months Ended

Nine Months Ended

‎ September 30,

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

1 unchanged sentence

Other income (loss), net:

Interest income

Interest expense

Interest (expense) income, net

Loss attributable to equity method investments (note 5)

Gain (loss) on equity investments (note 5)

Total other income (loss), net

Income before income taxes

Net income (loss)

Basic earnings (loss) per share (note 9)

Diluted earnings (loss) per share (note 9)

Basic earnings per share (note 9)

Diluted earnings per share (note 9)

Dividend declared per share

7 unchanged sentences

Three Months Ended

Nine Months Ended

Net income (loss)

‎ September 30,

Other comprehensive income (loss):

Foreign currency translation (loss) gain adjustments

Comprehensive income (loss)

Comprehensive income

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

12 unchanged sentences

Other comprehensive income

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

Dividends declared

Dividends declared ($ 0.42 per common share)

Balance, September 30, 2021

( 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 )

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 (loss)

Net income (loss)

Dividends declared

Balance, March 31, 2021

( 1,623,256 )

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

12 unchanged sentences

Other comprehensive income (loss)

Dividends declared

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

Dividends declared ($ 0.39 per common share)

Balance, September 30, 2020

( 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 )

Common stock issued on exercise of options

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

Stock-based compensation costs

Other comprehensive income (loss)

Dividends declared

Balance, March 31, 2020

( 1,623,256 )

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

3 unchanged sentences

(In US$ and in thousands)

Nine Months Ended

Three Months Ended

‎ September 30,

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

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses, net deferred income taxes and other current assets

Accounts payable, accrued expenses and other

Net cash provided by operating activities

Accounts payable, accrued expenses, income taxes payable and other

Net cash (used in) / provided by operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Patent registration costs

Business acquisitions, net of cash acquired

Patent registration and acquisition costs

Purchases of investments (note 5)

Proceeds on maturity of foreign currency contracts

(Payments) / proceeds on maturity of foreign currency contracts

Net cash used in investing activities

2 unchanged sentences

Taxes paid related to net share settlement of equity awards

Payments of business combination contingent consideration

Proceeds from borrowings, net of borrowing costs

1 unchanged sentence

Dividends paid

Net cash used in financing activities

Net cash (used in) / provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Interest paid

Fair value of assets acquired, excluding cash

Liabilities assumed

Goodwill on acquisition

Deferred payments

Fair value of contingent consideration

Cash paid for acquisitions

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

17 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, 2022.

The condensed consolidated financial statements for the three and nine months ended March 31, 2021 and March 31, 2020 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 months ended September 30, 2021 and September 30, 2020 are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (our “Form 10-K”) for the year ended June 30, 2021.

Revenue Recognition

2 unchanged sentences

Our Sleep and Respiratory Care revenue relates primarily to the sale of our products that are therapy-based equipment.

Some contracts include additional performance obligations such as the provision of extended warranties and data for patient monitoring.

Some contracts include additional performance obligations such as the provision of extended warranties and provision of data for patient monitoring.

Our SaaS revenue relates to the provision of software access with ongoing support and maintenance services as well as professional services such as training and consulting.

2 unchanged sentences

Three Months Ended

Nine Months Ended

‎ September 30,

U.S., Canada and Latin America

24 unchanged sentences

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

September 30,

Balance sheet caption

35 unchanged sentences

Lease Revenue

We lease sleep and respiratory medical devices to customers primarily as a means to comply with local health insurer requirements in certain foreign geographies.

We lease Sleep and Respiratory Care medical devices to customers primarily as a means to comply with local health insurer requirements in certain foreign geographies.

Device rental contracts include sales-type and operating leases, and contract terms vary by customer and include options to terminate or extend the contract.

2 unchanged sentences

Three Months Ended

Nine Months Ended

‎ September 30,

Sales-type lease revenue

7 unchanged sentences

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.

New Accounting Pronouncements

(a) Recently issued accounting standards not yet adopted

Recently issued accounting standards not yet adopted

2020-04 “Reference Rate Reform:

4 unchanged sentences

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

2016-13 “Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments”

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, “Financial Instruments - Credit Losses:

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 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 condensed consolidated financial statements.

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

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”

In August 2018, the FASB issued ASU No.

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

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 was adopted effective July 1, 2020 and will be 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 condensed consolidated financial statements.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

( 2) Segment Information

4 unchanged sentences

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, restructuring expenses, litigation settlement expenses, deferred revenue fair value adjustment, interest income, interest expense and other, net.

The non-allocated items include corporate headquarters costs, stock-based compensation, amortization expense from acquired intangibles, net interest expense (income), loss attributable to equity method investments, gains and losses on equity 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.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

The table below presents a reconciliation of net revenues and net operating profit by reportable segments (in thousands):

Three Months Ended

Nine Months Ended

‎ September 30,

Net revenue by segment

1 unchanged sentence

Software as a Service

Deferred revenue fair value adjustment (1)

Total Software as a Service

Depreciation and amortization by segment

8 unchanged sentences

Amortization of acquired intangible assets

Restructuring expenses

Litigation settlement expenses

Deferred revenue fair value adjustment (1)

Interest expense (income), net

Loss attributable to equity method investments

(Gain) loss on equity investments

Income before income taxes

(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 and nine months ended March 31, 2021, 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 nine months ended March 31, 2021 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

2 unchanged sentences

Total inventories

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

Property, Plant and Equipment

September 30,

Property, plant and equipment, at cost

2 unchanged sentences

Other Intangible Assets

September 30,

Developed/core product technology

10 unchanged sentences

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

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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

Nine Months Ended March 31, 2021

Three Months Ended September 30, 2021

‎ Respiratory Care

Balance at the beginning of the period

Business acquisitions

Foreign currency translation adjustments

1 unchanged sentence

(5) Investments

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.

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

The following discusses our 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.

2 unchanged sentences

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

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

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 gain (loss) on equity investments as a component of other income (loss), net on the condensed 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 as a component of other, net on the condensed consolidated statements of operations.

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

Equity investments by measurement category were as follows (in thousands):

Measurement category

September 30,

Measurement alternative

Equity method

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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

Nine Months Ended

‎ March 31, 2021

The following tables show a reconciliation of the changes in our equity investments (in thousands):

Three Months Ended

‎ September 30, 2021

Non-marketable securities

4 unchanged sentences

Ongoing mark-to-market adjustments on marketable equity securities

Reclassifications (1)

Impairment of investments

Loss attributable to equity method investments

Carrying value at the end of the period

(1) During the nine months ended March 31, 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.

