UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________
______________________________________________________________________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
Commission file number: 001-15317
______________________________________________________________________________________________
ResMed Inc.
(Exact name of registrant as specified in its charter)
______________________________________________________________________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
98-0152841
(IRS Employer Identification No.)
9001 Spectrum Center Blvd.
San Diego, CA 92123
United States of America
(Address of principal executive offices)
(858) 836-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.004 per share
Trading
Symbol(s)
RMD
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
______________________________________________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
Emerging Growth Company
Accelerated Filer
Smaller Reporting Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of registrant as of December 31, 2020 (the last business day of the
registrant’s most recently completed second fiscal quarter), computed by reference to the closing sale price of such stock on the New York Stock Exchange, was
$30,662,112,869. All directors, executive officers, and 10% stockholders of registrant are considered affiliates.
At August 12, 2021, registrant had 145,681,186 shares of Common Stock, $0.004 par value, issued and outstanding. This number excludes 41,836,234 shares held by
the registrant as treasury shares.
Portions of the registrant’s definitive Proxy Statement to be delivered to stockholders in connection with the registrant’s 2021 Annual Meeting of Stockholders, to be
filed subsequent to the date hereof, are incorporated by reference into Part III of this report.
Table of Contents
TABLE OF CONTENTS
Cautionary Note Regarding Forward Looking Statements
Part I
Part II
Item 1 Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Item 3
Item 4 Mine Safety Disclosures
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Properties
Legal Proceedings
Securities
Selected Financial Data
Item 6
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market and Business Risks
Item 8 Consolidated Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13 Certain Relationships and Related Transactions, and Director Independence
Item 14 Principal Accounting Fees and Services
Item 15 Exhibits and Consolidated Financial Statement Schedules
Item 16 Form 10-K Summary
Signatures
Part III
Part IV
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As used in this 10-K, the terms “we”, “us”, “our” and “the Company” refer to ResMed Inc., a Delaware corporation, and its subsidiaries,
on a consolidated basis, unless otherwise stated.
Table of Contents
PART I
RESMED INC. AND SUBSIDIARIES
PART I
Item 1
Cautionary Note Regarding Forward-Looking Statements
This report contains or may contain certain forward-looking statements and information that are based on the beliefs of our management
as well as estimates and assumptions made by, and information currently available to, our management. All statements other than
statements regarding historical facts are forward-looking statements. The words “believe,” “expect,” “intend,” “anticipate,” “will
continue,” “will,” “estimate,” “plan,” “future” and other similar expressions, and negative statements of such expressions, generally
identify forward-looking statements, including, in particular, statements regarding expectations of future revenue or earnings, expenses,
new product development, new product launches, new markets for our products, litigation, and tax outlook. These forward-looking
statements are made in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You are
cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements reflect the views of our
management at the time the statements are made and are subject to a number of risks, uncertainties, estimates and assumptions, including,
without limitation, and in addition to those identified in the text surrounding such statements, those identified in Item 1A “Risk Factors”
and elsewhere in this report.
In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in healthcare
reform, social, economic, market, legal or regulatory circumstances, including the impact of public health crises such as the novel strain
of coronavirus (COVID-19) that has spread globally; changes in our business or growth strategy or an inability to execute our strategy
due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of
third parties, including suppliers, customers, competitors and governmental authorities, and various other factors. If any one or more of
these risks or uncertainties materialize, or underlying estimates or assumptions prove incorrect, actual results may vary significantly
from those expressed in our forward-looking statements, and there can be no assurance that the forward-looking statements contained
in this report will in fact occur.
ITEM 1 BUSINESS
General
We are a global leader in digital health and cloud-connected medical devices. We design innovative solutions to treat and keep people
out of the hospital, empowering them to live healthier, higher-quality lives. Our digital health technologies and cloud-connected medical
devices transform care for people with sleep apnea, chronic obstructive pulmonary disease, or COPD, and other chronic diseases. Our
comprehensive out-of-hospital software platforms support the professionals and caregivers who help people stay healthy in the home or
care setting of their choice. By enabling better care, our products improve quality of life, reduce the impact of chronic disease, and lower
costs for consumers and healthcare systems.
Following our formation in 1989, we commercialized a treatment for obstructive sleep apnea, or OSA. This treatment, nasal continuous
positive airway pressure, or CPAP, was the first successful noninvasive treatment for OSA. CPAP systems deliver pressurized air,
typically through a nasal mask, to prevent collapse of the upper airway during sleep.
Since the development of CPAP, we have expanded our business by developing or acquiring a number of innovative products and
solutions for a broad range of respiratory disorders including technologies to be applied in medical and consumer products, ventilation
devices, diagnostic products, mask systems for use in the hospital and home, headgear and other accessories, and dental devices. We
offer a comprehensive digital solution suite for patients with COPD or asthma, including those using inhalers, as well as non-invasive
or invasive ventilation. In addition, we are a leading provider of cloud-based software health applications and devices designed to
provide connected care, enabling clinicians to manage more patients efficiently and effectively, as well as enabling and encouraging
patients’ long-term adherence to and satisfaction with their therapy. We also provide management software to agencies providing out-
of-hospital care, including home medical equipment, or HME, home health and hospice, skilled nursing, life plan community, senior
living, and private duty services.
