What changed in this filing

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Item 1. Financial Statements

2022-01-28 compared with 2021-10-29 · 310 added, 179 removed, 704 unchanged (41% 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 $ 28,215 and $ 32,138

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

‎ at December 31, 2021 and June 30, 2021, respectively

Inventories (note 3)

32 unchanged sentences

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

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

‎ 188,048,404 issued and 146,212,170 outstanding at December 31, 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 September 30, 2021 and June 30, 2021

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

( 1,623,256 )

9 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Net revenue - Sleep and Respiratory Care products

10 unchanged sentences

Amortization of acquired intangible assets

Restructuring expenses (note 11)

Total operating expenses

17 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Other comprehensive income (loss):

18 unchanged sentences

( 1,623,256 )

Common stock issued on exercise of options

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

Common stock issued on employee stock purchase plan

Stock-based compensation costs

Other comprehensive income

Dividends declared ($ 0.42 per common share)

Balance, December 31, 2021

( 1,623,256 )

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

16 unchanged sentences

( 1,623,256 )

Common stock issued on exercise of options

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

Common stock issued on employee stock purchase plan

Stock-based compensation costs

Other comprehensive income

Dividends declared ($ 0.39 per common share)

Balance, December 31, 2020

( 1,623,256 )

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

3 unchanged sentences

(In US$ and in thousands)

Three Months Ended

‎ September 30,

Six Months Ended

‎ December 31,

Cash flows from operating activities:

5 unchanged sentences

(Gain) loss on equity investments (note 5)

Restructuring expenses (note 11)

Changes in fair value of business combination contingent consideration

Changes in operating assets and liabilities:

2 unchanged sentences

Accounts payable, accrued expenses, income taxes payable and other

Net cash (used in) / provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

Patent registration and acquisition costs

Business acquisitions, net of cash acquired

Purchases of investments (note 5)

7 unchanged sentences

Dividends paid

Net cash (used in) / provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

5 unchanged sentences

Interest paid

Fair value of assets acquired, excluding cash

Liabilities assumed

Goodwill on acquisition

Previously held equity interest

Cash paid for acquisitions

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

16 unchanged sentences

In the opinion of management, all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to present fairly the results of the interim periods.

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 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.

The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022.

The condensed consolidated financial statements for the three and six months ended December 31, 2021 and December 31, 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

7 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

U.S., Canada and Latin America

14 unchanged sentences

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied;

generally, this occurs with the transfer of risk and/or control of our products are provided at a point in time.

generally, this occurs with the transfer of risk and/or control of our products at a point in time.

For products in our Sleep and Respiratory Care business, we transfer control and recognize a sale when products are shipped to the customer in accordance with the contractual shipping terms.

7 unchanged sentences

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

September 30,

Balance sheet caption

13 unchanged sentences

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

In our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies with changes in marketing incentives (e.g., rebates, discounts, free goods) and returns offered to customers and their customers.

In our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies with changes in marketing incentives (e.g.

rebates, discounts, free goods) and returns offered to customers and their customers.

When we give customers the right to return eligible products and receive credit, returns are estimated based on an analysis of historical experience.

24 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

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.

Recently issued accounting standards not yet adopted

2020-04 “Reference Rate Reform:

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

In March 2020, the FASB issued ASU No.

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

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

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

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

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

(a) Recently adopted accounting pronouncements

2021-08 “Business Combinations:

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”

In October 2021, the FASB issued ASU No.

2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers , as if it had originated the contracts.

This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value.

The guidance is effective for us beginning in the first quarter of the year ending June 30, 2024 and early adoption is permitted.

We elected to early adopt this standard in the second quarter of our fiscal year ending June 30, 2022.

We do not expect the adoption of ASU 2021-08 to have a material impact on our consolidated financial statements.