Nine Months Ended

‎ March 31, 2020

Three Months Ended

‎ September 30, 2020

Non-marketable securities

2 unchanged sentences

Balance at the beginning of the period

Impairment of investments

Ongoing mark-to-market adjustments on marketable equity securities

Reclassifications (1)

Loss attributable to equity method investments

Carrying value at the end of the period

Net unrealized gains recognized for equity investments held as of March 31, 2021 for the three and nine months ended March 31, 2021 were $ 4.7 million and $ 9.4 million, respectively, which related to publicly traded marketable equity securities and privately held non-marketable securities.

Net unrealized losses recognized for equity investments held as of March 31, 2020 for the three and nine months ended March 31, 2020 were $ 9.1 million and $ 14.5 million, respectively, which related to impairments of privately held non-marketable securities.

(6) Income Taxes

In accordance with ASC 740 Income Taxes , each interim reporting period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate.

An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.

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

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws.

We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes.

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 .

Our effective income tax rate for the three and nine months ended March 31, 2021 was 136.0 % and 56.6 %, respectively, as compared to 14.9 % and 14.8 % for the three and nine months ended March 31, 2020, respectively.

The increase in our effective tax rate was primarily due to an increase in unrecognized tax benefits as outlined below.

Additionally, the increase in our effective tax rate was impacted by the geographic mix of earnings and lower windfall tax benefits related to the vesting or settlement of employee share-based awards, which reduced our income tax expense by $ 0.6 million and $ 12.6 million for the three and nine months ended March 31, 2021, respectively, as compared to $ 2.4 million and $ 24.8 million for the three and nine months ended March 31, 2020, respectively.

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 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 if the matter progresses to litigation.

However, if we are not successful, 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.

To that end, we are engaged in ongoing discussions with the ATO to resolve the dispute for the entire Audit Period.

Given the stage of those discussions, during the three and nine months ended March 31, 2021, we recorded $ 395.9 million of gross unrecognized tax benefits, including $ 53.3 million of accrued

(1) During the three months ended September 30, 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.

PART I – FINANCIAL INFORMATION

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

interest and penalties, associated with the ATO audits for the Audit Period.

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

If recognized, we estimate that approximately $ 254.8 million, of unrecognized tax benefits would affect our effective tax rate, which represents the $ 395.9 million of gross unrecognized tax benefits noted previously, adjusted for tax credits and deductions of $ 141.1 million .

We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.

The timing and resolution of the ATO audits are inherently uncertain, and the amounts we might ultimately pay, 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.

Net unrealized gains recognized for the three months ended September 30, 2021 and 2020 for equity investments in non-marketable and marketable securities still held as of those respective dates were a gain of $ 5.6 million and $ 8.5 million, respectively.

(6) Income Taxes

In accordance with ASC 740 Income Taxes , each interim reporting period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate.

On September 19, 2021, we concluded the settlement agreement with the Australian Taxation Office (“ATO”) in relation to the previously disclosed transfer pricing dispute for the tax years 2009 through 2018 (“ATO settlement”).

The ATO settlement fully resolved the dispute for all prior years, with no admission of liability and provides clarity in relation to certain future taxation principles.

The final net impact of the ATO settlement was $ 238.7 million, which represents a gross amount of $ 381.7 million, including interest and penalties of $ 48.1 million, and adjustments for credits and deductions of $ 143.0 million.

As a result of the ATO settlement and due to movements in foreign currencies, we recorded a benefit of $ 14.1 million within other comprehensive income, and a $ 4.1 million reduction of tax credits, which was recorded to income tax expense.

As a result of the ATO settlement, we reversed our previously recorded uncertain tax position.

On September 28, 2021, we remitted final payment to the ATO of $ 284.8 million, consisting of the agreed settlement amount of $ 381.7 million less prior remittances made to the ATO of $ 96.9 million.

(7) Product Warranties

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

Nine Months Ended

Three Months Ended

‎ September 30,

Balance at the beginning of the period

4 unchanged sentences

Debt consisted of the following (in thousands):

September 30,

Short-term debt

Deferred borrowing costs

Short-term debt, net

Long-term debt

6 unchanged sentences

The Term Credit Agreement, among other things, provides ResMed Limited a senior unsecured term credit facility of $ 200.0 million.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

On November 5, 2018, we entered into a first amendment to the Revolving Credit Agreement to, among other things, increase the size of our senior unsecured revolving credit facility from $ 800.0 million to $ 1.6 billion, with an uncommitted option to increase the revolving credit facility by an additional $ 300.0 million.

5 unchanged sentences

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.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed 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.

Amounts borrowed under the Term Credit Agreement will also amortize on a semi-annual basis, with a $ 6.0 million principal payment required on each such semi-annual amortization date.

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 March 31, 2021, the interest rate that was being charged on the outstanding principal amounts was 1.0 %.

Amounts borrowed under the Term Credit Agreement also amortize on a semi-annual basis, with a $ 6.0 million principal payment required on each such semi-annual amortization date.

The outstanding principal amounts 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, 2021, the interest rate that was being charged on the outstanding principal amounts was 0.9 %.

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 March 31, 2021, we had $ 1.5 billion available for draw down under the revolving credit facility.

As of September 30, 2021, we had $ 1.5 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 March 31, 2021 and June 30, 2020, which was $ 234.0 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 September 30, 2021 and June 30, 2021, which was $ 308.0 million and $ 158.0 million, respectively.

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

1 unchanged sentence

Our obligations under the Note Purchase Agreement and the Senior Notes are unconditionally and irrevocably guaranteed by certain of our direct and indirect U.S.

subsidiaries, including ResMed Corp., ResMed Motor Technologies Inc., Birdie Inc., Inova Labs, Inc., Brightree LLC, Brightree Home Health & Hospice LLC, Brightree Patient Collections LLC, ResMed Operations Inc., HEALTHCAREfirst Holding Company, HCF Holdco Company, HEALTHCAREfirst, Inc., CareFacts Information Systems, LLC and Lewis Computer Services, LLC, MatrixCare Holdings Inc., MatrixCare, Inc., Reciprocal Labs Corporation and ResMed SaaS Inc., under a Subsidiary Guaranty Agreement dated as of July 10, 2019.

subsidiaries.

The net proceeds from this transaction were used to pay down borrowings on our Revolving Credit Agreement.

