RESMED INC 10-K

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET AND BUSINESS RISKS Foreign Currency Market Risk Our reporting currency is the U.S. dollar, although the financial statements of our non-U.S. subsidiaries are maintained in their respective local currencies. We transact business in various foreign currencies, including a number of major European currencies as well as the Australian dollar. We have significant foreign currency exposure through both our Australian and Singapore manufacturing activities and international sales operations. We have established a foreign currency hedging program using purchased currency options and forward contracts to hedge foreign-currency-denominated financial assets, liabilities and manufacturing cash flows. The goal of this hedging program is to economically manage the financial impact of foreign currency exposures predominantly denominated in euros, Australian dollars and Singapore dollars. Under this program, increases or decreases in our foreign-currency-denominated financial assets, liabilities, and firm commitments are partially offset by gains and losses on the hedging instruments. We do not enter into financial instruments for trading or speculative purposes. The foreign currency derivatives portfolio is recorded in the consolidated balance sheets at fair value and included in Other assets current, Other assets non-current, Accrued expenses and Other liabilities non-current. All movements in the fair value of the foreign currency derivatives are recorded within Other income, net, on our consolidated statements of income. The table below provides information (in U.S. dollars) on our significant foreign-currency-denominated financial assets by legal entity functional currency as of June 30, 2022 (in thousands): U.S. Dollar (USD) Euro (EUR) Canadian Dollar (CAD) Chinese Yuan (CNY) AUD Functional: Net Assets/(Liabilities) 105,745 (50,884) — 16,913 Foreign Currency Hedges (60,000) 31,397 — (11,941) Net Total 45,745 (19,487) — 4,972 USD Functional: Net Assets/(Liabilities) — — 15,619 — Foreign Currency Hedges — — (19,423) — Net Total — — (3,804) — SGD Functional: Net Assets/(Liabilities) 373,198 14,852 — 882 Foreign Currency Hedges (385,000) — — — Net Total (11,802) 14,852 — 882 The table below provides information about our foreign currency derivative financial instruments and presents the information in U.S. 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 June 30, 2022. The table presents the notional amounts and weighted average exchange rates by contractual maturity dates for our -59- Table of Contents PART II Item 7A RESMED INC. AND SUBSIDIARIES Quantitative and Qualitative Disclosures About Market and Business Risks foreign currency derivative financial instruments. These notional amounts generally are used to calculate payments to be exchanged under the options contracts (in thousands, except exchange rates): Fair Value Assets / (Liabilities) Foreign Exchange Contracts Year 1 Year 2 Total June 30, 2022 June 30, 2021 USD/AUD Contract amount 60,000 — 60,000 (190) (652) Ave. contractual exchange rate USD 1 = AUD 0.6928 USD 1 = AUD 0.6928 AUD/EUR Contract amount 88,959 15,699 104,658 (413) 1,172 Ave. contractual exchange rate AUD 1 = EUR 0.6867 AUD 1 = EUR 0.6800 AUD 1 = EUR 0.6857 SGD/EUR Contract amount 20,931 — 20,931 71 (88) Ave. contractual exchange rate SGD 1 = Euro 0.7117 — SGD 1 = Euro 0.7117 SGD/USD Contract amount 385,000 — 385,000 (1,172) (177) Ave. contractual exchange rate SGD 1 = USD 0.7216 SGD 1 = USD 0.7216 AUD/CNY Contract amount 11,941 — 11,941 (37) (130) Ave. contractual exchange rate AUD 1 = CNY 4.6449 AUD 1 = CNY 4.6449 EUR/USD Contract amount — — — — 169 Ave. contractual exchange rate USD 1 = EUR USD 1 = EUR USD/CAD Contract amount 19,423 — 19,423 (46) (44) Ave. contractual exchange rate USD 1 = CAD 1.2902 USD 1 = CAD 1.2902 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 June 30, 2022, we held cash and cash equivalents of $273.7 million principally comprising of bank term deposits and at-call accounts and are invested at both short-term fixed interest rates and variable interest rates. At June 30, 2022, there was $280.0 million outstanding under the revolving credit and term loan facilities, which were subject to variable interest rates. A hypothetical 10% change in interest rates during the year ended June 30, 2022, would not have had a material impact on pretax income. We have no interest rate hedging agreements. On July 10, 2019, we entered into the 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. The interest rate on these notes is fixed and not subject to fluctuation. Inflation Inflationary factors such as increases in the cost of our products, freight, overhead costs or wage rates may adversely affect our operating results. Sustained inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of net revenue if we are unable to offset such higher costs through price increases. -60- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to the financial statements set forth in Item 15 of Part IV of this report, “Exhibits and Consolidated Financial Statement Schedules.” (a) Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm ( KPMG LLP , San Diego, CA , Auditor Firm ID: 185 ) 62 Consolidated Balance Sheets as of June 30, 202 2 and 202 1 64 Consolidated Statements of Income for the years ended June 30, 202 2 , 202 1 and 2 02 0 65 Consolidated Statements of Comprehensive Income for the years ended June 30, 202 2 , 202 1 and 20 20 66 Consolidated Statements of Stockholders’ Equity for the years ended June 30, 202 2 , 202 1 and 20 20 67 Consolidated Statements of Cash Flows for the years ended June 30, 202 2 , 202 1 and 20 20 68 Notes to Consolidated Financial Statements 69 Schedule II – Valuation and Qualifying Accounts and Reserves 91 (b) Supplementary Data Quarterly Financial Information (unaudited)—The quarterly results for the years ended June 30, 2022 and 2021 are summarized below (in thousands, except per share amounts): 2022 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Net revenue $ 904,015 $ 894,874 $ 864,500 $ 914,737 $ 3,578,127 Gross profit 506,289 504,318 491,197 522,506 2,024,311 Net income 203,613 201,751 179,012 195,061 779,437 Basic earnings per share 1.40 1.38 1.22 1.33 5.34 Diluted earnings per share 1.39 1.37 1.22 1.33 5.30 2021 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Net revenue $ 751,944 $ 800,011 $ 768,767 $ 876,103 $ 3,196,825 Gross profit 438,661 462,483 447,258 490,696 1,839,100 Net income (loss) 178,372 179,514 (78,481) 195,098 474,505 Basic earnings (loss) per share 1.23 1.24 (0.54) 1.34 3.27 Diluted earnings (loss) per share 1.22 1.23 (0.54) 1.33 3.24 Note: the amounts for each quarter are computed independently and, due to the computation formula, the sum of the four quarters may not equal the year. -61- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors ResMed Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of ResMed Inc. and subsidiaries (the Company) as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2022, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated August 11, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of goodwill triggering events As discussed in Notes 2(i) and 5 to the consolidated financial statements, the Company’s goodwill balance was $1,936 million as of June 30, 2022. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of a reporting unit, including goodwill, might exceed the fair value of the reporting unit. In the current year, the Company performed qualitative, or Step 0, assessments to determine whether there was a greater than 50 percent likelihood that the fair value of each reporting unit was less than its carrying value. After completing Step 0, the Company determined that goodwill was not more likely than not impaired and, therefore, no Step 1, or quantitative assessment, was necessary. -62- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES We identified the evaluation of goodwill triggering events as a critical audit matter. The evaluation of potential triggering events, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, market capitalization and events specific to the entity and reporting units, required a higher degree of auditor judgment. These potential triggering events could have a significant effect on the Company’s Step 0 assessment and the determination of whether further quantitative analysis of goodwill impairment was required. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the evaluation of goodwill impairment. This included a control related to the Company’s assessment of potential goodwill triggering events. We evaluated the Company’s Step 0 assessment for its reporting units by: • considering macroeconomic conditions including gross domestic product, labor market, and inflation by key regions around the world for negative indicators • evaluating information from analyst reports in the enterprise software and sleep and respiratory care industries, which were compared to industry and market considerations used by the Company • analyzing information including changes in the costs of raw materials and labor, the financial performance of the reporting units, the Company’s market capitalization, and other entity and reporting-unit specific events. /s/ KPMG LLP We have served as the Company’s auditor since 1994. San Diego, California August 11, 2022 -63- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2022 and 2021 (In US$ and in thousands, except share and per share data) June 30, 2022 June 30, 2021 Assets Current assets: Cash and cash equivalents $ 273,710 $ 295,278 Accounts receivable, net of allowances of $ 23,259 and $ 32,138 at June 30, 2022 and June 30, 2021, respectively 575,950 614,292 Inventories (note 4) 743,910 457,033 Prepaid expenses and other current assets (note 4) 337,908 208,154 Total current assets 1,931,478 1,574,757 Non-current assets: Property, plant and equipment, net (note 4) 498,181 463,490 Operating lease right-of-use assets (note 10) 132,314 128,575 Goodwill (note 5) 1,936,442 1,927,901 Other intangible assets, net (note 5) 345,944 392,582 Deferred income taxes (note 13) 79,746 79,904 Prepaid taxes and other non-current assets 171,748 160,916 Total non-current assets 3,164,375 3,153,368 Total assets $ 5,095,853 $ 4,728,125 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 159,245 $ 138,008 Accrued expenses (note 7) 344,722 320,599 Operating lease liabilities, current (note 10) 21,856 23,585 Deferred revenue 108,667 109,611 Income taxes payable (note 13) 44,893 307,963 Short-term debt, net (note 9) 9,916 12,000 