( 2) Segment Information

11 unchanged sentences

Three Months Ended

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Net revenue by segment

11 unchanged sentences

Amortization of acquired intangible assets

Restructuring expenses

Interest expense (income), net

4 unchanged sentences

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

September 30,

Raw materials

3 unchanged sentences

Property, Plant and Equipment

September 30,

Property, plant and equipment, at cost

2 unchanged sentences

Other Intangible Assets

September 30,

Developed/core product technology

14 unchanged sentences

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

Three Months Ended September 30, 2021

Six Months Ended December 31, 2021

‎ Respiratory Care

Balance at the beginning of the period

Business acquisitions

Foreign currency translation adjustments

13 unchanged sentences

Measurement category

September 30,

Measurement alternative

1 unchanged sentence

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

Three Months Ended

‎ September 30, 2021

Six Months Ended December 31, 2021

Non-marketable securities

2 unchanged sentences

Balance at the beginning of the period

Net additions (reductions) to investments (1)

Observable price adjustments on non-marketable equity securities

Ongoing mark-to-market adjustments on marketable equity securities

Unrealized losses on marketable equity securities

Realized gains on marketable and non-marketable equity securities

Impairment of investments

1 unchanged sentence

Carrying value at the end of the period

Three Months Ended

‎ September 30, 2020

(1) Net additions (reductions) to investments includes additions from purchases, reductions due to exits of securities, or reclassifications due to our acquisition of an investee in which we held a prior equity interest.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

Six Months Ended December 31, 2020

Non-marketable securities

2 unchanged sentences

Balance at the beginning of the period

Ongoing mark-to-market adjustments on marketable equity securities

Additions to investments

Unrealized gains on marketable equity securities

Reclassifications (2)

1 unchanged sentence

Carrying value at the end of the period

(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

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

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

Net unrealized losses recognized for equity investments in non-marketable and marketable securities held as of December 31, 2021 for the three and six months ended December 31, 2021 were $ 6.9 million and $ 2.8 million, respectively.

Net unrealized gains and losses recognized for equity investments in non-marketable and marketable securities held as of December 31, 2020 were a loss of $ 3.7 million for three months ended December 31, 2020 and a gain of $ 4.8 million for six months ended December 31, 2020.

(6) Income Taxes

9 unchanged sentences

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

Three Months Ended

‎ September 30,

Six Months Ended

‎ December 31,

Balance at the beginning of the period

4 unchanged sentences

Debt consisted of the following (in thousands):

September 30,

Short-term debt

2 unchanged sentences

Long-term debt, net

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

Credit Facility

3 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.

8 unchanged sentences

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 %.

At December 31, 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 September 30, 2021, we had $ 1.5 billion available for draw down under the revolving credit facility.

As of December 31, 2021, we had $ 1.6 billion available for draw down under the revolving credit facility.

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

As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at September 30, 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.

As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at December 31, 2021 and June 30, 2021, which was $ 182.0 million and $ 158.0 million, respectively.

Quoted market prices in active markets for similar liabilities based inputs (Level 2) were used to estimate fair value.

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

5 unchanged sentences

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.

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 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

As of December 31, 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 $ 525.8 million and $ 530.4 million, respectively.

Quoted market prices in active markets for similar liabilities based inputs (Level 2) were used to estimate fair value.

At December 31, 2021, we were in compliance with our debt covenants and there was $ 682.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.

(9) Earnings Per Share

1 unchanged sentence

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

The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings per share were 1,322 and 109,475 for the three months ended September 30, 2021 and 2020 , respectively, as the effect would have been anti-dilutive.

The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings per share were 49,762 and 196,856 for the three months ended December 31, 2021 and 2020 , respectively, and 25,470 and 154,888 for the six months ended December 31, 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

‎ September 30,

‎ December 31,

Six Months Ended

‎ December 31,

Basic weighted-average common shares outstanding

14 unchanged sentences

The motion to dismiss is pending.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

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.

6 unchanged sentences

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 October 6-14, 2021, the administrative law judge held a hearing on the merits.

The administrative law judge is expected to issue his initial determination on March 4, 2022, and the full Commission is expected to issue its final determination on or about July 5, 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.

2 unchanged sentences

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.

On October 1, 2021 ResMed acquired Ectosense, manufacturer of the NightOwl device used for home sleep testing.

Prior to the acquisition, Ectosense was named as a defendant in a trademark and false advertising complaint filed by Itamar Medical Ltd.

in the district court for the Southern District of Florida, case no.

20-cv-60719-WPD, based on Ectosense’s description of the NightOwl’s measurement of peripheral arterial tone and use of the acronym “PAT” in its advertising.

Ectosense has filed a counterclaim for cancellation of Itamar’s “PAT” trademark and for false advertising by Itamar.

Each party seeks damages and injunctive relief against the other.

The parties are engaged in discovery and the matter is set for trial during the two-week court calendar commencing Monday, September 12, 2022.