3 unchanged sentences

As of March 31, 2021, the Senior Notes have a carrying amount of $ 500.0 million, excluding deferred borrowing costs, and an estimated fair value of $ 519.3 million.

As of September 30, 2021 and June 30, 2021 the Senior Notes had a carrying amount of $ 500.0 million, excluding deferred borrowing costs, and an estimated fair value of $ 527.2 million and $ 530.4 million, respectively.

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

At March 31, 2021, we were in compliance with our debt covenants and there was $ 734.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

(9) Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding.

For purposes of calculating diluted earnings (loss) 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 calculation of diluted weighted average shares for the three months ended March 31, 2021 excluded 857,799 potentially dilutive common shares because we reported a net loss.

The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings (loss) per share were 225,580 and 267,556 for the three months ended March 31, 2021 and 2020 , respectively, and 200,341 and 128,789 for the nine months ended March 31, 2021 and 2020, respectively as the effect would have been anti-dilutive.

At September 30, 2021, we were in compliance with our debt covenants and there was $ 808.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

PART I – FINANCIAL INFORMATION

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

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

(9) Earnings Per Share

Basic earnings per share is computed by dividing the net income available to common stockholders by the weighted average number of shares of common stock outstanding.

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 1,322 and 109,475 for the three months ended September 30, 2021 and 2020 , 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

Nine Months Ended

Net income (loss)

‎ September 30,

Basic weighted-average common shares outstanding

2 unchanged sentences

Diluted weighted average shares

Basic earnings (loss) per share

Diluted earnings (loss) per share

Basic earnings per share

Diluted earnings per share

(10 ) Legal Actions and Contingencies

1 unchanged sentence

While the results of this litigation cannot be predicted with certainty, we believe that their final outcome will not, individually or in aggregate, have a material adverse effect on our consolidated financial statements taken as a whole.

Taxation Matters

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

On June 2, 2021, New York University filed a complaint for patent infringement in the United States District Court, District of Delaware against ResMed Inc., case no.

1:21-cv-00813 (CFC).

The complaint alleges that the AutoSet and AutoRamp features of ResMed’s AirSense 10 AutoSet flow generators infringe one or more claims of various patents.

According to the complaint, the patents are directed to systems and methods for diagnosing and treating patient sleeping disorders during different sleep states.

The complaint seeks money damages and attorneys’ fees.

ResMed answered the complaint on September 30, 2021 and filed a motion to dismiss the complaint on the basis that the patents are invalid because the subject matter of the patents is not patentable under the Supreme Court and Federal Circuit precedent.

The motion to dismiss is pending.

On January 27, 2021, the International Trade Commission instituted In Re Certain UMTS and LTE Cellular Communications Modules and Products Containing the Same, Investigation No.

337-TA-1240, by complainants Philips RS North America, LLC and Koninklijke Philips N.V.

(collectively “Philips”) against Quectel Wireless Solutions Co., Ltd;

Thales DIS AIS USA, LLC, Thales DIS AIS Deutschland GmbH;

Telit Wireless Solutions, Inc., Telit Communications PLC, CalAmp.

Corp., Xirgo Technologies, LLC, and Laird Connectivity, Inc.

(collectively “respondents”).

In the ITC investigation, Philips seeks an order excluding communications modules, and products that contain them, from importation into the United States based on alleged infringement of 3G and 4G standard essential patents held by Philips.

On October 6-14, 2021, the administrative law judge held a hearing on the merits and is expected to issue an initial determination on or about January 27, 2022.

On December 17, 2020, Philips filed companion cases for patent infringement against the same defendants in the United States District Court for the District of Delaware, case nos.

1:20-cv-01707, 01708, 01709, 01710, 01711, and 01713 (CFC) seeking damages, an injunction, and a declaration from the court on the amount of a fair reasonable and non-discriminatory license rate for the standard essential patents it is asserting against the defendants.

The district court cases have been stayed pending the ITC proceedings.

ResMed is not a party to the ITC investigation or the district court cases but sells products that incorporate some of the communications modules at issue in the cases.

Based on currently available information, we are unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

Contingent Obligations Under Recourse Provisions

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

During the nine months ended March 31, 2021 and March 31, 2020, receivables sold with limited recourse were $ 112.2 million and $ 99.8 million, respectively.

As of March 31, 2021, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 26.5 million and $ 7.9 million, respectively.

During the three months ended September 30, 2021 and September 30, 2020, receivables sold with limited recourse were $ 49.5 million and $ 30.6 million, respectively.

As of September 30, 2021, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 36.0 million and $ 8.1 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.

(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 nine months ended March 31, 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 nine months ended March 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 operations.

The restructure was substantially completed as of March 31, 2021 and we do not expect to incur additional material expenses in connection with this activity in the future.

PART I – FINANCIAL INFORMATION

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All statements other than statements regarding historical facts are forward-looking statements.

The words “believe,” “expect,” “intend,” “anticipate,” “will continue,” “will,” “estimate,” “plan,” “future” and other similar expressions, and negative statements of such expressions, generally identify forward-looking statements, including, in particular, statements regarding expectations of future revenue or earnings, expenses, new product development, new product launches, new markets for our products, litigation, and tax outlook.

These forward-looking statements are made in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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Forward-looking statements reflect the views of our management at the time the statements are made and are subject to a number of risks, uncertainties, estimates and assumptions, including, without limitation, and in addition to those identified in the text surrounding such statements, those identified in our annual report on Form 10-K for the fiscal year ended June 30, 2021 and elsewhere in this report.

Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.

Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in healthcare reform, social, economic, market, legal or regulatory circumstances, including the impact of public health crises such as the novel strain of coronavirus (COVID-19) that has spread globally;

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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 and nine months ended March 31, 2021.

The following is an overview of our results of operations for the three months ended September 30, 2021.

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.

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

During the three months ended March 31, 2021, we invested $55.9 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 September 30, 2021, we invested $60.0 million on research and development activities, which represents 6.6% 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 September 30, 2021 we continued the launch of AirSense 11, which introduces new features such as a touch screen, algorithms for patients new to therapy and digital enhancements and over-the-air update capabilities.

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.

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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 March 31, 2021, our net revenue was consistent with the three months ended March 31, 2020.

Gross margin was 58.2% for the three months ended March 31, 2021 compared to 58.4% for the three months ended March 31, 2020.

Diluted loss per share was $0.54 for the three months ended March 31, 2021 , compared to diluted earnings per share of $1.12 for the three months ended March 31, 2020 .

Unrecognized tax benefits as described at note 6 – Income Taxes impacted our diluted loss per share by $1.74 per share for the three months ended March 31, 2021.