Total current liabilities 689,299 911,766 Non-current liabilities: Deferred revenue 95,455 91,496 Deferred income taxes (note 13) 9,714 11,319 Operating lease liabilities, non-current (note 10) 120,453 114,779 Other long-term liabilities 5,974 6,802 Long-term debt, net (note 9) 765,325 643,351 Long-term income taxes payable (note 13) 48,882 62,933 Total non-current liabilities 1,045,803 930,680 Total liabilities 1,735,102 1,842,446 Commitments and contingencies (note 16) Stockholders’ equity: Preferred stock, $ 0.01 par value, 2,000,000 shares authorized; none issued — — Common stock, $ 0.004 par value, 350,000,000 shares authorized; 188,246,955 issued and 146,410,721 outstanding at June 30, 2022 and 187,484,592 issued and 145,648,358 outstanding at June 30, 2021 586 583 Additional paid-in capital 1,682,432 1,622,199 Retained earnings 3,613,736 3,079,640 Treasury stock, at cost, 41,836,234 shares at June 30, 2022 and June 30, 2021 ( 1,623,256 ) ( 1,623,256 ) Accumulated other comprehensive loss ( 312,747 ) ( 193,487 ) Total stockholders’ equity 3,360,751 2,885,679 Total liabilities and stockholders’ equity $ 5,095,853 $ 4,728,125 See accompanying notes to consolidated financial statements. -64- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Consolidated Statements of Income Years Ended June 30, 2022, 2021 and 2020 (In US$ and in thousands, except share and per share data) June 30, 2022 June 30, 2021 June 30, 2020 Net revenue - Sleep and Respiratory Care products $ 3,177,298 $ 2,823,235 $ 2,602,381 Net revenue - Software as a Service 400,829 373,590 354,632 Net revenue 3,578,127 3,196,825 2,957,013 Cost of sales - Sleep and Respiratory Care products 1,365,421 1,177,309 1,067,967 Cost of sales - Software as a Service 148,745 135,289 121,657 Cost of sales (exclusive of amortization shown separately below) 1,514,166 1,312,598 1,189,624 Amortization of acquired intangible assets - Sleep and Respiratory Care products 4,105 4,895 8,584 Amortization of acquired intangible assets - Software as a Service 35,545 40,232 41,019 Amortization of acquired intangible assets 39,650 45,127 49,603 Total cost of sales 1,553,816 1,357,725 1,239,227 Gross profit 2,024,311 1,839,100 1,717,786 Selling, general, and administrative 739,372 670,387 676,689 Research and development 253,575 225,284 201,946 Amortization of acquired intangible assets 31,078 31,078 30,092 Restructuring expenses (note 17) — 8,673 — Litigation settlement expenses — — ( 600 ) Total operating expenses 1,024,025 935,422 908,127 Income from operations 1,000,286 903,678 809,659 Other income (loss), net: Interest (expense) income, net ( 22,312 ) ( 23,627 ) ( 39,356 ) Loss attributable to equity method investments (note 6) ( 8,486 ) ( 11,205 ) ( 25,058 ) Gain (loss) on equity investments (note 6) ( 12,202 ) 14,515 ( 14,519 ) Other, net 3,197 301 2,362 Total other income (loss), net ( 39,803 ) ( 20,016 ) ( 76,571 ) Income before income taxes 960,483 883,662 733,088 Income taxes (note 13) 181,046 409,157 111,414 Net income $ 779,437 $ 474,505 $ 621,674 Basic earnings per share (note 12) $ 5.34 $ 3.27 $ 4.31 Diluted earnings per share (note 12) $ 5.30 $ 3.24 $ 4.27 Dividend declared per share $ 1.68 $ 1.56 $ 1.56 Basic shares outstanding (000's) 146,066 145,313 144,338 Diluted shares outstanding (000's) 147,043 146,451 145,652 See accompanying notes to consolidated financial statements. -65- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years Ended June 30, 2022, 2021 and 2020 (In US$ and in thousands) 2022 2021 2020 Net income $ 779,437 $ 474,505 $ 621,674 Other comprehensive income (loss): Foreign currency translation (loss) gain adjustments ( 119,260 ) 90,495 ( 30,973 ) Comprehensive income $ 660,177 $ 565,000 $ 590,701 See accompanying notes to consolidated financial statements. -66- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity Years ended June 30, 2022, 2021 and 2020 (In US$ and in thousands) Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Amount Shares Amount Balance, June 30, 2019 185,491 $ 575 $ 1,511,473 ( 41,836 ) $ ( 1,623,256 ) $ 2,436,410 $ ( 253,009 ) $ 2,072,193 Common stock issued on exercise of options (note 11) 350 1 19,986 — — — — 19,987 Common stock issued on vesting of restricted stock units, net of shares withheld for tax (note 11) 617 3 ( 46,061 ) — — — — ( 46,058 ) Common stock issued on employee stock purchase plan (note 11) 265 1 28,196 — — — — 28,197 Stock-based compensation costs — — 57,100 — — — — 57,100 Other comprehensive income (loss) — — — — — — ( 30,973 ) ( 30,973 ) Net income — — — — — 621,674 — 621,674 Dividends declared ($ 1.56 per common share) — — — — — ( 225,093 ) — ( 225,093 ) Balance, June 30, 2020 186,723 $ 580 $ 1,570,694 ( 41,836 ) $ ( 1,623,256 ) $ 2,832,991 $ ( 283,982 ) $ 2,497,027 Common stock issued on exercise of options (note 11) 64 — 3,954 — — — — 3,954 Common stock issued on vesting of restricted stock units, net of shares withheld for tax (note 11) 469 2 ( 50,209 ) — — — — ( 50,207 ) Common stock issued on employee stock purchase plan (note 11) 229 1 33,833 — — — — 33,834 Stock-based compensation costs — — 63,927 — — — — 63,927 Other comprehensive income (loss) — — — — — — 90,495 90,495 Net income — — — — — 474,505 — 474,505 Cumulative effect adjustment from adoption of the credit loss standard, net of tax — — — — — ( 1,143 ) — ( 1,143 ) Dividends declared ($ 1.56 per common share) — — — — — ( 226,713 ) — ( 226,713 ) Balance, June 30, 2021 187,485 $ 583 $ 1,622,199 ( 41,836 ) $ ( 1,623,256 ) $ 3,079,640 $ ( 193,487 ) $ 2,885,679 Common stock issued on exercise of options (note 11) 177 — 11,205 — — — — 11,205 Common stock issued on vesting of restricted stock units, net of shares withheld for tax (note 11) 369 2 ( 52,408 ) — — — — ( 52,406 ) Common stock issued on employee stock purchase plan (note 11) 216 1 36,179 — — — — 36,180 Stock-based compensation costs — — 65,257 — — — — 65,257 Other comprehensive income (loss) — — — — — — ( 119,260 ) ( 119,260 ) Net income — — — — — 779,437 — 779,437 Dividends declared ($ 1.68 per common share) — — — — — ( 245,341 ) — ( 245,341 ) Balance, June 30, 2022 188,247 $ 586 $ 1,682,432 ( 41,836 ) $ ( 1,623,256 ) $ 3,613,736 $ ( 312,747 ) $ 3,360,751 See accompanying notes to consolidated financial statements. -67- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 2022, 2021 and 2020 (In US$ and in thousands) June 30, 2022 June 30, 2021 June 30, 2020 Cash flows from operating activities: Net income $ 779,437 $ 474,505 $ 621,674 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 159,609 156,758 154,850 Amortization of right-of-use assets 34,232 34,760 26,523 Stock-based compensation costs (note 11) 65,257 63,927 57,559 Loss attributable to equity method investments (note 6) 8,486 11,205 25,058 (Gain) loss on equity investments (note 6) 12,202 ( 14,515 ) 14,519 Restructuring expenses (note 17) — 8,673 — Changes in fair value of business combination contingent consideration — — ( 7 ) Changes in operating assets and liabilities: Accounts receivable 19,346 ( 129,195 ) 54,383 Inventories ( 311,681 ) ( 21,954 ) ( 69,881 ) Prepaid expenses, net deferred income taxes and other current assets ( 168,109 ) ( 58,154 ) ( 58,999 ) Accounts payable, accrued expenses and other ( 247,632 ) 210,708 ( 23,424 ) Net cash provided by operating activities 351,147 736,718 802,255 Cash flows from investing activities: Purchases of property, plant and equipment ( 134,835 ) ( 102,712 ) ( 95,330 ) Patent registration costs ( 21,201 ) ( 14,114 ) ( 10,608 ) Business acquisitions, net of cash acquired ( 42,784 ) ( 39,067 ) ( 27,910 ) Purchases of investments (note 6) ( 20,724 ) ( 21,788 ) ( 31,616 ) Proceeds from sale of investment (note 6) 6,802 — — (Payments) / proceeds on maturity of foreign currency contracts ( 17,176 ) 19,219 ( 14,397 ) Net cash used in investing activities ( 229,918 ) ( 158,462 ) ( 179,861 ) Cash flows from financing activities: Proceeds from issuance of common stock, net 47,384 37,790 48,182 Taxes paid related to net share settlement of equity awards ( 52,406 ) ( 50,209 ) ( 46,061 ) Payments of business combination contingent consideration — ( 3,500 ) ( 302 ) Proceeds from borrowings, net of borrowing costs 288,000 90,000 1,190,000 Repayment of borrowings ( 166,000 ) ( 612,000 ) ( 1,284,012 ) Dividends paid ( 245,341 ) ( 226,713 ) ( 225,093 ) Net cash used in financing activities ( 128,363 ) ( 764,632 ) ( 317,286 ) Effect of exchange rate changes on cash ( 14,434 ) 18,498 10,920 Net increase (decrease) in cash and cash equivalents ( 21,568 ) ( 167,878 ) 316,028 Cash and cash equivalents at beginning of period 295,278 463,156 147,128 Cash and cash equivalents at end of period $ 273,710 $ 295,278 $ 463,156 Supplemental disclosure of cash flow information: Income taxes paid, net of refunds $ 478,120 $ 221,359 $ 180,359 Interest paid $ 22,312 $ 23,989 $ 40,377 Fair value of assets acquired, excluding cash $ 15,648 $ 16,671 $ 14,919 Liabilities assumed ( 4,672 ) ( 1,543 ) ( 4,292 ) Goodwill on acquisition 38,953 24,671 20,375 Previously held equity interest ( 4,078 ) — — Deferred payments ( 3,067 ) 3,768 408 Fair value of contingent consideration — ( 3,500 ) Cash paid for acquisitions $ 42,784 $ 43,567 $ 27,910 See accompanying notes to consolidated financial statements. -68- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (1) Organization and Basis of Presentation ResMed Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a Delaware corporation formed in March 1994 as a holding company for the ResMed Group. Through our subsidiaries, we design, manufacture and market equipment for the diagnosis and treatment of sleep-disordered breathing and other respiratory disorders, including obstructive sleep apnea. Our manufacturing operations are located in Australia, Singapore, Malaysia, France, China and the United States. Major distribution and sales sites are located in the United States, Germany, France, the United Kingdom, Switzerland, Australia, Japan, China, Finland, Norway and Sweden. We also operate a Software as a Service (“SaaS”) business in the United States that includes 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) Summary of Significant Accounting Policies (a) Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Certain prior period amounts have been reclassified to conform to the current period presentation. Actual results could differ from management’s estimates. (b) Revenue Recognition In accordance with Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, we account for a contract with a customer when there is a legally enforceable contract, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. 