We employ approximately 8,000 people and sell our products in over 140 countries through a combination of wholly owned subsidiaries
and independent distributors.
Our web site address is www.resmed.com. Information contained on our website is not part of or incorporated into this report. We make
our periodic reports, together with any amendments, available on our website, free of charge, as soon as reasonably practicable after we
electronically file or furnish the reports with the Securities and Exchange Commission, or SEC. The SEC maintains an internet site,
www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC.
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Table of Contents
PART I
Corporate History
RESMED INC. AND SUBSIDIARIES
Item 1
Our Australian subsidiary, ResMed Holdings Limited, was originally organized in 1989 by Dr. Peter Farrell to acquire from Baxter
Center for Medical Research Pty Limited, or Baxter, the rights to certain technology relating to CPAP treatment as well as Baxter’s
existing CPAP device business. Baxter acquired the rights to the technology in 1987 and sold CPAP devices in Australia from 1988
until our acquisition of the business.
ResMed Inc., a Delaware corporation, was formed in March 1994 as the ultimate holding company for our operating subsidiaries. In
June 1995, we completed an initial public offering of common stock and our common stock began trading on the NASDAQ National
Market. In September 1999, we transferred our principal listing to the New York Stock Exchange, or NYSE, trading under the ticker
symbol “RMD”. In November 1999, we established a secondary listing of our common stock via Chess Depositary Instruments, or
CDIs, on the Australian Stock Exchange (now known as the Australian Securities Exchange), or ASX, also under the symbol “RMD”.
Ten CDIs on the ASX represent one share of our common stock on the NYSE.
Since formation we have acquired a number of businesses, including distributors, suppliers, developers of medical equipment and related
technologies and software solution providers.
Segment Information
We operate in two segments, which are the Sleep and Respiratory Care segment and the Software as a Service, or SaaS, segment. See
Note 15 – Segment Information of the Notes to Financial Statements (Part II, Item 8) for financial information regarding segment
reporting. Financial information about our revenues from and assets located in foreign countries is also included in the notes to our
consolidated financial statements.
The Market
We are focused on the sleep and related respiratory care markets, both of which we believe are globally underpenetrated markets, and
where we believe our products can improve patient outcomes, create efficiencies for our customers, help physicians and providers better
manage chronic disease and reduce overall healthcare system costs. Additionally, our software solutions are focused on the out-of-
hospital care market, which we believe is fragmented and underserved and where we see significant opportunity to transform and
significantly improve out-of-hospital healthcare through a strategy of enabling better patient care, improving clinical decision support,
and driving interoperability across out-of-hospital care settings.
Sleep and Respiratory Care
Sleep
Sleep is a complex neurological process that includes two distinct states: rapid eye movement, or REM, sleep and non-rapid eye
movement, or non-REM, sleep. REM sleep, which is about 20-25% of total sleep experienced by adults, is characterized by a high level
of brain activity, bursts of rapid eye movement, increased heart and respiration rates, and paralysis of many muscles. Non-REM sleep
is subdivided into four stages that generally parallel sleep depth; stage 1 is the lightest and stage 4 is the deepest.
The upper airway has no rigid support and is held open by active contraction of upper airway muscles. Normally, during REM sleep
and deeper levels of non-REM sleep, upper airway muscles relax and the airway narrows. Individuals with narrow upper airways or
poor muscle tone are prone to temporary collapses of the upper airway during sleep, called apneas, and to near closures of the upper
airway called hypopneas. These breathing events result in a lowering of blood oxygen concentration, causing the central nervous system
to react to the lack of oxygen or increased carbon dioxide and signaling the body to respond. Typically, the individual subconsciously
arouses from sleep, causing the throat muscles to contract, opening the airway. After a few gasping breaths, blood oxygen levels increase
and the individual can resume a deeper sleep until the cycle repeats itself. Sufferers of OSA typically experience ten or more such cycles
per hour. While these awakenings greatly impair the quality of sleep, the individual is not normally aware of these disruptions. In
addition, OSA has been recognized as a cause of hypertension and a significant comorbidity for heart disease, stroke and diabetes.
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Item 1
RESMED INC. AND SUBSIDIARIES
A long-term epidemiology study published in 2013 estimated that 26% of adults age 30-70 have some form of obstructive sleep apnea.
Another study published in Lancet Respiratory in 2019 estimated that mild to severe OSA impacts more than 936 million people
worldwide, including 54 million Americans. Of those impacted, it was estimated that more than 424 million would have moderate to
severe sleep apnea. Despite the high prevalence of OSA, there is a general lack of awareness of OSA among both the medical community
and the general public. It is estimated that less than 20% of those with OSA have been diagnosed or treated. Many healthcare
professionals are often unable to diagnose OSA because they are unaware that such non-specific symptoms as excessive daytime
sleepiness, snoring, hypertension, and irritability are characteristic of OSA.