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

4 unchanged sentences

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

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.

During the six months ended December 31, 2021 and December 31, 2020, receivables sold with limited recourse were $ 94.2 million and $ 72.6 million, respectively.

As of December 31, 2021, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 41.1 million and $ 6.1 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 three and six months ended December 31, 2020, we recognized restructuring expenses of $ 13.9 million primarily related to inventory write-downs of $ 5.2 million, accelerated amortization of acquired intangible assets of $ 5.1 million, asset impairments of $ 2.3 million, employee-related costs of $ 0.7 million and contract cancellation costs of $ 0.6 million.

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

We did not incur additional material expenses in connection with this activity after December 31, 2020, and the restructure was completed as of June 30, 2021.

PART I – FINANCIAL INFORMATION

10 unchanged sentences

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.

changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including suppliers, customers, competitors and governmental authorities and various other factors.

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, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including suppliers, customers, competitors and governmental authorities and various other factors.

If any one or more of these risks or uncertainties materialize, or underlying estimates or assumptions prove incorrect, actual results may vary significantly from those expressed in our forward-looking statements, and there can be no assurance that the forward-looking statements contained in this report will in fact occur.

7 unchanged sentences

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

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

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

4 unchanged sentences

Our cloud-based software digital health applications, along with our devices, are designed to provide connected care to improve patient outcomes and efficiencies for our customers.

Since the development of continuous positive airway pressure therapy, we have expanded our business by developing or acquiring a number of products and solutions for a broader range of respiratory disorders including technologies to be applied in medical and consumer products, ventilation devices, diagnostic products, mask systems for use in the hospital and home, headgear and other accessories, dental devices, portable oxygen concentrators and cloud-based software informatics solutions to manage patient outcomes and customer and provider business processes.

Since the development of continuous positive airway pressure therapy, we have expanded our business by developing or acquiring a number of products and solutions for a broader range of respiratory disorders including technologies to be applied in medical and consumer products, ventilation devices, diagnostic products, mask systems for use in the hospital and home, headgear and other accessories, dental devices, and cloud-based software informatics solutions to manage patient outcomes and customer and provider business processes.

Our growth has been fueled by geographic expansion, our research and product development efforts, acquisitions and an increasing awareness of SDB and respiratory conditions like chronic obstructive pulmonary disease as significant health concerns.

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

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.

During the three months ended December 31, 2021, we invested $62.5 million on research and development activities, which represents 7.0% of net revenues, with a continued focus on the development and commercialization of new, innovative products and solutions that improve patient outcomes, create efficiencies for our customers and help physicians and providers better manage chronic disease and lower healthcare costs.

During the three months ended December 31, 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.

2 unchanged sentences

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

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.

Net revenue for the three months ended December 31, 2021 was $894.9 million, an increase of 12% compared to the three months ended December 31, 2020.

Gross margin was 56.4% for the three months ended December 31, 2021 compared to 57.8% for the three months ended December 31, 2020.

Diluted earnings per share was $1.37 for the three months ended December 31, 2021 , compared to diluted earnings per share of $1.23 for the three months ended December 31, 2020 .

At December 31, 2021, our cash and cash equivalents totaled $194.5 million, our total assets were $4.7 billion and our stockholders’ equity was $3.1 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 September 30, 2021, we did not observe material incremental demand for our ventilator devices and masks associated with the COVID-19 pandemic.

The COVID-19 pandemic has continued to impact the global supply chain, primarily through a lack of availability of raw materials and electronic components, which has constrained and restricted our ability to initially meet the demand for our sleep products following a recent product recall by one of our competitors.

The lack of raw materials and electronic components is also impacting companies outside of our direct industry, which is resulting in a competitive supply environment causing higher costs, requiring us to commit to minimum purchase obligations as well as make upfront payments to our suppliers.

Additionally, we have observed a reduction in both inbound and outbound transportation capacity as a result of the pandemic, which is causing longer lead times in receiving raw materials into and distributing finished goods out of our manufacturing facilities in addition to increased freight costs.

These highly competitive and constrained supply chain conditions are increasing our cost of sales, which has and may continue to decrease our gross margin.

Given the ongoing uncertainty regarding the duration and extent of the COVID-19 pandemic, we are uncertain as to the duration and extent of constraint on our supply chain.

During the three months ended December 31, 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.