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”). 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. 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. Disaggregation of revenue See Note 14 – Segment Information for our net revenue disaggregated by segment, product and region for the years ended June 30, 2022, 2021 and 2020. Performance obligations and contract balances 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 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. For our SaaS business, revenue associated with professional services are recognized as they are provided. We defer the recognition of a portion of the consideration received when performance obligations are not yet satisfied. Consideration received from customers in advance of revenue recognition is classified as deferred revenue. Performance obligations resulting in deferred revenue in our Sleep and Respiratory Care business relate primarily to extended warranties on our devices and the provision of data for patient monitoring. Performance obligations resulting in deferred revenue in our SaaS business relate primarily to the provision of software access with maintenance and support over an agreed term and material rights associated with future discounts upon renewal of some SaaS contracts. Generally, deferred revenue will be recognized over a period of one year to five years . Our contracts do not contain significant financing components. -69- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements The following table summarizes our contract balances as of June 30, 2022 and 2021 (in thousands): 2022 2021 Balance sheet caption Contract assets Accounts receivable, net $ 575,950 $ 614,292 Accounts receivable, net Unbilled revenue, current 25,692 10,893 Prepaid expenses and other current assets Unbilled revenue, non-current 8,840 6,214 Prepaid taxes and other non-current assets Contract liabilities Deferred revenue, current ( 108,667 ) ( 109,611 ) Deferred revenue (current liabilities) Deferred revenue, non-current ( 95,455 ) ( 91,496 ) Deferred revenue (non-current liabilities) Transaction price determination 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 our 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. However, returns of products, excluding warranty-related returns, are infrequent and insignificant. We adjust the estimate of revenue at the earlier of when the most likely amount of consideration can be estimated, the amount expected to be received changes, or when the consideration becomes fixed. We offer our Sleep and Respiratory Care customers cash or product rebates based on volume or sales targets measured over quarterly or annual periods. We estimate rebates based on each customer’s expected achievement of its targets. In accounting for these rebate programs, we reduce revenue ratably as sales occur over the rebate period by the expected value of the rebates to be returned to the customer. Rebates measured over a quarterly period are updated based on actual sales results and, therefore, no estimation is required to determine the reduction to revenue. For rebates measured over annual periods, we update our estimates on a quarterly basis based on actual sales results and updated forecasts for the remaining rebate periods. We participate in programs where we issue credits to our Sleep and Respiratory Care distributors when they are required to sell our products below negotiated list prices if we have preexisting contracts with the distributors' customers. We reduce revenue for future credits at the time of sale to the distributor, which we estimate based on historical experience using the expected value method. We also offer discounts to both our Sleep and Respiratory Care as well as our SaaS customers as part of normal business practice and these are deducted from revenue when the sale occurs. When Sleep and Respiratory Care or SaaS contracts have multiple performance obligations, we generally use an observable price to determine the stand-alone selling price by reference to pricing and discounting practices for the specific product or service when sold separately to similar customers. Revenue is then allocated proportionately, based on the determined stand-alone selling price, to each performance obligation. An allocation is not required for many of our Sleep and Respiratory Care contracts that have a single performance obligation, which is the shipment of our therapy-based equipment. Accounting and practical expedient elections We have elected to account for shipping and handling activities associated with our Sleep and Respiratory Care segment as a fulfillment cost within cost of sales, and record shipping and handling costs collected from customers in net revenue. We have also elected for all taxes assessed by government authorities that are imposed on and concurrent with revenue-producing transactions, such as sales and value added taxes, to be excluded from revenue and presented on a net basis. We have adopted two practical expedients including the “right to invoice” practical expedient, which allows us to recognize revenue in the amount of the invoice when it corresponds directly with the value of performance completed to date and which is relevant for some of our SaaS contracts. The second practical expedient adopted permits relief from considering a significant financing component when the payment for the good or service is expected to be one year or less. -70- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (c) Concentration of Credit Risk and Significant Customers Financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, derivatives and trade receivables. Our cash and cash equivalents are generally held with large, diverse financial institutions to reduce the amount of exposure to any single financial institution. Our derivative contracts are transacted with various financial institutions with high credit standings and any exposure to counterparty credit-related losses in these contracts is largely mitigated with collateralization and master-netting agreements. The risk with respect to trade receivables is mitigated by credit evaluations we perform on our customers, the short duration of our payment terms for the significant majority of our customer contracts and by the diversification of our customer base. No single customer accounted for 10% or more of our total revenues for any of the periods presented. (d) Fair Value of Financial Instruments The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure our financial instruments at fair value at each reporting period using a fair value hierarchy that requires that we maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Other inputs that are directly or indirectly observable in the marketplace. Level 3 - Unobservable inputs that are supported by little or no market activity. The carrying value of cash equivalents, accounts receivable and accounts payable, approximate their fair value because of their short-term nature. The carrying value of long-term debt related to our Revolving Credit and Term Credit Agreements approximates its fair value as the principal amounts outstanding are subject to variable interest rates that are based on market rates which are regularly reset. The carrying value of long-term debt related to our Senior Notes can differ to its fair value as the principal amounts outstanding are subject to fixed interest rates as outlined in Note 9 - Debt. Foreign currency hedging instruments are marked to market and therefore reflect their fair value. In addition, we measure investments in publicly held equity securities and privately held equity securities for which there has been an observable price change in an identical or similar security, at fair value. We do not hold or issue financial instruments for trading purposes. (e) Cash and Cash Equivalents Cash equivalents include certificates of deposit and other highly liquid investments and we state them at cost, which approximates market. We consider investments with original maturities of 90 days or less to be cash equivalents for purposes of the consolidated statements of cash flows. (f) Inventories We state inventories at the lower of cost (determined principally by the first-in, first-out method) or net realizable value. We include material, labor and manufacturing overhead costs in finished goods and work-in-process inventories. We review and provide for any product obsolescence in our manufacturing and distribution operations by assessing throughout the year individual products and components (based on estimated future usage and sales). (g) Property, Plant and Equipment We record property, plant and equipment, including rental and demonstration equipment at cost. We compute depreciation expense using the straight-line method over the estimated useful lives of the assets. Useful lives are generally two years to ten years except for buildings which are depreciated over an estimated useful life of forty years and leasehold improvements, which we amortize over the shorter of the useful life or the lease term. We charge maintenance and repairs to expense as we incur them. -71- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Depreciation expense for property, plant, and equipment was $ 81.0 million, $ 78.4 million, and $ 65.6 million for the years ended June 30, 2022, 2021 and 2020, respectively. (h) Intangible Assets We capitalize the registration costs for new patents and amortize the costs over the estimated useful life of the patent, which is generally ten years . If a patent is superseded or a product is retired, any unamortized costs are written off immediately. We amortize all of our other intangible assets on a straight-line basis over their estimated useful lives, which range from two years to fifteen years . We take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists and, at least annually, evaluate the recoverability of intangible assets. We have no t identified any impairment of intangible assets during any of the periods presented. (i) Goodwill We conduct our annual review for goodwill impairment during the final quarter of the fiscal year. Our goodwill impairment review is performed at our reporting unit level, which is one level below our operating segments and involves the following steps: Step 0 or Qualitative assessment – Evaluate qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. The factors we consider include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance or events-specific to that reporting unit. If or when we determine it is more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill, we would move to Step 1 of the quantitative method. Step 1 – Compare the fair value for each reporting unit to its carrying value, including goodwill. Fair value is determined based on estimated discounted cash flows. A goodwill impairment charge is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. If a reporting unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary. During the annual reviews for the years ended June 30, 2022, 2021 and 2020, we completed a Step 0 or Qualitative assessment and determined it was more likely than not that the fair value of our reporting units exceeded their carrying amounts, including goodwill, and therefore goodwill was not impaired. (j) Equity investments We have equity investments in privately and publicly held companies that are unconsolidated entities. The following discusses our accounting for investments in marketable equity securities, non-marketable equity securities, and investments accounted for under the equity method. Our marketable equity securities are publicly traded stocks measured at fair value and classified within Level 1 in the fair value hierarchy because we use quoted prices for identical assets in active markets. Marketable equity securities are recorded in prepaid expenses and other current assets on the consolidated balance sheets. Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values and are recorded in prepaid taxes and other non-current assets on the consolidated balance sheets. Non-marketable equity securities are reported at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. We assess non-marketable equity securities at least quarterly for impairment and consider qualitative and quantitative factors including the investee's financial metrics, product and commercial outlook and cash usage. All gains and losses on marketable and non-marketable equity securities, realized and unrealized, are recognized in gain (loss) on equity investments as a component of other income (loss), net on the consolidated statements of operations. -72- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements 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 income (loss), net on the consolidated statements of operations. (k) Research and Development We record all research and development expenses in the period we incur them. (l) Foreign Currency The consolidated financial statements of our non-U.S. subsidiaries, whose functional currencies are other than the U.S. dollar, are translated into U.S. dollars for financial reporting purposes. We translate assets and liabilities of non-U.S. subsidiaries whose functional currencies are other than the U.S. dollar at period end exchange rates, but translate revenue and expense transactions at average exchange rates for the period. We recognize cumulative translation adjustments as part of comprehensive income, as detailed in the consolidated statements of comprehensive income, and include those adjustments in accumulated other comprehensive income in the consolidated balance sheets until such time the relevant subsidiary is sold or substantially or completely liquidated. We reflect gains and losses on transactions denominated in other than the functional currency of an entity in our results of operations. (m) Foreign Exchange Risk Management We transact business in various foreign currencies, including a number of major European currencies as well as the Australian and Singapore dollars. We have significant foreign currency exposure through both our Australian and Singaporean manufacturing activities, and international sales operations. We have established a foreign currency hedging program using purchased currency options and forward contracts to hedge foreign-currency-denominated financial assets, liabilities and manufacturing cash flows. The terms of such foreign currency hedging contracts generally do not exceed three years. The goal of this hedging program is to economically manage the financial impact of foreign currency exposures denominated mainly in Euros, Australian and Singapore dollars. Under this program, increases or decreases in our foreign currency denominated financial assets, liabilities, and firm commitments are partially offset by gains and losses on the hedging instruments. We do not designate these foreign currency contracts as hedges. We have determined our hedge program to be a non-effective hedge as defined under the FASB issued authoritative guidance. All movements in the fair value of the foreign currency instruments are recorded within other income, net in our consolidated statements of income and through changes in our operating assets and liabilities within our consolidated statements of cash flows. We classify purchases of foreign currency derivatives and proceeds received from the exercise of foreign currency derivatives as an investing activity within our consolidated statements of cash flows. We do not enter into financial instruments for trading or speculative purposes. We held foreign currency instruments with notional amounts totaling $ 602.0 million and $ 556.4 million at June 30, 2022 and June 30, 2021, respectively, to hedge foreign currency fluctuations. These contracts mature at various dates prior to June 30, 2024. (n) Income Taxes We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using the enacted tax rates we expect to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize the impact of a tax position in the consolidated financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions are reflected in income tax expense. -73- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (o) Provision for Warranty We provide for the estimated cost of product warranties on our Sleep and Respiratory Care products at the time the related revenue is recognized. We determine the amount of this provision by using a financial model, which takes into consideration actual historical expenses and potential risks associated with our different products. We use this financial model to calculate the future probable expenses related to warranty and the required level of the warranty provision. Although we engage in product improvement programs and processes, our warranty obligation is affected by product failure rates and costs incurred to correct those product failures. Should actual product failure rates or estimated costs to repair those product failures differ from our estimates, we would be required to revise our estimated warranty provision. (p) Allowance for Credit Losses We maintain an allowance for credit losses on customer receivables based on our historical write-off experience, an assessment of our customers’ financial conditions and available information that is relevant to assessing the collectability of cash flows, which includes current conditions and forecasts about future economic conditions. Customer receivables are charged against the allowance when they are deemed uncollectible. We are also contingently liable, within certain limits, in the event of a customer default, to independent financing companies in connection with customer financing programs. We monitor the collection status of these installment receivables and provide for estimated losses separately under accrued expenses within our consolidated balance sheets based upon our historical collection experience with such receivables and a current assessment of our credit exposure. (q) Impairment of Long-Lived Assets We periodically evaluate the carrying value of long-lived assets to be held and used, including certain identifiable intangible assets, when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If assets are considered to be impaired, we recognize as the impairment the amount by which the carrying amount of the assets exceeds the fair value of the assets. We report assets to be disposed of at the lower of the carrying amount or fair value less costs to sell. We did not recognize impairment charges in relation to long-lived assets during the fiscal years ended June 30, 2022, 2021 and 2020. (r) Contingencies We record a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. When determining the estimated loss or range of loss, significant judgment is required to estimate the amount and timing of a loss to be recorded. (3) New Accounting Pronouncements Recently adopted accounting pronouncements ASU No. 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. Adoption of ASU 2021-08 did not have a material impact on our consolidated financial statements. -74- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (4) Supplemental Balance Sheet Information Components of selected captions in the consolidated balance sheets consisted of the following as of June 30, 2022 and June 30, 2021 (in thousands): Inventories 2022 2021 Raw materials $ 355,225 $ 155,419 Work in progress 3,077 4,647 Finished goods 385,608 296,967 Total inventories $ 743,910 $ 457,033 Prepaid expenses and other current assets 2022 2021 Prepaid taxes $ 99,352 $ 72,409 Prepaid inventories 107,291 6,952 Other prepaid expenses and current assets 131,265 128,793 Total prepaid expenses and other current assets $ 337,908 $ 208,154 Property, plant and equipment 2022 2021 Machinery and equipment $ 390,634 $ 349,022 Computer equipment and software 199,671 194,386 Furniture and fixtures 54,098 54,435 Vehicles and aircraft 19,231 5,959 Clinical, demonstration and rental equipment 105,440 110,620 Leasehold improvements 80,855 77,392 Land 51,864 54,458 Buildings 229,502 239,357 Property, plant and equipment, at cost $ 1,131,295 $ 1,085,629 Accumulated depreciation and amortization ( 633,114 ) ( 622,139 ) Property, plant and equipment, net $ 498,181 $ 463,490 (5) Goodwill and Other Intangible Assets, net Goodwill For each of the years ended June 30, 2022 and June 30, 2021, we have not recorded any goodwill impairments. Changes in the carrying amount of goodwill is comprised of the following for the year ended June 30, 2022 (in thousands): 2022 Sleep and Respiratory Care SaaS Total Balance at the beginning of the period $ 633,183 $ 1,294,718 $ 1,927,901 Business acquisitions 38,953 — 38,953 Foreign currency translation adjustments ( 30,412 ) — ( 30,412 ) Balance at the end of the period $ 641,724 $ 1,294,718 $ 1,936,442 -75- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Other Intangible Assets Other intangibles, net are comprised of the following as of June 30, 2022 and June 30, 2021 (in thousands): 2022 2021 Developed/core product technology $ 350,671 $ 383,319 Accumulated amortization ( 239,647 ) ( 239,049 ) Developed/core product technology, net 111,024 144,270 Customer relationships 