While sleep apnea has been diagnosed in a broad cross-section of the population, until recently, it has typically been diagnosed among
middle-aged men who are obese. However, we believe the importance of sleep apnea in women is increasingly being recognized, with
nearly 40% of new PAP patients being female. A strong association has been discovered between sleep apnea and a number of
cardiovascular and metabolic diseases. Studies have shown that sleep apnea is present in approximately 83% of patients with drug-
resistant hypertension, approximately 77% of patients with obesity, approximately 76% of patients with chronic heart failure and
approximately 72% of patients with type 2 diabetes.
Sleep-Disordered Breathing and Obstructive Sleep Apnea. Sleep-disordered breathing, or SDB, encompasses all disease processes
that cause abnormal breathing patterns during sleep. Manifestations include OSA, central sleep apnea, or CSA, and hypoventilation
syndromes that occur during sleep. Hypoventilation syndromes are generally associated with obesity, chronic obstructive lung disease
and neuromuscular disease. OSA is the most common form of SDB.
Sleep fragmentation and the loss of the deeper levels of sleep caused by OSA can lead to excessive daytime sleepiness, reduced cognitive
function, including memory loss and lack of concentration, depression and irritability. OSA sufferers also experience an increase in
heart rate and an elevation of blood pressure during the cycle of apneas. Several studies indicate that the oxygen desaturation, increased
heart rate and elevated blood pressure caused by OSA may be associated with increased risk of cardiovascular morbidity and mortality
due to angina, stroke and heart attack. Patients with OSA have been shown to have impaired daytime performance in a variety of
cognitive functions including problem solving, response speed and visual motor coordination, and studies have linked OSA to increased
occurrences of traffic and workplace accidents.
Generally, an individual seeking treatment for the symptoms of OSA is referred by a general practitioner to a sleep specialist for further
evaluation. The diagnosis of OSA typically requires monitoring the patient during sleep at either a sleep clinic or the patient’s home.
During overnight testing, respiratory parameters and sleep patterns may be monitored, along with other vital signs such as heart rate and
blood oxygen levels. Simpler tests, using devices such as our ApneaLink Air, or our automatic positive airway pressure devices, monitor
airflow during sleep, and use computer programs to analyze airflow patterns. These tests allow sleep clinicians to detect any sleep
disturbances such as apneas, hypopneas or subconscious awakenings.
Before 1981, the primary treatment for OSA was a tracheotomy, a surgical procedure to create a hole in the patient’s windpipe.
Alternative surgical treatments have involved either uvulopalatopharyngoplasty, or UPPP, in which surgery is performed on the upper
airway to remove excess tissue and to streamline the shape of the airway or implanting a device to add support to the soft palate. UPPP
alone has a poor success rate; however, when performed in conjunction with multi-stage upper airway surgical procedures, a greater
success rate has been claimed. These combined procedures, performed by highly specialized surgeons, are expensive and involve
prolonged and often painful recovery periods. Surgical treatments are not considered first line therapy for OSA. Other alternative
treatments available today include nasal surgery, mandibular advancement surgery, dental appliances, palatal implants, somnoplasty,
nasal devices and electrical stimulation of the nerves or muscles. Alternative pharmaceutical therapy treatments are reported to be under
development.
A variety of devices are marketed for the treatment of OSA. Most are only partially effective, but CPAP is a reliable treatment for all
severities of OSA and is considered first-line therapy. Use of mandibular advancement devices is increasing as a second-line option in
patients unable to use CPAP or those with mild OSA. These devices cause the mandible and tongue to be pulled forward and improve
the dimensions of the upper airway. CPAP is a non-invasive means of treating OSA. CPAP was first used as a treatment for OSA in
1980 by Dr. Colin Sullivan, the past Chairman of our Medical Advisory Board and was commercialized for treatment of OSA in the
United States, or U.S., in the mid-1980s. During CPAP treatment, a patient sleeps with a nasal interface connected to a small portable
air device that delivers room air at a positive pressure. The patient breathes in air from the device and breathes out through an exhaust
port in the interface. Continuous air pressure applied in this manner acts as a pneumatic splint to keep the upper airway open and
unobstructed. Interfaces include nasal masks and nasal pillows. Sometimes, when a patient leaks air through their mouth, a full-face
mask may need to be used, rather than a nasal interface.
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RESMED INC. AND SUBSIDIARIES
CPAP is not a cure and, therefore, must be used on a nightly basis as long as treatment is required. Patient compliance has been a major
factor in the efficacy of CPAP treatment. Early generations of CPAP units provided limited patient comfort and convenience. Patients
experienced soreness from the repeated use of nasal masks and had difficulty falling asleep with the CPAP device operating at the
prescribed pressure. In more recent years, product innovations to improve patient comfort and compliance have been developed. These
include more comfortable patient interface systems; delay timers that gradually raise air pressure allowing the patient to fall asleep more
easily; bilevel air devices, including our AirCurve 10 Series and Lumis devices, which provide different air pressures for inhalation and
exhalation; heated humidification systems to make the airflow more comfortable; and autotitration devices that modulate the average
pressure delivered during the night.