3 unchanged sentences

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.

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.

Although many governments have reduced or removed COVID-19 restrictions and implemented 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.

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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).

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

Net revenue for the three months ended December 31, 2021 increased to $894.9 million from $800.0 million for the three months ended December 31, 2020, an increase of $94.9 million or 12% (a 13% 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,

‎ December 31,

Constant Currency*

12 unchanged sentences

Sleep and Respiratory Care

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

Net revenue from our Sleep and Respiratory Care business for the three months ended December 31, 2021 was $795.8 million, an increase of 12% compared to net revenue for the three months ended December 31, 2020.

Movements in international currencies against the U.S.

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.

dollar negatively impacted net revenue by approximately $5.8 million for the three months ended December 31, 2021.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended December 31, 2021 increased by 13% compared to the three months ended December 31, 2020.

The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks, including increased demand following a recent product recall by one of our competitors.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the three months ended December 31, 2021 increased to $486.8 million from $426.8 million for the three months ended December 31, 2020, an increase of $60.0 million or 14%.

The increase was primarily due to an increase in unit sales of our devices and masks, including increased demand following a recent product recall by one of our competitors.

Net revenue in combined Europe, Asia and other markets increased for the three months ended December 31, 2021 to $309.0 million from $281.4 million for the three months ended December 31, 2020, an increase of $27.6 million or 10% (a 12% 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 increased demand following a recent product recall by one of our competitors.

Net revenue from devices for the three months ended December 31, 2021 increased to $452.5 million from $393.0 million for the three months ended December 31, 2020, an increase of $59.5 million or 15%, including an increase of 19% in the U.S., Canada and Latin America and an increase of 11% in combined Europe, Asia and other markets (a 13% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the three months ended December 31, 2021 increased by 16%.

Net revenue from masks and other for the three months ended December 31, 2021 increased to $343.3 million from $315.2 million for the three months ended December 31, 2020, an increase of $28.1 million or 9%, including an increase of 9% in the U.S., Canada and Latin America and an increase of 8% in combined Europe, Asia and other markets (an 11% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 10%, compared to the three months ended December 31, 2020.

Software as a Service

Net revenue from our SaaS business for the three months ended December 31, 2021 was $99.0 million, an increase of 8% compared to the three months ended December 31, 2020.

The increase was predominantly due to continued growth in our HME category and stabilizing patient flow in our out-of-hospital care settings.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

Six Months Ended December 31, 2021 Compared to the Six Months Ended December 31, 2020

Net revenue for the six months ended December 31, 2021 increased to $1,798.9 million from $1,552.0 million for the six months ended December 31, 2020, an increase of $246.9 million or 16% (a 16% increase on a constant currency basis).

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

Six Months Ended

‎ December 31,

Constant Currency*

U.S., Canada and Latin America

Masks and other

Total Sleep and Respiratory Care

Software as a Service

Combined Europe, Asia and other markets

Masks and other

Total Sleep and Respiratory Care

Global revenue

Masks and other

Total Sleep and Respiratory Care

Software as a Service

Sleep and Respiratory Care

Net revenue from our Sleep and Respiratory Care business for the six months ended December 31, 2021 was $1,602.3 million, an increase of 17% compared to net revenue for the six months ended December 31, 2020.

Movements in international currencies against the U.S.

dollar positively impacted net revenue by approximately $0.2 million for the six months ended December 31, 2021.

Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the six months ended December 31, 2021 increased by 17% compared to the six months ended December 31, 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%.

Net revenue from our Sleep and Respiratory Care business in the U.S., Canada and Latin America for the six months ended December 31, 2021 increased to $977.8 million from $829.9 million for the six months ended December 31, 2020, an increase of $147.9 million or 18%.

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).

Net revenue in combined Europe, Asia and other markets increased for the six months ended December 31, 2021 to $624.5 million from $538.1 million for the six months ended December 31, 2020, an increase of $86.4 million or 16% (a 16% 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.

Net revenue from devices for the six months ended December 31, 2021 increased to $946.7 million from $766.4 million for the six months ended December 31, 2020, an increase of $180.3 million or 24%, including an increase of 29% in the U.S., Canada and Latin America and an increase of 17% in combined Europe, Asia and other markets (a 17% increase on a constant currency basis).

Excluding the impact of foreign currency movements, device sales for the six months ended December 31, 2021 increased by 23%.