257,034 272,703 Accumulated amortization ( 91,731 ) ( 90,976 ) Customer relationships, net 165,303 181,727 Other intangibles 204,580 197,662 Accumulated amortization ( 134,963 ) ( 131,077 ) Other intangibles, net 69,617 66,585 Total other intangibles, net $ 345,944 $ 392,582 Intangible assets consist of developed/core product technology, trade names, non-compete agreements, customer relationships, and patents, and we amortize them over the estimated useful life of the assets, generally between two years and fifteen years . There are no expected residual values related to these intangible assets. Amortization expense related to identified intangible assets for the years ended June 30, 2022 and June 30, 2021 was $ 70.7 million and $ 76.2 million, respectively. Amortization expense related to patents for the years ended June 30, 2022 and June 30, 2021 was $ 6.2 million and $ 5.3 million, respectively. Total estimated annual amortization expense for the years ending June 30, 2023 through June 30, 2027, is shown below (in thousands): Fiscal Years Ending June 30 2023 2024 2025 2026 2027 Estimated amortization expense $ 61,374 $ 57,594 $ 53,157 $ 47,902 $ 29,667 (6) Investments Equity investments by measurement category as of June 30, 2022 and June 30, 2021 were as follows (in thousands): Measurement category 2022 2021 Fair value $ 9,167 $ 29,084 Measurement alternative 39,290 23,002 Equity method 9,918 17,154 Total $ 58,375 $ 69,240 The following table shows a reconciliation of the changes in our equity investments for the year ended June 30, 2022 (in thousands): Non-marketable securities Marketable securities Equity method investments Total Balance at the beginning of the period $ 23,002 $ 29,084 $ 17,154 $ 69,240 Net additions (reductions) to investments (1) 11,775 ( 3,202 ) 1,250 9,823 Observable price adjustments on non-marketable equity securities 5,367 — — 5,367 Unrealized losses on marketable equity securities — ( 18,341 ) — ( 18,341 ) Realized gains on marketable and non-marketable equity securities 2,355 1,626 — 3,981 Impairment of investments ( 3,209 ) — — ( 3,209 ) Loss attributable to equity method investments — — ( 8,486 ) ( 8,486 ) Carrying value at the end of the period $ 39,290 $ 9,167 $ 9,918 $ 58,375 (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. -76- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements The following table shows a reconciliation of the changes in our equity investments for the year ended June 30, 2021(in thousands): Non-marketable securities Marketable securities Equity method investments Total Balance at the beginning of the period $ 30,033 $ — $ 14,109 $ 44,142 Additions to investments 2,538 5,000 14,250 21,788 Observable price adjustments on non-marketable equity securities 1,000 — — 1,000 Unrealized gains on marketable equity securities — 13,515 — 13,515 Reclassifications (2) ( 10,569 ) 10,569 — — Loss attributable to equity method investments — — ( 11,205 ) ( 11,205 ) Carrying value at the end of the period $ 23,002 $ 29,084 $ 17,154 $ 69,240 (2) During the year ended June 30, 2021, one of our investments, which was previously accounted for under the measurement alternative, completed its initial public offering which resulted in a change of accounting methodology to fair value. Net unrealized gains and losses recognized in the years ended June 30, 2022, 2021 and 2020 for equity investments in non-marketable and marketable securities still held as of those respective dates were a loss of $ 16.2 million, a gain of $ 14.5 million, and a loss of $ 14.5 million, respectively. (7) Accrued Expenses Accrued expenses at June 30, 2022 and June 30, 2021 consist of the following (in thousands): 2022 2021 Product warranties (note 8) $ 25,889 $ 22,032 Consulting and professional fees 25,073 21,246 Value added taxes and other taxes due 26,340 26,542 Employee related costs 194,736 199,917 Promotional and marketing 6,485 4,127 Accrued interest 7,983 8,338 Logistics and occupancy costs 32,160 14,954 Inventory in transit 11,554 7,146 Other 14,502 16,297 Total accrued expenses $ 344,722 $ 320,599 (8) Product Warranties We include the liability for warranty costs in accrued expenses in our consolidated balance sheets. Changes in the liability for product warranty for the years ended June 30, 2022 and June 30, 2021 are as follows (in thousands): 2022 2021 Balance at the beginning of the period $ 22,032 $ 21,132 Warranty accruals for the period 17,442 14,366 Warranty costs incurred for the period ( 12,124 ) ( 14,858 ) Foreign currency translation adjustments ( 1,461 ) 1,392 Balance at the end of the period $ 25,889 $ 22,032 -77- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (9) Debt Debt at June 30, 2022 and June 30, 2021 consists of the following (in thousands): 2022 2021 Short-term debt $ 10,000 $ 12,000 Deferred borrowing costs ( 84 ) — Short-term debt, net 9,916 12,000 Long-term debt $ 770,000 $ 646,000 Deferred borrowing costs ( 4,675 ) ( 2,649 ) Long-term debt, net $ 765,325 $ 643,351 Total debt $ 775,241 $ 655,351 Credit Facility On June 29, 2022, we entered into a second amended and restated credit agreement (the “Revolving Credit Agreement”), as borrower, with lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger, sole book runner, swing line lender and letter of credit issuer, Westpac Banking Corporation, as syndication agent and joint lead arranger, HSBC Bank USA, National Association, as syndication agent and joint lead arranger, and Wells Fargo Bank, National Association, as documentation agent. The Revolving Credit Agreement, among other things, provided a senior unsecured revolving credit facility of $ 1,500.0 million, with an uncommitted option to increase the revolving credit facility by an additional amount equal to the greater of $ 1,000.0 million and 1.00 times the EBITDA (as defined in the Revolving Credit Agreement) for the trailing twelve-month measurement period. The Revolving Credit Facility amends and restates that certain Amended and Restated Credit Agreement, dated as of April 17, 2018, among ResMed, MUFG Union Bank, N.A., Westpac Banking Corporation and the lenders party thereto which provided ResMed with a senior unsecured revolving credit facility in an aggregate amount of $ 1,600.0 million with an uncommitted option to increase such facility by an additional $ 300.0 million. Additionally, on June 29, 2022, ResMed Pty Limited entered into a Second Amendment to the Syndicated Facility Agreement and First Amendment to Unconditional Guaranty 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, which amends that certain Syndicated Facility Agreement dated as of April 17, 2018. The Term Credit Agreement, among other things, provides ResMed Pty a senior unsecured term credit facility of $ 200.0 million. Our obligations under the Revolving Credit Agreement are guaranteed by certain of our direct and indirect U.S. subsidiaries, and ResMed Pty 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. 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. The Revolving Credit Agreement and Term Credit Agreement each terminate on June 29, 2027, 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 $ 5.0 million principal payment required on each such semi-annual amortization date. The outstanding principal amounts will bear interest at a rate equal to the Adjusted Term SOFR (as defined in the Revolving Credit Facility) 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 June 30, 2022, the interest rate that was being charged on the outstanding principal amounts was 3.00 %. An applicable commitment fee of 0.075 % to 0.150 % (depending on the then-applicable leverage ratio) applies -78- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements on the unused portion of the revolving credit facility. As of June 30, 2022, we had $ 1.4 billion available for draw down under the revolving credit facility. We are required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets. As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as Adjusted Term SOFR plus the spreads described above, its carrying amount is equivalent to its fair value as at June 30, 2022 and June 30, 2021, which was $ 280.0 million and $ 158.0 million, respectively. Quoted market prices in active markets for identical liabilities based inputs (Level 2) were used to estimate fair value. Senior Notes 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”). 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. 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 10.0 % of our consolidated tangible assets, determined as of the end of our most recently ended fiscal quarter. This ratio is calculated at the end of each reporting period for which the Note Purchase Agreement requires us to deliver financial statements, using the results of the 12 consecutive month period ending with such reporting period. We are required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets. As of June 30, 2022, the Senior Notes have a carrying amount of $ 500.0 million, excluding deferred borrowing costs, and an estimated fair value of $ 477.7 million. Quoted market prices in active markets for identical liabilities based inputs (Level 2) were used to estimate fair value. At June 30, 2022, we were in compliance with our debt covenants and there was $ 780.