Respiratory Care
Our aim is to provide respiratory care solutions to patients with COPD, asthma, and other chronic respiratory diseases, such as overlap
syndrome, obesity hypoventilation syndrome, or OHS, and neuromuscular disease, including amyotrophic lateral sclerosis, or ALS. We
aim to improve their quality of life, slow down disease progression and reduce the costs of patient management.
Our products cover patients ranging from those who only require therapy from CPAP systems at night to those who are dependent on
non-invasive or invasive ventilation for life-support. Our devices are predominantly used in the home and, to a lesser extent, in general
hospital wards and respiratory wards. We supply CPAP and bilevel device systems, non-invasive and invasive ventilators, humidifiers
and accessories, including masks and tubing. We also provide data management systems designed to improve the management of
patients.
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, COVID-19, as a pandemic. We
have observed increased demand for our ventilator devices and masks, and during the first six months of the pandemic worked closely
with governments, health authorities, hospitals, and physicians in over 100 countries to assess their needs and deliver the ventilation
therapy that is essential to treat the respiratory complications of COVID-19. Our primary focus with regards to the pandemic remains
preservation of life; our strategy is to maximize the availability of ResMed ventilators and other respiratory support devices for the
patients that need them most. Between January 1 and June 30, 2020, ResMed produced over 150,000 ventilators –3.5 times more than
the same period of time one year before.
Chronic Obstructive Pulmonary Disease. COPD encompasses a group of lung diseases defined by persistent airflow limitation,
prolongation of exhalation and loss of elasticity in the lungs. It is a progressive and debilitating disease and is associated with an
increased inflammatory response in the airways. Symptoms encountered with COPD include shortness of breath as well as chronic
cough and increased sputum production. COPD includes diseases such as emphysema and chronic bronchitis. A recent study based on
recent epidemiology data estimates that there are over 380 million people worldwide who suffer from COPD, the world’s third leading
cause of death.
Patients with COPD can have different clinical presentations. Patients with chronic bronchitis present with low level of oxygen
(hypoxemia) and elevated levels of carbon dioxide (hypercapnia), a chronic productive cough, cor pulmonale and are commonly
overweight. Patients with emphysema have more normal blood gases, are usually thin and hyperinflated and have a decreased diffusion
capacity. During sleep, chronic bronchitic patients display more severe hypoxemia. In general, the more hypoxic a COPD patient is
during the day the more severe the hypoxemia experienced during sleep. Hypercapnia as a consequence of hypoventilation also occurs
in COPD patients and is more pronounced in REM sleep. Some COPD patients may also suffer from comorbid OSA, a condition known
as Overlap Syndrome.
Home non-invasive ventilation has the potential to reduce healthcare costs associated with the management of patients with severe
COPD by significantly increasing the time between hospital readmissions.
Overlap Syndrome. In patients with COPD-OSA Overlap Syndrome, CPAP has been shown to provide benefits in relation to
reducing mortality, decreasing hospitalizations and improving lung function and gas exchange. Non-invasive ventilation, or NIV, has
been demonstrated to improve outcomes in patients with acute exacerbations of COPD through its ability to improve respiratory acidosis
and decrease dyspnea and work of breathing. It may also increase survival rates and reduce length of hospital stays, as well as reducing
complicating factors such as ventilator-associated pneumonia. In patients with stable COPD, the advantages of home NIV are less clear,
but clinical studies have shown improvements in dyspnea scores and health-related quality-of-life measures and reductions in hospital
readmissions and intensive care stays.
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RESMED INC. AND SUBSIDIARIES
Long-term oxygen therapy, or LTOT, is indicated in chronic respiratory failure patients. The administration of LTOT has been shown
to increase survival rates in patients with severe resting hypoxemia. In hypoxemic COPD patients, LTOT is associated with a lower
mortality compared to nocturnal oxygen therapy alone and also associated with improved health-related quality of life measures. In
long-term COPD survivors with a history of chronic heart failure, LTOT is associated with a slowing of respiratory failure progression.
Obesity Hypoventilation Syndrome. OHS is characterized by the combination of obesity, chronic alveolar hypoventilation leading
to daytime hypercapnia and hypoxia and sleep apnea after the exclusion of other causes of alveolar hypoventilation. An estimated 90%
of patients with OHS also have OSA. In patients with OHS, positive airway therapy, both CPAP and NIV, has been shown to effectively
treat upper airway obstruction and reverse daytime respiratory failure as well as reduce the work of breathing and improve respiratory
drive.