Net revenue from masks and other for the six months ended December 31, 2021 increased to $655.7 million from $601.6 million for the six months ended December 31, 2020, an increase of $54.1 million or 9%, including an increase of 7% in the U.S., Canada and Latin America and an increase of 14% in combined Europe, Asia and other markets (a 15% increase on a constant currency basis).

Excluding the impact of foreign currency movements, masks and other sales increased by 9%, compared to the six months ended December 31, 2020.

Software as a Service

Net revenue from our SaaS business for the six months ended December 31, 2021 was $196.6 million, an increase of 7% compared to the six months ended December 31, 2020.

The increase was predominantly due to continued growth in our HME category and stabilizing patient flow in our out-of-hospital care settings.

PART I – FINANCIAL INFORMATION

1 unchanged sentence

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

Software as a Service

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 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.

Gross profit increased for the three months ended December 31, 2021 to $504.3 million from $462.5 million for the three months ended December 31, 2020, an increase of $41.8 million or 9%.

Gross margin, which is gross profit as a percentage of net revenue, for the three months ended December 31, 2021 was 56.4% compared to 57.8% for the three months ended December 31, 2020.

The decrease in gross margin for the three months ended December 31, 2021 compared to three months ended December 31, 2020 was due primarily to higher logistics and manufacturing costs, partially offset by favorable product mix changes.

Gross profit increased for the six months ended December 31, 2021 to $1,010.6 million from $901.1 million for the six months ended December 31, 2020, an increase of $109.5 million or 12%.

Gross margin, which is gross profit as a percentage of net revenue, for the six months ended December 31, 2021 was 56.2% compared to 58.1% for the six months ended December 31, 2020.

The decrease in gross margin for the six months ended December 31, 2021 compared to six months ended December 31, 2020 was due primarily to higher logistics and manufacturing costs and declines in average selling prices, partially offset by favorable product mix changes.

Operating Expenses

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Three Months Ended

‎ September 30,

‎ December 31,

Constant Currency

4 unchanged sentences

Amortization of acquired intangible assets

Six Months Ended

‎ December 31,

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 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 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.

Selling, general, and administrative expenses increased for the three months ended December 31, 2021 to $185.4 million from $169.5 million for the three months ended December 31, 2020, an increase of $15.9 million or 9%.

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

dollar, which decreased our expenses by approximately $1.7 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the three months ended December 31, 2021 increased by 10% compared to the three months ended December 31, 2020.

As a percentage of net revenue, selling, general, and administrative expenses were 20.7% for the three months ended December 31, 2021, compared to 21.2% for the three months ended December 31, 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 December 31, 2021 compared to three months ended December 31, 2020.

Selling, general, and administrative expenses increased for the six months ended December 31, 2021 to $362.1 million from $328.5 million for the six months ended December 31, 2020, an increase of $33.6 million or 10%.

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

dollar, which decreased our expenses by approximately $0.2 million, as reported in U.S.

Excluding the impact of foreign currency movements, selling, general, and administrative expenses for the six months ended December 31, 2021 increased by 10% compared to the six months ended December 31, 2020.

As a percentage of net revenue, selling, general, and administrative expenses were 20.1% for the six months ended December 31, 2021, compared to 21.2% for the six months ended December 31, 2020.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

The constant currency increase in selling, general, and administrative expenses was primarily due to increases in employee-related costs during the six months ended December 31, 2021 compared to six months ended December 31, 2020.

Research and Development Expenses

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 increased for the three months ended December 31, 2021 to $62.5 million from $54.9 million for the three months ended December 31, 2020, an increase of $7.6 million, or 14%.

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

dollar, which decreased our expenses by approximately $0.2 million for the three months ended December 31, 2021, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 14% compared to the three months ended December 31, 2020.

As a percentage of net revenue, research and development expenses were 7.0% for the three months ended December 31, 2021, compared to 6.9% for the three months ended December 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 six months ended December 31, 2021 to $122.5 million from $109.5 million for the six months ended December 31, 2020, an increase of $13.0 million, or 12%.

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

dollar, which increased our expenses by approximately $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.

dollar, which increased our expenses by approximately $0.5 million for the six months ended December 31, 2021, as reported in U.S.

Excluding the impact of foreign currency movements, research and development expenses increased by 11% compared to the six months ended December 31, 2020.