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes. (10) Leases (a) Leases where ResMed is the Lessee We determine whether a contract is, or contains, a lease at inception. ROU assets represent our right to use an underlying asset during the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. We use our incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. ROU assets also include any lease payments made at or before lease commencement and any initial direct costs incurred, and exclude any lease incentives received. We determine the lease term as the non-cancellable period of the lease, and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recognized on the balance sheet. Some of our leases include variable lease payments that are based on costs incurred or actual usage, or adjusted periodically based on an index or a rate. Our leases do not contain any residual value guarantees and we do not account for lease and non-lease components as a single lease component. Operating leases are included in operating lease right-of-use assets and operating lease liabilities on our consolidated balance sheets. We lease certain office space, warehouses and distribution centers, manufacturing facilities, vehicles, and equipment with remaining lease terms ranging from less than 1 year to 14 years, some of which include options to extend or terminate the leases. -79- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Operating lease costs for the years ended June 30, 2022, 2021 and 2020 were $ 35.3 million, $ 35.5 million and $ 26.5 million, respectively. Short-term and variable lease costs were not material for the years ended June 30, 2022, 2021 and 2020. Future lease payments under non-cancellable operating leases as of June 30, 2022 are as follows (in thousands): Total 2023 2024 2025 2026 2027 Thereafter Minimum lease payments $ 161,219 $ 25,488 $ 19,561 $ 16,617 $ 15,783 $ 15,254 $ 68,516 Less: imputed interest ( 18,910 ) Total lease liabilities $ 142,309 As of June 30, 2022, we had additional operating lease commitments of $ 0.7 million for office space that have not yet commenced. These leases will commence during the year ended June 30, 2023 with lease terms of 1 year to 5 years. The supplemental information related to operating leases for the years ended June 30, 2022 and June 30, 2021 was as follows (in thousands): 2022 2021 Weighted-average inputs: Weighted-average remaining lease term (years) 8.8 8.5 Weighted-average discount rate 2.8 % 3.0 % Cash flow information: Operating cash flows paid for amounts included in the measurement of lease liabilities $ 26,462 $ 27,734 Right of use assets obtained in exchange for new lease liabilities: $ 41,382 $ 36,130 (b) Leases where ResMed is the Lessor We lease sleep and respiratory 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. When lease contracts also include the sale of masks and accessories, we allocate contract consideration to those items on a relative standalone price basis and recognize revenue when control transfers to the customer. The components of lease revenue for the years ended June 30, 2022, 2021 and 2020 were as follows (in thousands): 2022 2021 2020 Sales-type lease revenue $ 9,342 $ 9,758 $ 13,457 Operating lease revenue 90,076 93,431 87,874 Total lease revenue $ 99,418 $ 103,189 $ 101,331 Our net investment in sales-type leases were classified in the consolidated balance sheets as of June 30, 2022 and June 30, 2021 as follows (in thousands): 2022 2021 Accounts receivable, net $ 6,473 $ 8,026 Prepaid taxes and other non-current assets 7,635 6,214 Total $ 14,108 $ 14,240 -80- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Maturities of sales-type leases as of June 30, 2022 were as follows (in thousands): Total 2023 2024 2025 2026 2027 Thereafter Remaining lease payments $ 16,068 $ 6,757 $ 4,207 $ 2,057 $ 1,915 $ 1,132 — Less: imputed interest ( 1,960 ) Present value of remaining lease payments $ 14,108 (11) Stockholders’ Equity Common Stock. On February 21, 2014, our board of directors approved a new share repurchase program, authorizing us to acquire up to an aggregate of 20.0 million shares of our common stock. The program allows us to repurchase shares of our common stock from time to time for cash in the open market, or in negotiated or block transactions, as market and business conditions warrant and subject to applicable legal requirements. The 20.0 million shares the program authorizes us to purchase are in addition to the shares we repurchased on or before February 21, 2014 under our previous programs. 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. All share repurchases since February 21, 2014 have been executed in accordance with this program. We have temporarily suspended our repurchase program and, accordingly, did not repurchase any shares during fiscal years 2022 or 2021. As of June 30, 2022, we have repurchased a total of 41.8 million shares at a cost of $ 1.6 billion. Shares that are repurchased are classified as “treasury stock pending future use” and reduce the number of shares outstanding used in calculating earnings per share. At June 30, 2022, 12.9 million additional shares can be repurchased under the approved share repurchase program. Preferred Stock. In April 1997, our board of directors authorized 2.0 million shares of 0.01 par value preferred stock. No such shares were issued or outstanding at June 30, 2022. Stock Options and Restricted Stock Units. We have granted stock options, restricted stock units (“RSUs”) and performance restricted stock units (“PRSUs”) to personnel, including officers and directors, in accordance with the ResMed Inc. 2009 Incentive Award Plan (the “2009 Plan”). Options and restricted stock units vest over one year to four years and the options have expiration dates of seven years from the date of grant. We have granted the options with an exercise price equal to the market value as determined at the date of grant. We have granted PRSUs that are subject to a market condition, with the ultimate realizable number of PRSUs dependent on relative total stockholder return over a period of three years , up to a maximum amount to be issued under the award of 225 % of the original grant. At the annual meeting of our stockholders in November 2017, our stockholders approved an amendment and restatement to the 2009 Plan to increase the number of shares of common stock that may be issued or transferred pursuant to awards under the 2009 Plan by 7.4 million. The amendment and restatement imposes a maximum award amount which may be granted under the 2009 Plan to non-employee director in a calendar year, which when taken together with any other cash fees earned for services as a non-employee director during the calendar year, has a total value of $ 0.7 million, or $ 1.2 million in the case of a non-employee director who is also serving as chairman of our board of directors. The amendment and restatement also increased the maximum amount payable pursuant to cash-denominated performance awards granted in any calendar year from $ 3.0 million to $ 5.0 million. In addition, the amendment and restatement extended the existing prohibition on the payment of dividends or dividend equivalents on unvested awards to apply to all awards, including time-based restricted stock, deferred stock and stock payment. The term of the 2009 Plan was extended by four years so that the plan expires on September 11, 2027. The maximum number of shares of our common stock authorized for issuance under the 2009 Plan is 51.1 million. The number of securities remaining available for future issuance under the 2009 Plan at June 30, 2022 is 15.3 million. The number of shares of our common stock available for issuance under the 2009 Plan will be reduced by (i) 2.8 shares for each one share of common stock delivered in settlement of any “full-value award,” which is any award other than a stock option, stock appreciation right or other award for which the holder pays a purchase price and (ii) one share for each share of common stock delivered in settlement of all other awards. The maximum number of shares, which may be subject to awards granted under the 2009 Plan to any individual during any calendar year, may not exceed 3 million shares of our common stock (except in a participant’s initial year of hiring up to 4.5 million shares of our common stock may be granted). -81- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements In certain regions, shares are withheld on behalf of employees to satisfy statutory tax withholding requirements upon exercise or vesting of awards. The number of shares withheld is based upon the closing price of our common stock on the trading day of the applicable settlement date. The remaining shares are delivered to the recipient as shares of our common stock. The amount remitted to the tax authorities for the employees’ tax obligation is reflected as a financing activity on our consolidated statements of cash flows. Shares withheld by us as a result of the net settlement are not considered issued and outstanding and are added to the reserves of the 2009 Plan. The total fair value of RSUs and PRSUs that vested during the years ended June 30, 2022, 2021 and 2020, was $ 65.5 million, $ 59.6 million and $ 56.8 million, respectively. The following table summarizes the activity of RSUs, including PRSUs, during year ended June 30, 2022 (in thousands, except years and per share amounts): Restricted Stock Units Weighted Average Grant-Date Fair Value Weighted Average Remaining Contractual Term in Years Outstanding at beginning of period 875 $ 145.19 1.5 Granted 288 259.46 Vested* ( 575 ) 113.85 Performance factor adjustment 175 — Forfeited ( 82 ) 184.30 Outstanding at end of period 681 $ 203.46 1.6 * Includes 206 thousand shares netted for tax. The following table summarizes option activity during the year ended June 30, 2022 (in thousands, except years and per share amounts): Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Outstanding at beginning of period 1,060 $ 97.01 3.7 Granted 56 256.33 Exercised ( 177 ) 63.31 Forfeited ( 1 ) 110.19 Outstanding at end of period 938 $ 112.91 3.2 Options exercisable at end of period 792 $ 96.14 2.8 Options vested and expected to vest at end of period 932 $ 112.10 3.2 The aggregate intrinsic value of options exercised during the fiscal years 2022, 2021 and 2020, was $ 33.7 million, $ 8.9 million and $ 31.2 million, respectively. As at June 30, 2022, the aggregate intrinsic value of options outstanding, exercisable, and vested and expected to vest were $ 93.5 million, $ 89.9 million and $ 93.4 million respectively. Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, we offer participants the right to purchase shares of our common stock at a discount during successive offering periods. Each offering period under the ESPP will be for a period of time determined by the board of directors’ compensation committee of no less than 3 months and no more than 27 months. The purchase price for our common stock under the ESPP will be the lower of 85 % of the fair market value of our common stock on the date of grant or 85 % of the fair market value of our common stock on the date of purchase. An individual participant cannot subscribe for more than $ 25,000 in common stock during any calendar year. At June 30, 2022, the number of shares remaining available for future issuance under the ESPP is 1.5 million shares. -82- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements During years ended June 30, 2022, 2021 and 2020, we issued 216,000 , 229,000 and 265,000 shares to our employees in two offerings and we recognized $ 11.0 million, $ 10.9 million and $ 8.0 million, respectively, of stock compensation expense associated with the ESPP. Stock–based Employee compensation. We measure the compensation expense of all stock-based awards at fair value on the grant date. We estimate the fair value of stock options and purchase rights granted under the ESPP using the Black-Scholes valuation model. The fair value of restricted stock units is equal to the market value of the underlying shares as determined at the grant date less the fair value of dividends that holders are not entitled to, during the vesting period. The fair value of performance restricted stock units is measured using a Monte-Carlo simulation valuation model. We recognize the fair value as compensation expense using the straight-line method over the service period for awards expected to vest. We estimate the fair value of stock options granted under our stock option plans and purchase rights granted under the ESPP using the assumptions in the following tables. The risk-free interest rate is estimated using the U.S. Treasury yield curve and is based on the term of the award. The expected term of awards is estimated from the vesting period of the award, as well as historical exercise behavior, and represents the period of time the awards granted are expected to be outstanding. Expected volatility is estimated based upon the historical volatility of ResMed stock. We estimate the fair value of stock options granted under our stock option plans and purchase rights granted under the ESPP using the following assumptions for the years ended June 30, 2022, 2021 and 2020: 2022 2021 2020 Stock options: Weighted average grant date fair value $ 72.16 $ 53.67 $ 32.14 Weighted average risk-free interest rate 1.29 % 0.37 % 1.58 % Expected life in years 4.9 4.9 4.9 Dividend yield 0.66 % 0.75 % 1.07 % Expected volatility 32 % 31 % 25 % ESPP purchase rights: Weighted average grant date fair value $ 50.46 $ 48.18 $ 31.82 Weighted average risk-free interest rate 0.3 % 0.1 % 1.6 % Expected life in years 6 months 6 months 6 months Dividend yield 0.63 % - 0.98 % 0.79 % - 0.98 % 0.98 % - 1.42 % Expected volatility 20 % - 34 % 30 % - 60 % 23 % - 60 % The following table summarizes the total stock-based compensation costs incurred and the associated tax benefit recognized during the years ended June 30, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Cost of sales $ 5,218 $ 4,153 $ 3,703 Selling, general and administrative expenses 50,791 51,727 47,265 Research and development expenses 9,248 8,047 6,591 Stock-based compensation costs 65,257 63,927 57,559 Tax benefit ( 29,262 ) ( 23,346 ) ( 39,534 ) Stock-based compensation costs, net of tax benefit $ 35,995 $ 40,581 $ 18,025 At June 30, 2022, there was $ 104.0 million in unrecognized compensation costs related to unvested stock-based compensation arrangements. This is expected to be recognized over a weighted average period of 2.2 years. (12) Earnings Per Share We compute basic earnings per share 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 -83- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements 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 67,000 , 141,000 and 164,000 for the years ended June 30, 2022, 2021 and 2020, respectively, as the effect would have been anti-dilutive. Basic and diluted earnings per share for the years ended June 30, 2022, 2021 and 2020 are calculated as follows (in thousands except per share data): 2022 2021 2020 Numerator: Net income $ 779,437 $ 474,505 $ 621,674 Denominator: Basic weighted-average common shares outstanding 146,066 145,313 144,338 Effect of dilutive securities: Stock options and restricted stock units 977 1,138 1,314 Diluted weighted average shares 147,043 146,451 145,652 Basic earnings per share $ 5.34 $ 3.27 $ 4.31 Diluted earnings per share $ 5.30 $ 3.24 $ 4.27 (13) Income Taxes Income before income taxes for the years ended June 30, 2022, 2021 and 2020, was taxed under the following jurisdictions (in thousands): 2022 2021 2020 U.S. $ ( 85,919 ) $ 71,867 $ 60,548 Non-U.S. 1,046,402 811,795 672,540 Income before income taxes $ 960,483 $ 883,662 $ 733,088 The provision for income taxes is presented below (in thousands): 2022 2021 2020 Current: Federal $ 4,376 $ ( 115,109 ) $ 9,790 State 10,700 9,041 6,898 Non-U.S. 177,788 531,812 124,602 192,864 425,744 141,290 Deferred: Federal ( 12,612 ) ( 22,791 ) ( 13,000 ) State ( 2,773 ) ( 4,205 ) ( 3,335 ) Non-U.S. 3,567 10,409 ( 13,541 ) ( 11,818 ) ( 16,587 ) ( 29,876 ) Provision for income taxes $ 181,046 $ 409,157 $ 111,414 -84- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the years ended June 30, 2022, 2021 and 2020, to pretax income as a result of the following (in thousands): 2022 2021 2020 Taxes computed at statutory U.S. rate $ 201,701 $ 185,569 $ 153,949 Increase (decrease) in income taxes resulting from: State income taxes, net of U.S. tax benefit 5,703 4,836 3,563 Research and development credit ( 17,517 ) ( 20,257 ) ( 13,595 ) Change in valuation allowance 858 ( 3,785 ) 7,216 Effect of non-U.S. tax rates ( 4,384 ) ( 12,130 ) ( 20,935 ) Foreign tax credits ( 2,299 ) ( 7,210 ) ( 4,026 ) Stock-based compensation expense ( 11,294 ) ( 4,498 ) ( 20,696 ) Uncertain tax position — 248,773 — Other 8,278 17,859 5,938 Provision for income taxes $ 181,046 $ 409,157 $ 111,414 We reported net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2022 and June 30, 2021, as follows (in thousands): 2022 2021 Non-current deferred tax asset $ 79,746 $ 79,904 Non-current deferred tax liability ( 9,714 ) ( 11,319 ) Net deferred tax asset $ 70,032 $ 68,585 The components of our deferred tax assets and liabilities at June 30, 2022 and June 30, 2021, are as follows (in thousands): 2022 2021 Deferred tax assets: Employee liabilities $ 28,556 $ 30,080 Tax credit carry overs 7,723 13,753 Inventories 10,570 11,734 Provision for warranties 4,814 4,149 Provision for doubtful debts 5,096 7,334 Net operating loss carryforwards 27,490 33,377 Capital loss carryover 4,715 6,912 Stock-based compensation expense 6,425 6,080 Deferred revenue 25,748 17,839 Research and development capitalization 82,074 58,789 Lease liabilities 21,702 25,751 Other ( 3,395 ) ( 4,911 ) 221,518 210,887 Less valuation allowance ( 13,572 ) ( 13,106 ) Deferred tax assets 207,946 197,781 Deferred tax liabilities: Goodwill and other intangibles ( 108,078 ) ( 104,563 ) Right of use assets ( 20,345 ) ( 23,693 ) Property, plant and equipment ( 9,491 ) ( 940 ) Deferred tax liabilities ( 137,914 ) ( 129,196 ) Net deferred tax asset $ 70,032 $ 68,585 -85- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements As of June 30, 2022, we had $ 19.8 million of U.S. federal and state net operating loss carryforwards and $ 6.9 million of non-U.S. net operating loss carryforwards, which expire in various years beginning in 2023 or carry forward indefinitely. The valuation allowance at June 30, 2022 relates to a provision for uncertainty of the utilization of net operating loss carryforwards of $ 0.8 million and capital loss and other items of $ 12.7 million. We believe that it is more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized. A substantial portion of our manufacturing operations and administrative functions in Singapore operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates through June 30, 2030. The end of certain tax holidays may be extended if specific conditions are met. The net impact of these tax holidays and tax incentive programs increased our net income by $ 38.0 million ($ 0.26 per diluted share) for the year ended June 30, 2022, $ 33.6 million ($ 0.23 per diluted share) for the year ended June 30, 2021, and $ 43.8 million ($ 0.30 per diluted share) for the year ended June 30, 2020. As a result of the Tax Cuts and Jobs Act of 2017 (the ”U.S. Tax Act”), we have treated all non-U.S. historical earnings as taxable. Therefore, future repatriation of cash held by our non-U.S. subsidiaries will generally not be subject to U.S. federal tax if repatriated. The total amount of these undistributed earnings at June 30, 2022 amounted to approximately $ 3.6 billion. On June 14, 2019, the U.S. Treasury Department issued final and temporary regulations relating to the repatriation of non-U.S. earnings. As a result, in the event our non-U.S. earnings had not been permanently reinvested, approximately $ 194.9 million in U.S. federal deferred taxes and $ 5.2 million in U.S. state deferred taxes would have been recognized in the consolidated financial statements. In accounting for uncertainty in income taxes, we recognize a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (that is, a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for annual periods. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. Based on all known facts and circumstances and current tax law, we believe the total amount of unrecognized tax benefits on June 30, 2022, is not material to our results of operations, financial condition or cash flows, and if recognized, would not have a material impact on our effective tax rate. Our income tax returns are based on calculations and assumptions subject to audit by various tax authorities. 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. 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. Tax years 2018 to 2021 remain subject to future examination by the major tax jurisdictions in which we are subject to tax. -86- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (14) Segment Information We have two operating segments, which are the Sleep and Respiratory Care segment and the SaaS segment. We evaluate the performance of our segments based on net sales and income from operations. The accounting policies of the segments are the same as those described in note 2 – Summary of Significant Accounting Policies. Segment net sales and segment income from operations do not include inter-segment profits and revenue is allocated to a geographic area based on where the products are shipped to or where the services are performed. Certain items are maintained at the corporate level and are not allocated to the segments. The non-allocated items include corporate headquarters costs including stock-based compensation, amortization expense of acquired intangibles, restructuring expenses, litigation settlement expenses, deferred revenue fair value adjustment, 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. The table below presents a reconciliation of net revenues, depreciation and amortization and net operating profit by reportable segments for the years ended June 30, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Net revenue by segment Total Sleep and Respiratory Care $ 3,177,298 $ 2,823,235 $ 2,602,381 Software as a Service 400,829 373,590 356,734 Deferred revenue fair value adjustment (1) — — ( 2,102 ) Total Software as a Service 400,829 373,590 354,632 Total $ 3,578,127 $ 3,196,825 $ 2,957,013 Depreciation and