At March 31, 2021, our cash and cash equivalents totaled $230.6 million, our total assets were $4.6 billion and our stockholders’ equity was $2.7 billion.

Net revenue for the three months ended September 30, 2021 was $904.0 million, an increase of 20% compared to the three months ended September 30, 2020.

Gross margin was 56.0% for the three months ended September 30, 2021 compared to 58.3% for the three months ended September 30, 2020.

Diluted earnings per share was $1.39 for the three months ended September 30, 2021 , compared to diluted earnings per share of $1.22 for the three months ended September 30, 2020 .

At September 30, 2021, our cash and cash equivalents totaled $276.1 million, our total assets were $4.7 billion and our stockholders’ equity was $3.0 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.

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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.

During the three months ended March 31, 2021, we did not observe material incremental demand for our ventilator devices and masks associated with the COVID-19 pandemic.

During the three months ended September 30, 2021, we did not observe material 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 do not expect material COVID-19-generated demand for our ventilator products for the remainder of the fiscal year ending June 30, 2022.

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.

Diagnostic pathways for sleep apnea treatment, including physician practices, home medical equipment, or HME, suppliers and sleep clinics, have been impacted and, in some instances, been 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 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 the impact on demand for our sleep devices.

Although certain governments have begun to reduce or remove COVID-19 restrictions and implement vaccination programs to varying degrees, we are uncertain as to the duration and extent of the impact on demand for our sleep devices.

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 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.

Some of our existing and potential SaaS customers are HME distributors and have been 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 have implemented significant measures to safeguard their facilities against a potential COVID-19 outbreak.

Given these challenging business conditions, businesses may 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.

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

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

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

Net revenue for the three months ended March 31, 2021 decreased to $768.8 million from $769.5 million for the three months ended March 31, 2020, a decrease of $0.7 million or consistent on a percentage basis (a 3% decrease on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region for the three months ended March 31, 2021 compared to March 31, 2020 (in thousands):

Results of Operations

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Net revenue for the three months ended September 30, 2021 increased to $904.0 million from $751.9 million for the three months ended September 30, 2020, an increase of $152.1 million or 20% (a 19% increase on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region (in thousands):

Three Months Ended

‎ September 30,

Constant Currency*

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Sleep and Respiratory Care

Net revenue from our Sleep and Respiratory Care business for the three months ended March 31, 2021 was $674.9 million, a decrease of 1% compared to net revenue for the three months ended March 31, 2020.

Net revenue from our Sleep and Respiratory Care business for the three months ended September 30, 2021 was $806.5 million, an increase of 22% compared to net revenue for the three months ended September 30, 2020.

Movements in international currencies against the U.S.

dollar positively impacted net revenue by approximately $23.1 million for the three months ended March 31, 2021.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended March 31, 2021 decreased by 4% compared to the three months ended March 31, 2020.

The decrease in net revenue was primarily attributable to a decrease in unit sales of our devices, including as a result of decreased COVID-19-related demand for our ventilators, partially offset by an increase in unit sales of our masks.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the three months ended March 31, 2021 increased to $402.9 million from $393.5 million for the three months ended March 31, 2020, an increase of $9.3 million or 2%.

The increase was primarily due to an increase in unit sales of our masks, partially offset by a decrease in unit sales of our devices.

Net revenue in combined Europe, Asia and other markets decreased for the three months ended March 31, 2021 to $272.1 million from $286.3 million for the three months ended March 31, 2020, a decrease of $14.3 million or 5% (a 13% decrease on a constant currency basis).

The constant currency decrease in sales in combined Europe, Asia and other markets predominantly reflects a decrease in unit sales of our devices, including as a result of decreased COVID-19-related demand for our ventilators, partially offset by an increase in unit sales of our masks.

Net revenue from devices for the three months ended March 31, 2021 decreased to $365.7 million from $391.5 million for the three months ended March 31, 2020, a decrease of $25.8 million or 7%, including a decrease of 2% in the U.S., Canada and Latin America and a decrease of 11% in combined Europe, Asia and other markets (a 18% decrease on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the three months ended March 31, 2021 decreased by 10%.

Net revenue from masks and other for the three months ended March 31, 2021 increased to $309.2 million from $288.4 million for the three months ended March 31, 2020, an increase of $20.8 million or 7%, including an increase of 7% in the U.S., Canada and Latin America and an increase of 9% in combined Europe, Asia and other markets (consistent with the prior year on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 4%, compared to the three months ended March 31, 2020.

Software as a Service

Net revenue from our SaaS business for the three months ended March 31, 2021 was $93.8 million, an increase of 5% compared to the three months ended March 31, 2020.

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

dollar positively impacted net revenue by approximately $6.2 million for the three months ended September 30, 2021.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended September 30, 2021 increased by 21% compared to the three months ended September 30, 2020.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset by decreased COVID-19 related demand for our ventilators.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the three months ended September 30, 2021 increased to $491.0 million from $403.2 million for the three months ended September 30, 2020, an increase of $87.9 million or 22%.

The increase was primarily due to an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset by decreased COVID-19 related demand for our ventilators.

Net revenue in combined Europe, Asia and other markets increased for the three months ended September 30, 2021 to $315.5 million from $256.6 million for the three months ended September 30, 2020, an increase of $58.8 million or 23% (a 21% 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 recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset by decreased COVID-19-related demand for our ventilators.

Net revenue from devices for the three months ended September 30, 2021 increased to $494.2 million from $373.4 million for the three months ended September 30, 2020, an increase of $120.7 million or 32%, including an increase of 40% in the U.S., Canada and Latin America and an increase of 24% in combined Europe, Asia and other markets (a 22% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the three months ended September 30, 2021 increased by 31%.

Net revenue from masks and other for the three months ended September 30, 2021 increased to $312.3 million from $286.4 million for the three months ended September 30, 2020, an increase of $26.0 million or 9%, including an increase of 5% in the U.S., Canada and Latin America and an increase of 21% in combined Europe, Asia and other markets (an 18% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 8%, compared to the three months ended September 30, 2020.

PART I – FINANCIAL INFORMATION

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

Nine Months Ended March 31, 2021 Compared to the Nine Months Ended March 31, 2020

Net revenue for the nine months ended March 31, 2021 increased to $2,320.7 million from $2,186.7 million for the nine months ended March 31, 2020, an increase of $134.1 million or 6% (a 4% increase on a constant currency basis).