Neuromuscular Disease. Neuromuscular disease is a broad term that encompasses many diseases that either directly (via intrinsic
muscle pathology) or indirectly (via nerve pathology) impair the functioning of muscles. Symptoms of neuromuscular disease and
respiratory failure include increasing generalized weakness and fatigue, dysphagia, dyspnoea on exertion and at rest, sleepiness, morning
headache, difficulties with concentration and mood changes. Most neuromuscular diseases are characterized by progressive muscular
impairment leading to loss of ambulation, being wheelchair-bound, swallowing difficulties, respiratory muscle weakness and,
eventually, death from respiratory failure. Neuromuscular disorders can progress rapidly or slowly. Rapidly progressive conditions,
such as ALS and Duchenne muscular dystrophy in teenagers, are characterized by muscle impairment which worsens over months and
can result in death within a few years. Variable or slowly progressive conditions, such as myotonic muscular dystrophy, are characterized
by muscle impairment that worsens over years and may mildly reduce life expectancy.
NIV treatment to patients with neuromuscular disease may lead to improvements in respiratory failure symptoms and daytime arterial
blood gases. In ALS patients, NIV treatment has been associated with an improvement in quality of life measures, sleep-related
symptoms and survival. Studies have demonstrated that patients with Duchenne muscular dystrophy may improve in quality of life
measures and may increase chance of survival with NIV treatment.
Software as a Service
Due to multiple acquisitions, including Brightree in April 2016, HEALTHCAREfirst in July 2018 and MatrixCare in November 2018,
our operations now include platforms that comprise our SaaS business. Our SaaS strategy is to develop a portfolio that assists durable
or home medical equipment (DME/HME) providers, and other long-term care providers operate more effectively and efficiently across
various out-of-hospital care settings. Our SaaS portfolio provides services across the HME, home health and hospice, skilled nursing,
life plan community and senior living, and private duty services. Our offerings can help providers perform analytics, manage
documentation and implement new reimbursement requirements as well as more effectively transfer data as patients move between
different care settings.
Business Strategy
We believe that the sleep apnea and respiratory care markets will continue to grow in the future due to a number of factors, including
increasing awareness of OSA, CSA and COPD, improved understanding of the role of sleep apnea treatment in the management of
cardiac, neurologic, metabolic and related disorders, improved understanding of the role of non-invasive ventilation in the management
of COPD, and an increase in the use of digital and product technology to improve patient outcomes and create efficiencies for customers
and providers. Our strategy for expanding our business operations and capitalizing on the growth of the sleep apnea and respiratory care
markets, as well as growth in out-of-hospital care settings, consists of the following key elements:
• Continue Product Development and Innovation in Sleep Apnea and Respiratory Care Products. We are committed to
ongoing innovation in developing products for the diagnosis and treatment of sleep apnea. We have been a leading innovator
of products designed to treat sleep apnea more effectively, increase patient comfort and encourage compliance with prescribed
therapy. In recent years we have introduced a full suite of masks in our AirTouch and AirFit ranges as well as advanced and
expanded the integrations of our therapy-based software solutions, including AirView, to promote greater patient adherence.
Our recent acquisitions have included a portfolio of sleep apnea products through our acquisition of Curative Medical.
Likewise, we are committed to ongoing innovation of our respiratory care products that serve the needs of patients with COPD
and neuromuscular diseases, providing advanced and expanded the integrations of our therapy-based software solutions
including AirView for Respiratory Care, enabling clinicians to remotely monitor patients on some ventilation devices and
bilevel devices. We acquired a digital health platform for inhalers through our acquisition of Propeller Health in 2019, rounding
out our portfolio to treat COPD patients through their therapy journey across different stages of their disease.
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• Broaden our digital health technology foundation. Digital enablement is central to our strategy. Our cloud-based digital
health applications, along with our devices, are designed to provide connected care to improve patient outcomes and efficiencies
for our customers, allowing fewer professionals to manage more patients and empower patients to track their own health
outcomes. We are expanding our cloud-based patient management and engagement platforms, such as AirView, enabling
remote monitoring, over-the-air trouble shooting and changing of device settings, U-Sleep enabling automated patient coaching
through a text, email or interactive voice phone call and myAir, a patient engagement application that provides sleep data and
a daily score based on their previous night’s data. In the United States we have released ResMed MaskSelector, an easy-to-use
digital tool to make mask selection and sizing easier and more effective, and HelloSleep, an application to help patients prepare
for their fitting and first nights of therapy.
We believe that the combination of continued product development, product and technology acquisitions and innovation are
key factors to our ongoing success. Approximately 16% of our employees are devoted to research and development activities.
• Expand SaaS Solutions in Out-of-Hospital Care Settings. Our vision is to transform and significantly improve out-of-
hospital (OOH) healthcare through a strategy of enabling better patient care, improving clinical decision support, and driving
interoperability across out-of-hospital healthcare settings. Since acquiring Brightree in 2016, plus MatrixCare and
HEALTHCAREfirst in 2018, we offer software solutions across multiple out-of-hospital healthcare settings including HME,
home health and hospice, skilled nursing, life plan communities, senior living and private duty. We are connecting capabilities
across the platforms in these out-of-hospital care settings to help our customers be more efficient, better serve people, keep
them out-of-hospital, and in lower-cost, higher-quality care settings. Today, our SaaS solutions serve OOH customers
combining over 90 million individual accounts.