amortization by segment Sleep and Respiratory Care $ 79,367 $ 73,151 $ 69,444 Software as a Service 7,315 5,230 3,850 Amortization of acquired intangible assets and corporate assets 72,927 78,377 81,556 Total $ 159,609 $ 156,758 $ 154,850 Net operating profit by segment Sleep and Respiratory Care $ 1,132,510 $ 1,036,712 $ 934,697 Software as a Service 93,821 93,037 82,152 Total $ 1,226,331 $ 1,129,749 $ 1,016,849 Reconciling items Corporate costs $ 155,317 $ 141,193 $ 125,993 Amortization of acquired intangible assets 70,728 76,205 79,695 Restructuring expenses — 8,673 — Litigation settlement expenses — — ( 600 ) Deferred revenue fair value adjustment (1) — — 2,102 Interest expense (income), net 22,312 23,627 39,356 Loss attributable to equity method investments 8,486 11,205 25,058 (Gain) loss on equity investments 12,202 ( 14,515 ) 14,519 Other, net ( 3,197 ) ( 301 ) ( 2,362 ) Income before income taxes $ 960,483 $ 883,662 $ 733,088 (1) The deferred revenue fair value adjustment is a purchase price accounting adjustment related to MatrixCare which was acquired on November 13, 2018. -87- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements The following table summarizes our net revenue disaggregated by segment, product and region for the years ended June 30, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 U.S., Canada and Latin America Devices $ 1,070,420 $ 863,661 $ 792,766 Masks and other 911,387 841,452 779,561 Total Sleep and Respiratory Care $ 1,981,807 $ 1,705,113 $ 1,572,327 Software as a Service 400,829 373,590 354,632 Total $ 2,382,636 $ 2,078,703 $ 1,926,959 Combined Europe, Asia and other markets Devices $ 796,488 $ 746,379 $ 715,056 Masks and other 399,003 371,743 314,998 Total Sleep and Respiratory Care $ 1,195,491 $ 1,118,122 $ 1,030,054 Global revenue Devices $ 1,866,908 $ 1,610,040 $ 1,507,822 Masks and other 1,310,390 1,213,195 1,094,559 Total Sleep and Respiratory Care $ 3,177,298 $ 2,823,235 $ 2,602,381 Software as a Service 400,829 373,590 354,632 Total $ 3,578,127 $ 3,196,825 $ 2,957,013 Revenue information by geographic area for the years ended June 30, 2022, 2021 and 2020 is summarized below (in thousands): 2022 2021 2020 United States $ 2,249,381 $ 1,962,721 $ 1,828,575 Rest of the World 1,328,746 1,234,104 1,128,438 Total $ 3,578,127 $ 3,196,825 $ 2,957,013 Long-lived assets of geographic areas are those assets used in our operations in each geographical area, and excludes goodwill, other intangible assets, and deferred tax assets. Long-lived assets by geographic area as of June 30, 2022 and 2021 is summarized below (in thousands): 2022 2021 Australia $ 192,833 $ 186,289 United States 169,090 159,815 Singapore 72,821 64,182 Rest of the World 63,309 53,204 Total $ 498,053 $ 463,490 (15) Employee Retirement Plans We contribute to a number of employee retirement plans for the benefit of our employees. Details of the main plans are as follows: Australia We contribute to defined contribution plans for each employee resident in Australia at the rate of approximately 10.0 % of salaries. Employees may contribute additional funds to the plans. All Australian employees, after serving a qualifying period, are entitled to benefits on retirement, disability or death. Our total contributions to the plans for the years ended June 30, 2022, 2021 and 2020, were $ 11.8 million, $ 10.7 million and $ 9.5 million, respectively. -88- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements United States We sponsor a defined contribution plan available to substantially all domestic employees. Company contributions to this plan are based on a percentage of employee contributions to a maximum of 4.0 % of the employee’s salary. Our total contributions to the plan were $ 11.9 million, $ 9.6 million and $ 9.3 million in fiscal 2022, 2021 and 2020, respectively. Singapore We sponsor a defined contribution plan available to substantially all domestic employees. Company contributions to this plan are based on a percentage of employee contributions to a maximum of 17.0 % of the employee’s salary. Our total contributions to the plan were $ 3.1 million, $ 2.5 million and $ 2.9 million in fiscal 2022, 2021 and 2020, respectively. (16) Legal Actions, Contingencies and Commitments Litigation In the normal course of business, we are subject to routine litigation incidental to our business. 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. 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 or AutoRamp features of ResMed’s AirSense 10 AutoSet flow generators infringe one or more claims of various NYU patents, including U.S. Patent Nos. 6,988,994; 9,108,009; 9,168,344; 9,427,539; 9,533,115; 9,867,955; and 10,384,024. According to the complaint, the NYU patents are directed to systems and methods for diagnosis and treating sleeping disorders during different sleep states. The complaint seeks monetary 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 was granted in part and denied in part. The matter is proceeding to discovery. 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. The administrative law judge issued an initial determination on April 1, 2022, finding no violation of any of the Philips patents asserted in the ITC. Philips sought review by the full International Trade Commission. On July 6, 2022, the Commission affirmed the administrative law judge’s determination that there was no violation of asserted Philips patents. The Commission terminated the ITC proceedings. Philips may appeal the ITC’s decision or return to the district court to pursue its civil case for damages and an injunction. 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 communications module defendants. The district court cases have been stayed pending the resolution of 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. On June 16, 2022, Cleveland Medical Devices Inc. filed suit for patent infringement against ResMed Inc. in the United States District Court for the District of Delaware, case no. 1:22-cv-00794. Cleveland Medical asserts that numerous ResMed connected devices, when combined with ResMed’s AirView and ResScan data platforms, infringe one or more of eight Cleveland Medical patents, including U.S. Patent Nos. 10,076,269; 10,426,399; 10,925,535; 11,064,937; 10,028,698; 10,478,118; 11,202,603; and 11,234,637. Based on currently available information, we are unable to make a reasonable estimate of loss or range of losses, if any, arising from matters that remain open. -89- Table of Contents PART II Item 8 RESMED INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements Contingent Obligations Under Recourse Provisions We use independent financing institutions to offer some of our customers financing for the purchase of some of our products. Under these arrangements, if the customer qualifies under the financing institutions’ credit criteria and finances the transaction, the customers repay the financing institution on a fixed payment plan. For some of these arrangements, the customer’s receivable balance is with limited recourse whereby we are responsible for repaying the financing company should the customer default. We record a contingent provision, which is estimated based on historical default rates. This is applied to receivables sold with recourse and is recorded in accrued expenses. During the year ended June 30, 2022 and 2021, receivables sold with limited recourse were $ 157.6 million and $ 153.0 million, respectively. As of June 30, 2022, the maximum exposure on outstanding receivables sold with recourse and contingent provision were $ 24.2 million and $ 2.1 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. Commitments In the normal course of business, we enter into agreements to purchase goods or services that are not cancelable without penalty, primarily related to supply arrangements. In addition, in June 2022 we signed a definitive agreement to acquire MEDIFOX DAN which is expected to close during our fiscal year 2023. The MEDIFOX DAN acquisition remains subject to regulatory clearances and other customary closing conditions. Upon closing, acquisition consideration will be paid, in part, with funds available for draw under our Revolving Credit Agreement. Obligations under our purchase agreements and the MEDIFOX DAN acquisition agreement at June 30, 2022 were as follows (in thousands): Total Fiscal Years Ending June 30 2023 2024 2025 2026 2027 Thereafter Minimum purchase obligations $ 1,707,951 $ 1,251,476 $ 440,067 $ 13,152 $ 1,431 $ — $ 1,825 MEDIFOX DAN acquisition consideration $ 994,245 $ 994,245 $ — $ — $ — $ — $ — Total $ 2,702,196 $ 2,245,721 $ 440,067 $ 13,152 $ 1,431 $ — $ 1,825 (17) Restructuring Expenses In November 2020, we closed our Portable Oxygen Concentrator business, which was part of the Sleep and Respiratory Care segment. During the year ended June 30, 2021, we recognized restructuring expenses of $ 13.9 million primarily related to inventory write-downs of $ 5.2 million, accelerated amortization of acquired intangible assets of $ 5.1 million, asset impairments of $ 2.3 million, employee-related costs of $ 0.7 million and contract cancellation costs of $ 0.6 million. Of the total expense recognized during year ended June 30, 2021, the inventory write-down of $ 5.2 million is presented within cost of sales and the remaining $ 8.7 million in restructuring costs is separately disclosed as restructuring expenses on the consolidated statements of operations. The restructure was completed as of June 30, 2021. During the years ended June 30, 2022 and 2020 we did no t incur material restructuring expenses. -90- Table of Contents PART II Item 8 SCHEDULE II RESMED INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES June 30, 2022, 2021 and 2020 (in thousands) Balance at Beginning of Period Charged to costs and expenses Other (deductions) Balance at End of Period Year ended June 30, 2022 Applied against asset account Allowance for trade accounts receivable $ 32,138 $ 2,620 $ ( 11,499 ) $ 23,259 Year ended June 30, 2021 Applied against asset account Allowance for trade accounts receivable (1) $ 30,013 $ 7,805 $ ( 5,680 ) $ 32,138 Year ended June 30, 2020 Applied against asset account Allowance for trade accounts receivable $ 25,171 $ 18,283 $ ( 14,946 ) $ 28,508 (1) Beginning balance is adjusted to reflect the cumulative pre-tax effect of adopting Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), effective July 1, 2021. See accompanying report of independent registered public accounting firm. -91- Table of Contents PART II Items 9 – 9B RESMED INC. AND SUBSIDIARIES ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.