The following table summarizes our net revenue disaggregated by segment, product and region for the nine months ended March 31, 2021 compared to March 31, 2020 (in thousands):

Nine Months Ended

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 nine months ended March 31, 2021 was $2,042.9 million, an increase of 6% compared to net revenue for the nine months ended March 31, 2020.

Movements in international currencies against the U.S.

dollar positively impacted net revenues by approximately $47.7 million for the nine months ended March 31, 2021.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the nine months ended March 31, 2021 increased by 4% compared to the nine months ended March 31, 2020.

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 nine months ended March 31, 2021 increased to $1,232.8 million from $1,171.8 million for the nine months ended March 31, 2020, an increase of $61.0 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 nine months ended March 31, 2021 to $810.1 million from $751.7 million for the nine months ended March 31, 2020, an increase of $58.4 million or 8% (a 2% 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, partially offset by decreased COVID-19-related demand for our ventilators.

Net revenue from devices for the nine months ended March 31, 2021 increased to $1,132.1 million from $1,096.2 million for the nine months ended March 31, 2020, an increase of $36.0 million or 3%, including an increase of 1% in the U.S., Canada and Latin America and an increase of 5% in combined Europe, Asia and other markets (a 1% decrease on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the nine months ended March 31, 2021 were consistent with the nine months ended March 31, 2020.

Net revenue from masks and other for the nine months ended March 31, 2021 increased to $910.8 million from $827.3 million for the nine months ended March 31, 2020, an increase of $83.4 million or 10%, including an increase of 9% in the U.S., Canada and Latin America and an increase of 13% in combined Europe, Asia and other markets (a 6% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 8%, compared to the nine months ended March 31, 2020.

Software as a Service

Net revenue from our SaaS business for the nine months ended March 31, 2021 was $277.8 million, an increase of 6% compared to the nine months ended March 31, 2020.

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

Net revenue from our SaaS business for the three months ended September 30, 2021 was $97.5 million, an increase of 6% compared to the three months ended September 30, 2020.

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

Gross Profit and Gross Margin

Gross profit decreased for the three months ended March 31, 2021 to $447.3 million from $449.7 million for the three months ended March 31, 2020, a decrease of $2.4 million or 1%.

Gross margin, which is gross profit as a percentage of net revenue, for the three months ended March 31, 2021 was 58.2% compared to 58.4% for the three months ended March 31, 2020.

The decrease in gross margin for the three months ended March 31, 2021 compared to three months ended March 31, 2020 was due primarily to additional manufacturing costs associated with our new Singapore site commencing operations during the quarter, higher freight costs and geographic mix changes, partially offset by lower amortization of acquired intangibles.

Gross profit increased for the nine months ended March 31, 2021 to $1,348.4 million from $1,268.4 million for the nine months ended March 31, 2020, an increase of $80.0 million or 6%.

Gross margin for the nine months ended March 31, 2021 was 58.1% compared to 58.0% for the nine months ended March 31, 2020.

The increase in gross margin for the nine months ended March 31, 2021 compared to the nine months ended March 31, 2020 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.

Gross profit increased for the three months ended September 30, 2021 to $506.3 million from $438.7 million for the three months ended September 30, 2020, an increase of $67.6 million or 15%.

Gross margin, which is gross profit as a percentage of net revenue, for the three months ended September 30, 2021 was 56.0% compared to 58.3% for the three months ended September 30, 2020.

The decrease in gross margin for the three months ended September 30, 2021 compared to three months ended September 30, 2020 was due primarily to higher manufacturing and logistics costs and declines in average selling prices.

Operating Expenses

The following table summarizes our operating expenses (in thousands):

Three Months Ended

‎ September 30,

Constant Currency

Selling, general, and administrative

as a % of net revenue

Research and development

as a % of net revenue

Amortization of acquired intangible assets

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses decreased for the three months ended March 31, 2021 to $160.4 million from $172.4 million for the three months ended March 31, 2020, a decrease of $12.0 million or 7%.

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 $7.0 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the three months ended March 31, 2021 decreased by 11% compared to the three months ended March 31, 2020.

As a percentage of net revenue, selling, general, and administrative expenses were 20.9% for the three months ended March 31, 2021, compared to 22.4% for the three months ended March 31, 2020.

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 March 31, 2021 compared to three months ended March 31, 2020.

Selling, general, and administrative expenses decreased for the nine months ended March 31, 2021 to $488.9 million from $511.3 million for the nine months ended March 31, 2020, a decrease of $22.4 million or 4%.

Selling, general, and administrative expenses increased for the three months ended September 30, 2021 to $176.7 million from $159.0 million for the three months ended September 30, 2020, an increase of $17.7 million or 11%.

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 $1.6 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the nine months ended March 31, 2021 decreased by 7% compared to the nine months ended March 31, 2020.

As a percentage of net revenue, selling, general, and administrative expenses were 21.1% for the nine months ended March 31, 2021, compared to 23.4% for the nine months ended March 31, 2020.

The constant currency decrease in selling, general, and administrative expenses was primarily due to decreases in travel, marketing and bad debt expenses during the nine months ended March 31, 2021 compared to nine months ended March 31, 2020.

Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the three months ended September 30, 2021 increased by 10% compared to the three months ended September 30, 2020.

As a percentage of net revenue, selling, general, and administrative expenses were 19.5% for the three months ended September 30, 2021, compared to 21.1% for the three months ended September 30, 2020.

The constant currency increase in selling, general, and administrative expenses was primarily due to increases in employee-related costs during the three months ended September 30, 2021 compared to three months ended September 30, 2020.

Research and Development Expenses

Research and development expenses increased for the three months ended March 31, 2021 to $55.9 million from $51.4 million for the three months ended March 31, 2020, an increase of $4.5 million, or 9%.

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

dollar, which increased our expenses by approximately $3.0 million for the three months ended March 31, 2021, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 3% compared to the three months ended March 31, 2020.

As a percentage of net revenue, research and development expenses were 7.3% for the three months ended March 31, 2021, compared to 6.7% for the three months ended March 31, 2020.

The increase in research and development expenses in constant currency terms was primarily due to increased investment in our digital health technologies and SaaS solutions.

Research and development expenses increased for the nine months ended March 31, 2021 to $165.4 million from $149.4 million for the nine months ended March 31, 2020, an increase of $16.0 million, or 11%.

Research and development expenses increased for the three months ended September 30, 2021 to $60.0 million from $54.5 million for the three months ended September 30, 2020, an increase of $5.4 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 $5.3 million for the nine months ended March 31, 2021, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 7% compared to the nine months ended March 31, 2020.