• Expand Geographic Presence. We market our products in more than 140 countries to sleep clinics, home healthcare dealers,
patients and third-party payors. We intend to increase our sales and marketing efforts in our principal markets, as well as expand
the depth of our presence in other high-growth geographic regions. In 2016, we acquired Curative Medical to invest in the
China market and expand our growth potential in sleep apnea, COPD and respiratory care in China. In 2019, we acquired HB
Healthcare, a privately owned HME that serves both reimbursed and cash-pay customers of sleep and respiratory care devices
in South Korea. In 2021, we acquired Tong-il, another leading sleep and respiratory care HME provider in South Korea,
reinforcing both our commitment and capability to serve millions of South Korean patients living with sleep apnea, COPD,
and other chronic respiratory diseases.
•
Increase Public and Clinical Awareness. We continue to expand our existing promotional activities to increase awareness
of sleep apnea, COPD and other clinical conditions that can be treated with our industry-leading solutions. These promotional
activities target both the population predisposed to sleep apnea and medical specialists, such as pulmonologists, sleep medicine
specialists, primary care physicians, cardiologists, neurologists and other medical subspecialists who treat these conditions and
their associated comorbidities. We target special interest groups, including the National Stroke Association, the American Heart
Association, COPD Foundation and the National Sleep Foundation, to further increase awareness of the relationship between
OSA, COPD, neuromuscular disease and comorbidities such as cardiac disease, diabetes, hypertension and obesity. The
programs also support our efforts to inform the community of the dangers of sleep apnea with regard to occupational health
and safety, especially in the transport industry. We have helped establish a center for clinical care and medical research at the
University of California, San Diego in the fields of sleep apnea and COPD.
• Expand into New Clinical Applications. We continually seek to identify new applications of our technology for significant
unmet medical needs. Studies have established a clinical association between OSA and both stroke and chronic heart failure,
and have recognized sleep apnea as a cause of hypertension or high blood pressure. Research also indicates that sleep apnea is
independently associated with glucose intolerance and insulin resistance. Additionally, research supported by ResMed has
demonstrated that the addition of non-invasive ventilation to patients with severe COPD who are receiving oxygen therapy,
provides meaningful clinical benefits to the patient, and the broader healthcare system. We maintain close working relationships
with a number of prominent physicians to explore new medical applications for our products and technology.
• Leverage the Experience of our Management Team. Our senior management team has extensive experience in the medical
device industry in general, and in the fields of sleep apnea, respiratory care and healthcare informatics in particular. We intend
to continue to leverage the experience and expertise of these individuals to maintain our innovative approach to the development
of products and solutions, and to increase awareness of the serious medical problems caused by sleep apnea and the use of non-
invasive ventilation, and in-home life support ventilation to treat COPD and other chronic respiratory diseases.
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Table of Contents
PART I
Products
RESMED INC. AND SUBSIDIARIES
Item 1
Our portfolio of products includes devices, diagnostic products, mask systems, headgear and other accessories, dental devices and cloud-
based software informatics solutions. For purposes of the following discussion, we refer to our air flow generators and ventilators
collectively as devices.
Devices
We produce cloud-connected CPAP, APAP, bilevel, and ASV devices that deliver positive airway pressure through a patient interface,
either a mask or cannula. Our APAP devices, known as AutoSet, are based on a proprietary technology to monitor breathing and can
also be used in the diagnosis, treatment and management of OSA. During fiscal year 2017, we launched AirMini, a small portable CPAP
combining the same proven therapy modes used in the AirSense 10 with effective waterless humidification enabling portable
convenience. We commenced a controlled product launch of AirSense 11 in fiscal year 2021, which will be followed by a broader
launch throughout fiscal year 2022. AirSense 11 will introduce new features such as a touch screen, algorithms for patients new to
therapy and digital enhancements, such as over-the-air update capabilities. We also acquired a line of Chinese-developed and
manufactured sleep and ventilation devices with the acquisition of Curative Medical in fiscal year 2016. Devices in total accounted for
approximately 50%, 51% and 52% of our net revenues in fiscal years 2021, 2020 and 2019, respectively.
The tables below provide a selection of products, as known by our trademarks.
CPAP
PRODUCTS
AirSense 10 Elite
DESCRIPTION
An advanced fixed-pressure therapy device with an integrated humidifier and built-in wireless connectivity. It is designed to be intuitive
and easy-to-use.
AirSense 10 CPAP
The AirSense 10 CPAP is a fixed-pressure therapy device and built-in wireless connectivity. It also provides compliance, AHI and leak
data reporting.
AUTOSET
PRODUCTS
AirSense 10 Auto
DESCRIPTION
A premium auto-adjusting therapy device featuring AutoRamp™ with sleep onset detection, expiratory pressure relief (EPR™) and Easy-
Breathe technology. The device also features built-in wireless connectivity.
AirSense 10 AutoSet
for Her
The first complete sleep therapy solution tailored for women. The AirSense 10 AutoSet for Her is based on ResMed’s AutoSet algorithm.
It responds to female-specific characteristics of sleep apnea and is tailored to meet the special sleep needs of women.