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

Amortization of Acquired Intangible Assets

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

AND SUBSIDIARIES

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

Amortization of acquired intangible assets for the three months ended December 31, 2021 totaled $7.7 million compared to $7.7 million for the three months ended December 31, 2020.

Amortization of acquired intangible assets for the six months ended December 31, 2021 totaled $15.4 million compared to $15.9 million for the six months ended December 31, 2020.

Restructuring Expenses

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

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

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

We did not incur additional material expenses in connection with this activity after December 31, 2020 .

Total Other Income (Loss), Net

1 unchanged sentence

Three Months Ended

‎ September 30,

‎ December 31,

Interest (expense) income, net

2 unchanged sentences

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.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

Six Months Ended

‎ December 31,

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 December 31, 2021 was a loss of $11.4 million compared to a loss of $11.1 million for the three months ended December 31, 2020.

The increase in loss was primarily due to higher losses associated with our investments in marketable and non-marketable equity securities, which were a loss of $4.4 million for the three months ended December 31, 2021 compared to a loss of $3.7 million for the three months ended December 31, 2020.

Additionally, interest expense, net, increased to $5.9 million for the three months ended December 31, 2021 compared to $5.8 million for the three months ended December 31, 2020.

These increases were offset by lower losses attributable to equity method investments for the three months ended December 31, 2021 of $1.9 million compared to $2.6 million for the three months ended December 31, 2020.

Total other income (loss), net for the six months ended December 31, 2021 was a loss of $14.6 million compared to a loss of $12.2 million for the six months ended December 31, 2020.

The increase in loss was primarily due to lower gains associated with our investments in marketable and non-marketable equity securities, which were a gain of $1.2 million for the six months ended December 31, 2021 compared to a gain of $4.8 million for the six months ended December 31, 2020.

This was offset by a decrease in interest expense, net, to $11.3 million for the six months ended December 31, 2021 compared to $12.5 million for the six months ended December 31, 2020.

We also recorded lower losses attributable to equity method investments for the six months ended December 31, 2021 of $3.3 million compared to $4.9 million for the six months ended December 31, 2020.

Our effective income tax rate for the three and six months ended December 31, 2021 was 15.0% and 18.3% as compared to 14.8% and 16.1% for the three and six months ended December 31, 2020.

Our effective rate of 15.0% differs from the statutory rate of 21.0% primarily due to research credits, foreign operations and windfall tax benefits related to the vesting or settlement of employee share-based awards.

The increase to our effective tax rate for the three and six months ended December 31, 2021 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.

11 unchanged sentences

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.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

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% .

As a result of the factors above, our net income for the three months ended December 31, 2021 was $201.8 million compared to net income of $179.5 million for the three months ended December 31, 2020, an increase of 12%.

Our net income for the six months ended December 31, 2021 was $405.4 million compared to net income of $357.9 million for the six months ended December 31, 2020, an increase of 13%.

Our diluted earnings per share for the three months ended December 31, 2021 was $1.37 per diluted share compared to diluted earnings per share of $1.23 for the three months ended December 31, 2020, an increase of 11% .

Our diluted earnings per share for the six months ended December 31, 2021 was $2.76 per diluted share compared to diluted earnings per share of $2.45 for the six months ended December 31, 2020 , an increase of 13% .

Summary of Non-GAAP Financial Measures

5 unchanged sentences

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

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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 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 portable oxygen concentrator business.

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.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

GAAP Net revenue

1 unchanged sentence

Amortization of acquired intangibles

Restructuring - cost of sales

Non-GAAP cost of sales

3 unchanged sentences

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.

The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired intangibles and restructuring expense associated with the closure of the portable oxygen concentrator business.

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

Three Months Ended

September 30,

Six Months Ended

GAAP income from operations

1 unchanged sentence

Amortization of acquired intangibles - operating expenses

Restructuring - cost of sales

Restructuring - operating expenses

Non-GAAP income from operations

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

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

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, restructuring expenses (net of tax) 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.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

GAAP net income

2 unchanged sentences

Reserve for disputed tax positions

Restructuring - cost of sales, net of tax

Restructuring - operating expenses, net of tax

(Gain) loss on equity investments

11 unchanged sentences

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

AND SUBSIDIARIES

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

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.

As of December 31, 2021 and June 30, 2021, we had cash and cash equivalents of $194.5 million and $295.3 million, respectively.