As a percentage of net revenue, research and development expenses were 7.1% for the nine months ended March 31, 2021, compared to 6.8% for the nine months ended March 31, 2020.

dollar, which increased our expenses by approximately $0.7 million for the three months ended September 30, 2021, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 9% compared to the three months ended September 30, 2020.

As a percentage of net revenue, research and development expenses were 6.6% for the three months ended September 30, 2021, compared to 7.3% for the three months ended September 30, 2020.

The increase in research and development expenses in constant currency terms was primarily due to increased investment in our digital health technologies and SaaS solutions.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets for the three months ended March 31, 2021 totaled $7.4 million compared to $8.3 million for the three months ended March 31, 2020.

Amortization of acquired intangible assets for the nine months ended March 31, 2021 totaled $23.4 million compared to $21.9 million for the nine months ended March 31, 2020.

Restructuring Expenses

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

During the nine months ended March 31, 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 the nine months ended March 31, 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 condensed consolidated statements of operations.

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 March 31, 2021 was a loss of $5.4 million compared to a loss of $25.8 million for the three months ended March 31, 2020.

The decrease was partially due to a decrease in interest expense to $5.9 million for the three months ended March 31, 2021 compared to $10.0 million for the three months ended March 31, 2020.

Additionally, we recognized an unrealized gain of $4.7 million on our marketable and non-marketable equity securities for the three months ended March 31, 2021, whereas during the three months ended March 31, 2020, we recorded an impairment of $9.1 million on our non-marketable equity securities.

We also recorded losses attributable to equity method investments for the three months ended March 31, 2021 of $5.0 million compared to $5.3 million for the three months ended March 31, 2020.

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.

Total other income (loss), net for the nine months ended March 31, 2021 was a loss of $17.6 million compared to a loss of $65.4 million for the nine months ended March 31, 2020.

The decrease was partially due to a decrease in interest expense to $18.6 million for the nine months ended March 31, 2021 compared to $31.2 million for the nine months ended March 31, 2020.

Additionally, we recognized an unrealized gain of $9.4 million on our marketable and non-marketable securities for the nine months ended March 31, 2021, whereas during the nine months ended March 31, 2020, we recorded an impairment of $14.5 million on our non-marketable equity securities.

We also recorded lower losses attributable to equity method investments for the nine months ended March 31, 2021 of $9.9 million compared to $19.1 million for the nine months ended March 31, 2020.

Our effective income tax rate for the three and nine months ended March 31, 2021 was 136.0% and 56.6%, respectively, as compared to 14.9% and 14.8% for the three and nine months ended March 31, 2020, respectively.

The increase to our effective tax rate was primarily the result of an increase in unrecognized tax benefits as outlined below.

Excluding the impact of the unrecognized tax benefit, our effective income tax rate for the three and nine months ended March 31, 2021 was 19.1% and 17.1%, respectively.

The increase in our effective tax rate, excluding the impact of the unrecognized tax benefit, was due to the geographic mix of earnings and lower windfall tax benefits related to the vesting or settlement of employee share-based awards, which reduced our income tax expense by $0.6 million and $12.6 million for the three and nine months ended March 31, 2021, respectively, as compared to $2.4 million and $24.8 million for the three and nine months ended March 31, 2020, respectively.

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.

Amortization of acquired intangible assets for the three months ended September 30, 2021 totaled $7.7 million compared to $8.2 million for the three months ended September 30, 2020.

PART I – FINANCIAL INFORMATION

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

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 if the matter progresses to litigation.

To that end, we are engaged in ongoing discussions with the ATO to resolve the dispute for the entire Audit Period.

Given the stage of those discussions, during the three and nine months ended March 31, 2021, we recorded $395.9 million of gross unrecognized tax benefits, including $53.3 million of accrued interest and penalties, associated with the ATO audits for the Audit Period.

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

If recognized, we estimate that approximately $254.8 million of unrecognized tax benefits would affect our effective tax rate, which represents the $395.9 million of gross unrecognized tax benefits noted previously, adjusted for tax credits and deductions of $141.1 million .

We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income taxes.

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.

Total Other Income (Loss), Net

The following table summarizes our other income (loss) (in thousands):

Three Months Ended

‎ September 30,

Interest (expense) income, net

Loss attributable to equity method investments

Gain (loss) on equity investments

Total other income (loss), net

Total other income (loss), net for the three months ended September 30, 2021 was a loss of $3.1 million compared to a loss of $1.0 million for the three months ended September 30, 2020.

The increase in loss was primarily due to lower net unrealized gains associated with our investments in marketable and non-marketable equity securities, which were a gain of $5.6 million for the three months ended September 30, 2021 compared to a gain of $8.5 million for the three months ended September 30, 2020.

This was offset by a decrease in interest expense, net, to $5.4 million for the three months ended September 30, 2021 compared to $6.7 million for the three months ended September 30, 2020.

We also recorded lower losses attributable to equity method investments for the three months ended September 30, 2021 of $1.4 million compared to $2.3 million for the three months ended September 30, 2020.

Our effective income tax rate for the three months ended September 30, 2021 was 21.3% as compared to 17.4% for the three months ended September 31, 2020.

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

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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Tax Act, we treated all non-U.S.

historical earnings as taxable, effective as of the year ended June 30, 2018.

historical earnings as taxable during the year ended June 30, 2018.

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

subsidiaries, if any, will generally not be subject to U.S.

Net Income (Loss) and Earnings (Loss) per Share

As a result of the factors above, our net loss for the three months ended March 31, 2021 was $78.5 million compared to net income of $163.1 million for the three months ended March 31, 2020, a decrease of 148%.

Our net income for the nine months ended March 31, 2021 was $279.4 million compared to net income of $443.8 million for the nine months ended March 31, 2020, a decrease of 37%.

Our diluted loss per share for the three months ended March 31, 2021 was $0.54 per diluted share compared to diluted earnings per share of $1.12 for the three months ended March 31, 2020, a decrease of 148% .

Our diluted earnings per share for the nine months ended March 31, 2021 was $1.91 per diluted share compared to $3.05 for the nine months ended March 31, 2020, a decrease of 37%.

Unrecognized tax benefits as described at note 6 – Income Taxes impacted our diluted loss per share for the three months ended March 31, 2021 and diluted earnings per share for the nine months ended March 31, 2021 by $1.74 per share.

subsidiaries will generally not be subject to U.S.

federal tax, if repatriated.