AirMini
A small portable CPAP device featuring the same auto-adjusting therapy modes used in the AirSense™ 10 Auto. The device also features
built-in Bluetooth connectivity and effective waterless humidification enabled by HumidX technology.
BILEVEL
PRODUCTS
AirCurve 10 S
DESCRIPTION
A bilevel device for patients who need extra pressure support or find it difficult to adjust to therapy on a fixed pressure continuous positive
airway pressure device. The device features built-in wireless connectivity and works with our AirView™ patient monitoring software.
AirCurve 10 V Auto
An auto-adjusting bilevel device for patients who need greater pressure support to treat their obstructive sleep apnea. The device features
built-in wireless connectivity and works with our AirView™ patient monitoring software.
AirCurve 10 ST
A bilevel device with backup rate that provides exceptional patient-ventilator synchrony, reducing the work of breathing so patients
remain comfortable and well ventilated. The device features built-in wireless connectivity and works with our AirView™ patient
monitoring software.
AirCurve 10 ST-A
A bilevel device that provides effective non-invasive ventilation for patients with respiratory insufficiency from conditions including
neuromuscular disease, restrictive lung disorders, COPD and hypoventilation syndromes.
AirCurve 10 ASV and CS Adaptive servo-ventilators specifically designed to treat patients exhibiting central sleep apnea (CSA), mixed sleep apnea and periodic
breathing, with or without obstructive sleep apnea. These devices also feature built-in wireless connectivity and works with our AirView™
patient monitoring software.
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PART I
VENTILATION
PRODUCTS
Stellar 100 and 150
RESMED INC. AND SUBSIDIARIES
Item 1
DESCRIPTION
Pressure support and volume non-invasive ventilators with invasive capabilities designed to suit a range of environments and for various
respiratory patient types.
Astral 100 and 150
Pressure support and volume ventilators for invasive and non-invasive purposes so it can be used from the hospital to the home.
Lumis 100 and 150
Pressure support non-invasive ventilators that support a variety of therapy modes with built-in wireless connectivity and integrated
humidification.
Lumis ST-A
A Pressure support non-invasive ventilator that supports a variety of therapy modes with built-in wireless connectivity, integrated
humidification and a range of fixed and adjustable alarms.
Mask Systems, Diagnostic Products, Accessories and Other Products
Masks, diagnostic products and accessories together accounted for approximately 38%, 37% and 37% of our net revenues in fiscal years
2021, 2020 and 2019, respectively.
Mask Systems
Mask systems are one of the most important elements of sleep apnea treatment systems. Masks are a primary determinant of patient
comfort and as such may drive or impede patient compliance with therapy. We have been a consistent innovator in small nasal, nasal
pillows and full-face masks, by improving patient comfort while minimizing size and weight.
The table below provides an of overview of our mask systems by category.
CATEGORY
Minimalist
DESCRIPTION
AirFit F30, AirFit P10, and AirFit N30 minimalist masks feature our lightest, lowest profile designs. The features of these masks are
focused on minimizing contact with the patient’s face to reduce red marks and irritation.
Freedom
AirFit N30i, AirFit P30i, and AirFit F30i freedom masks, which feature top-of-head tubing design allowing flexibility to easily switch
sleep positions.
Ultra Soft
The AirTouch F20 and AirTouch N20 masks feature a soft and breathable AirTouch cushion designed to enhance CPAP mask comfort.
Universal Fit
AirFit F20 and AirFit N20 masks are designed to fit a wide range of faces due to the InfinitySeal silicone cushion that adapts to unique
facial contours, which increases comfort, improves the fit and reduces leakage.
Diagnostic Products
We market sleep recorders for the diagnosis and titration of sleep apnea in sleep clinics and hospitals. These diagnostic systems record
relevant respiratory and sleep data, which can be analyzed by a sleep specialist or physician who can then tailor an appropriate OSA
treatment regimen for the patient.
PRODUCTS
ApneaLink Air
DESCRIPTION
A portable diagnostic device which measures oximetry, respiratory effort, pulse, nasal flow and snoring. Works with AirView Diagnostics
to provide comprehensive diagnostic solution to clinicians.
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PART I
Connected Solutions and Other Products
RESMED INC. AND SUBSIDIARIES
Item 1
We have a suite of products that are designed to allow fewer professionals to manage more patients and empower patients to track their
own health outcomes. We are expanding our cloud-based patient management and engagement platforms, such as AirView, enabling
remote monitoring, over-the-air trouble shooting and changing of device settings, U-Sleep enabling automated patient coaching through
a text, email or interactive voice phone call and myAir, a patient engagement application that provides sleep data and a daily score based
on their previous night’s data.
PRODUCTS
AirView
DESCRIPTION
A cloud-based system enabling remote monitoring and changing of patients’ device settings. AirView also makes it easier to simplify
workflows and collaborate more efficiently across the patient’s care network.
myAir
A personalized therapy management application for patients with sleep apnea providing support, education and troubleshooting tools for
increased patient engagement and improved compliance.