Our cash and cash equivalents held within the United States at December 31, 2021 and June 30, 2021 were $42.8 million and $106.7 million, respectively.

Our remaining cash and cash equivalent balances at December 31, 2021 and June 30, 2021, were $151.7 million and $188.6 million, respectively.

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

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 of December 31, 2021, we had $1.6 billion available for draw down under the revolver credit facility and a combined total of $1.8 billion in cash and available liquidity under the revolving credit facility.

As a result of the U.S.

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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.

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

Revolving Credit Agreement, Term Credit Agreement and Senior Notes

5 unchanged sentences

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.

As of September 30, 2021, we had $1.5 billion available for draw down under the revolving credit facility.

As of December 31, 2021, we had $1.6 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.

On December 31, 2021, there was a total of $682.0 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.

1 unchanged sentence

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

Three Months Ended

‎ September 30,

Net cash (used in) / provided by operating activities

Six Months Ended

‎ December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) / provided by financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

1 unchanged sentence

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.

Cash provided by operating activities was $154.2 million for the six months ended December 31, 2021, compared to cash provided of $313.9 million for the six months ended December 31, 2020.

The $159.7 million decrease in cash flow from operations was primarily due to the payment of our tax settlement with the ATO of $284.8 million and greater inventory purchases to secure adequate components for the increasing sales demand, offset by an increase in operating profit and other net changes in working capital balances compared to the six months ended December 31, 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

AND SUBSIDIARIES

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

Cash used in investing activities was $125.2 million for the six months ended December 31, 2021, compared to cash used of $51.8 million for the six months ended December 31, 2020.

The $73.4 million decrease in cash flow from investing activities was primarily due to an increase in cash paid for business acquisitions and a net decrease in proceeds on maturity of foreign currency contracts compared to six months ended December 31, 2020.

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.

Cash used in financing activities was $125.0 million for the six months ended December 31, 2021, compared to cash used of $492.1 million for the six months ended December 31, 2020.

The $367.1 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.

Proceeds from borrowings, net of repayments, for the six months ended December 31, 2021 were $24.0 million compared to net repayments of $351.0 million during the six months ended December 31, 2020.

During the three months ended December 31, 2021, we paid cash dividends of $0.42 per common share totaling $61.2 million.

On January 27, 2021, our board of directors declared a cash dividend of $0.42 per common share, to be paid on March 17, 2022, to shareholders of record as of the close of business on February 10, 2022.

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 months ended September 30, 2021 and 2020.

Since the inception of our share repurchase programs and through December 31, 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,

PART I – FINANCIAL INFORMATION

AND SUBSIDIARIES

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

as a response to the COVID-19 pandemic.

Accordingly, we did not repurchase any shares during the three and six months ended December 31, 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 September 30, 2021, 12.9 million additional shares can be repurchased under the approved share repurchase program.

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

Critical Accounting Principles and Estimates

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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.

Purchase obligations as of December 31, 2021 were as follows:

Payments Due by December 31,

Purchase obligations

Other than for purchase obligations, there have been no material changes outside 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 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 .

As of December 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 .

PART I – FINANCIAL INFORMATION

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The table below provides information (in U.S.

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

dollars) on our foreign currency denominated operating assets and liabilities and after considering our foreign currency hedging activities as of December 31, 2021 (in thousands):

AUD Functional:

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Foreign Currency Hedges

EURO Functional:

Net Assets/(Liabilities)

Foreign Currency Hedges

SGD Functional:

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dollar equivalents.

The table summarizes information on instruments and transactions that are sensitive to foreign currency exchange rates, including foreign currency call options, collars and forward contracts held at September 30, 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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We are exposed to risk associated with changes in interest rates affecting the return on our cash and cash equivalents and debt.

At September 30, 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.

At December 31, 2021, we held cash and cash equivalents of $194.5 million principally comprised of bank term deposits and at-call accounts and are invested at both short-term fixed interest rates and variable interest rates.

At December 31, 2021, there was $182.0 million outstanding under the Revolving Credit Agreement and Term Credit Agreement, which are subject to variable interest rates.

A hypothetical 10% change in interest rates during the three and six months ended December 31, 2021, would not have had a material impact on pretax income.

We have no interest rate hedging agreements.

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AND SUBSIDIARIES

Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports made pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

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

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

PART II – OTHER INFORMATION

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