The ATO settlement fully resolved the dispute for all prior years, with no admission of liability and provides clarity in relation to certain future taxation principles.

The final net impact of the ATO settlement was $238.7 million, which represents a gross amount of $381.7 million, including interest and penalties of $48.1 million, and adjustments for credits and deductions of $143.0 million.

As a result of the ATO settlement and due to movements in foreign currencies, we recorded a benefit of $14.1 million within other comprehensive income, and a $4.1 million reduction of tax credits, which was recorded to income tax expense.

As a result of the ATO settlement, we reversed our previously recorded uncertain tax position.

On September 28, 2021, we remitted final payment to the ATO of $284.8 million, consisting of the agreed settlement amount of $381.7 million less prior remittances made to the ATO of $96.9 million.

Net Income and Earnings per Share

As a result of the factors above, our net income for the three months ended September 30, 2021 was $203.6 million compared to net income of $178.4 million for the three months ended September 30, 2020, an increase of 14%.

Our diluted earnings per share for the three months ended September 30, 2021 was $1.39 per diluted share compared to diluted earnings per share of $1.22 for the three months ended September 30, 2020, an increase of 14% .

Summary of Non-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.

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 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.

PART I – FINANCIAL INFORMATION

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

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

These non-GAAP measures are reconciled to their most directly comparable GAAP financial measures below (in thousands, except percentages):

Three Months Ended

Nine Months Ended

September 30,

GAAP Net revenue

Deferred revenue fair value adjustment

Non-GAAP revenue

GAAP Cost of sales

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, 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.

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles.

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

Three Months Ended

Nine Months Ended

September 30,

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 (loss) once adjusted for amortization of acquired intangibles (net of tax), reserve for disputed tax positions, restructuring expense associated with the closure of the POC (net of tax), (gain) loss on marketable equity securities, fair value adjustments recognized on non-marketable equity securities, deferred revenue fair value adjustments applied in the purchase accounting for previous business combinations (net of tax) and litigation settlement expenses (net of tax).

The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles (net of tax), reserve for disputed tax positions and (gain) loss on equity investments.

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

Nine Months Ended

GAAP net income (loss)

September 30,

GAAP net income

Amortization of acquired intangibles - cost of sales, net of tax

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Reserve for disputed tax positions

Restructuring - cost of sales, net of tax

Restructuring - operating expenses, net of tax

(Gain) loss on equity investments

Fair value impairment of investment

Deferred revenue fair value adjustment, net of tax

Litigation settlement expenses, net of tax

Non-GAAP net income

GAAP diluted shares outstanding

Anti-dilutive shares excluded from GAAP

Non-GAAP diluted shares outstanding

GAAP diluted earnings (loss) per share

Diluted shares outstanding

GAAP diluted earnings per share

Non-GAAP diluted earnings per share

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, cash generated from operations and access to our revolving credit facility.

Our primary uses of cash have been for research and development activities, selling and marketing activities, capital expenditures, strategic acquisitions and investments, dividend payments and repayment of debt obligations.

We expect that cash provided by operating activities may fluctuate in future periods as a result of several factors, including fluctuations in our operating results, which include impacts from the COVID-19 pandemic, working capital requirements and capital deployment decisions.

Our future capital requirements will depend on many factors including our growth rate in net revenue, third-party reimbursement of our products for our customers, the timing and extent of spending to support research development efforts, the expansion of selling, general and administrative activities, the timing of introductions of new products, the expenditures associated with possible future acquisitions, investments or other business combination transactions, and impacts from the COVID-19 pandemic.

As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources.

If we are required to access the debt market, we believe that we will be able to secure reasonable borrowing rates.

As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to access the market considering those earning levels.

PART I – FINANCIAL INFORMATION

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

Liquidity and Capital Resources

As of March 31, 2021 and June 30, 2020, we had cash and cash equivalents of $230.6 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 $589.6 million and $920.7 million at March 31, 2021 and June 30, 2020, respectively.

As of March 31, 2021, we had $0.7 billion of borrowings compared to $1.2 billion of borrowings at June 30, 2020.

As of March 31, 2021, we had $1.5 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 March 31, 2021 and June 30, 2020, our cash and cash equivalent balances held within the United States amounted to $42.6 million and $158.8 million, respectively.

Our remaining cash and cash equivalent balances at March 31, 2021 and June 30, 2020, were $188.0 million and $304.4 million, respectively.

As of September 30, 2021 and June 30, 2021, we had cash and cash equivalents of $276.1 million and $295.3 million, respectively.

Our cash and cash equivalents held within the United States at September 30, 2021 and June 30, 2021 were $94.5 million and $106.7 million, respectively.

Our remaining cash and cash equivalent balances at September 30, 2021 and June 30, 2021, were $181.6 million and $188.6 million, respectively.

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

During the year ended June 30, 2018, as a result of the U.S.

As of September 30, 2021, we had $1.5 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.

As a result of the U.S.

Tax Act, we treated all non-U.S.

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federal tax if repatriated.

Inventories at March 31, 2021 were $484.1 million, an increase of $67.1 million or 16% from the June 30, 2020 balance of $416.9 million.

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

Accounts receivable at March 31, 2021 were $525.0 million, an increase of $50.4 million or 11% compared to the June 30, 2020, balance of $474.6 million.

Accounts receivable days outstanding of 60 days at March 31, 2021, 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 March 31, 2021, was 5.9%, compared to 5.7% at June 30, 2020.

We recognize right-of-use assets and lease liabilities on the balance sheet for all operating leases except those that meet the definition of a short-term lease.

As of March 31, 2021 and June 30, 2020, our right-of-use assets were $128.8 million and $118.3 million, respectively and our lease liabilities were $137.8 million and $123.1 million, respectively.

During the nine months ended March 31, 2021, we generated cash of $510.2 million from operations compared to $472.0 million for the nine months ended March 31, 2020.

The increase in cash generated from operations during the nine months ended March 31, 2021, as compared to the nine months ended March 31, 2020 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 nine months ended March 31, 2021, had the effect of increasing our cash and cash equivalents by $18.3 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 and nine months ended March 31, 2021 and 2020.

In addition, during the nine months ended March 31, 2021 and 2020, we paid dividends to holders of our common stock totaling $169.9 million and $168.6 million, respectively.

Capital expenditures for the nine months ended March 31, 2021 and 2020, amounted to $74.8 million and $77.4 million, respectively.

The capital expenditures for the nine months ended March 31, 2021, primarily reflected investment in production tooling, equipment and machinery, and computer hardware and software.

At March 31, 2021, our balance sheet reflects net property, plant and equipment of $455.1 million compared to $417.3 million at June 30, 2020.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

Contractual Obligations

Details of contractual obligations at March 31, 2021, are as follows (in thousands):

Payments Due by March 31,

Interest on debt

Operating leases

Purchase obligations

Details of other commercial commitments at March 31, 2021, are as follows (in thousands) :

Amount of Commitment Expiration Per Period

Standby letter of credit

* The above guarantees mainly relate to requirements under contractual obligations with insurance companies transacting with our German subsidiaries and guarantees provided under our facility leasing obligations.

Credit Facility

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.

We believe that our current sources of liquidity will be sufficient to fund our operations, including expected capital expenditures, for the next 12 months and beyond.

Revolving Credit Agreement, Term Credit Agreement and Senior Notes

On April 17, 2018, we entered into an amended and restated credit agreement (as amended from time to time, the “Revolving Credit Agreement”).

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.

Additionally, on April 17, 2018, ResMed Limited entered into a Syndicated Facility Agreement (the “Term Credit Agreement”), as borrower, with lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger and joint book runner, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner.

Additionally, on April 17, 2018, ResMed Limited entered into a Syndicated Facility Agreement (the “Term Credit Agreement”).

The Term Credit Agreement, among other things, provides ResMed Limited a senior unsecured term credit facility of $200.0 million.

On November 5, 2018, we entered into a first amendment to the Revolving Credit Agreement to, among other things, increase the size of our senior unsecured revolving credit facility from $800.0 million to $1.6 billion, with an uncommitted option to increase the revolving credit facility by an additional $300.0 million.

Our obligations under the Revolving Credit Agreement are guaranteed by certain of our direct and indirect U.S.

subsidiaries, and ResMed Limited’s obligations under the Term Credit Agreement are guaranteed by us and certain of our direct and indirect U.S.

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).

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.

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.

Amounts borrowed under the Term Credit Agreement will also amortize on a semi-annual basis, with a $6.0 million principal payment required on each such semi-annual amortization date.

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 March 31, 2021, the interest rate that was being charged on the outstanding principal amounts was 1.0%.

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 March 31, 2021, we had $1.5 billion available for draw down under the revolving credit facility.

As of September 30, 2021, we had $1.5 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”).

On September 30, 2021, there was a total of $808.0 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.

Cash Flow Summary

The following table summarizes our cash flow activity (in thousands):

Three Months Ended

‎ September 30,

Net cash (used in) / provided by operating activities

Net cash used in investing activities

Net cash (used in) / provided by financing activities

Effect of exchange rate changes on cash

Net decrease in cash and cash equivalents

Operating Activities

Cash used in operating activities was $65.7 million for the three months ended September 30, 2021, compared to cash provided of $144.0 million for the three months ended September 30, 2020.

The $209.7 million decrease in cash flow from operations was primarily due to the payment of our tax settlement with the ATO of $284.8 million, offset by an increase in operating profit and net changes in working capital balances compared to the three months ended September 30, 2020.

Investing Activities

Cash used in investing activities was $41.9 million for the three months ended September 30, 2021, compared to cash used of $22.1 million for the three months ended September 30, 2020.

The $19.8 million decrease in cash flow from investing activities was primarily due to an increase in capital expenditures and a net decrease in proceeds on maturity of foreign currency contracts compared to three months ended September 30, 2020.

PART I – FINANCIAL INFORMATION

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

Our obligations under the Note Purchase Agreement and the Senior Notes are unconditionally and irrevocably guaranteed by certain of our direct and indirect U.S.

The net proceeds from this transaction were used to pay down borrowings on our Revolving Credit Agreement.

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 (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.

On March 31, 2021, we were in compliance with our debt covenants and there was a total of $734.0 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 March 31, 2021, we have repurchased a total of 41.8 million shares for an aggregate of $1.6 billion.

Financing Activities

Cash provided by financing activities was $93.0 million for the three months ended September 30, 2021, compared cash used of $175.3 million for the three months ended September 30, 2020.

The $268.2 million increase in cash flow from financing activities was primarily due to borrowing activity under our Revolving Credit Agreement.

We borrowed $150.0 million during the three months ended September 30, 2021, compared to a net repayment of $120.0 million during the three months ended September 30, 2020.

During the three months ended September 30, 2021, we paid cash dividends of $0.42 per common share totaling $61.2 million.

On October 28, 2021, our board of directors declared a cash dividend of $0.42 per common share, to be paid on December 16, 2021, to shareholders of record as of the close of business on November 11, 2021.

Future dividends are subject to approval by our board of directors.

Since the inception of our share repurchase programs and through September 30, 2021, 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 and nine months ended March 31, 2021 and 2020.

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

Accordingly, we did not repurchase any shares during the three months ended September 30, 2021 and 2020.

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

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 March 31, 2021, 12.9 million additional shares can be repurchased under the approved share repurchase program.

At September 30, 2021, 12.9 million additional shares can be repurchased under the approved share repurchase program.

Critical Accounting Principles and Estimates

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See note 1 to the unaudited condensed consolidated financial statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.

Contractual Obligations and Commitments

As of September 30, 2021, there were no material changes outside of the ordinary course of business in our outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Off-Balance Sheet Arrangements

As of March 31, 2021, 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 September 30, 2021, 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 March 31, 2021 (in thousands):

dollars) on our foreign currency denominated operating assets and liabilities and after considering our foreign currency hedging activities as of September 30, 2021 (in thousands):

AUD Functional:

Net Assets/(Liabilities)

Foreign Currency Hedges

USD Functional:

Net Assets/(Liabilities)

Foreign Currency Hedges

EURO Functional:

Net Assets/(Liabilities)

Foreign Currency Hedges

SGD Functional:

Net Assets/(Liabilities)

Foreign Currency Hedges

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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 March 31, 2021.

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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‎ Euro 0.6547

‎ Euro 0.6385

Contract amount

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contractual exchange rate

Contract amount

contractual exchange rate

Interest Rate Risk

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

At March 31, 2021, we held cash and cash equivalents of $230.6 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 March 31, 2021, there was $234.0 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 nine months ended March 31, 2021, would not have had a material impact on pretax income.

At September 30, 2021, we held cash and cash equivalents of $276.1 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, 2021, there was $308.0 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, 2021, 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 March 31, 2021.

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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AND SUBSIDIARIES

OTHER INFORMATION

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