U-Sleep
A compliance monitoring solution that enables HMEs to streamline their sleep programs to achieve better business and patient outcomes.
Connectivity Module
A module providing cellular connection between our compatible ventilation devices (e.g., Astral, Stellar) and our AirView™ system.
Propeller
Solutions
Propeller's inhaler sensors track medication usage and pair with a companion smartphone application, giving people with asthma or
COPD a better understanding of their disease and promoting increased adherence to treatment. The Propeller Provider Portal gives
clinicians the timely and accurate information they need to make better treatment decisions.
SaaS Products
Following multiple acquisitions, including Brightree in April 2016, HEALTHCAREfirst in July 2018 and MatrixCare in November
2018, we now supply out-of-hospital software products designed to support the professionals and caregivers helping people stay healthy
in the home or care setting of their choice. SaaS revenue accounted for approximately 12%, 12% and 11% of our net revenue in fiscal
years 2021, 2020 and 2019, respectively.
PRODUCTS
Brightree solutions
DESCRIPTION
Brightree enables out-of-hospital care organizations to improve their business performance and deliver better health outcomes. As an
industry-leading cloud-based healthcare IT company, Brightree provides solutions and services for thousands of organizations in home
medical equipment and pharmacy, orthotic and prosthetic, and home infusion.
MatrixCare solutions
MatrixCare’s EHR software as a service solutions are used by skilled nursing and senior living providers, life plan communities
(CCRCs), and home health and hospice organizations to improve efficiencies and promote a better quality of life for the people they
serve.
HEALTHCAREfirst
solutions
HEALTHCAREfirst offers electronic health record, or EHR, software, billing and coding services, and advanced analytics that enable
home health and hospice agencies to optimize their clinical, financial and administrative processes.
Product Development and Clinical Trials
We have a strong track record of innovation in the sleep and respiratory care markets. In 1989, we introduced our first CPAP device.
Since then we have been committed to an ongoing program of product advancement and development. Currently, our product
development and clinical trial efforts are focused on not only improving our current product offerings and usability, but also expanding
into new product applications.
We continually seek to identify new applications of our technology for significant unmet medical needs. Sleep apnea is associated with
a number of symptoms beyond excessive daytime sleepiness and irritability. Studies have established a clinical association between
untreated sleep apnea and systemic hypertension, diabetes, coronary artery disease, stroke, atrial fibrillation, chronic heart failure, and
mortality.
Across the sleep and respiratory care platforms, we support clinical trials in many countries including the United States, Germany,
Netherlands, France, Japan, the United Kingdom, Switzerland, China, Spain, Canada, Singapore and Australia to develop new clinical
applications for our technology. We also continue to support some of the largest sleep apnea studies in history by performing advanced
statistical analyses on millions of real world clinical data points collected through our cloud-connected devices and patient engagement
tools. These studies, which we have begun to publish, provide clinical insights around patient management, device settings and predictors
of patient adherence that inform our product development efforts.
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Item 1
We consult with physicians at major medical centers throughout the world to identify clinical and technological trends in the treatment
of sleep apnea, COPD and the other conditions associated with these diseases. New product ideas are also identified by our marketing
staff, direct sales force and network of distributors, customers, clinicians and patients.
RESMED INC. AND SUBSIDIARIES
Sales and Marketing
We currently market our products in more than 140 countries through a network of distributors and our direct sales force. We attempt
to tailor our marketing approach to each national market, based on regional awareness of sleep apnea as a health problem, physician
referral patterns, consumer preferences and local reimbursement policies. See Note 15 – Segment Information of the Notes to
Consolidated Financial Statements (Part II, Item 8) for financial information about our geographic areas.
United States, Canada, and Latin America. Our products are typically purchased by a home healthcare dealer who then sells the
products to the patient. The decision to purchase our products, as opposed to those of our competitors, is made or influenced by one or
more of the following individuals or organizations: the prescribing physician and their staff; the home healthcare dealer; the insurer and
the patient. In the United States, Canada and Latin America, our sales and marketing activities are conducted through a field sales
organization made up of regional territory representatives, program development specialists and regional sales directors. Our field sales
organization markets and sells products to home healthcare dealer branch locations throughout the United States, Canada and Latin
America.
We also market our products directly to physicians and sleep clinics. Patients who are diagnosed with OSA or another respiratory
condition and prescribed our products are typically referred by the diagnosing physician or sleep clinic to a home healthcare dealer to
fill the prescription. The home healthcare dealer, in consultation with the referring physician, will assist the patient in selecting the
equipment, fit the patient with the appropriate mask and set the device pressure to the prescribed level.
Our SaaS solutions are sold to providers of healthcare in various out-of-hospital settings. We market and sell our Brightree business
management software and service solutions to providers in the U.S. and our primary markets are HME, pharmacy, home infusion,
orthotics and prosthetics. Our sales activities for Brightree products are conducted through a sales organization made up of strategic
account managers, sales engineers and sales directors. We develop, market and sell our MatrixCare care management and related
ancillary solutions to providers in the U.S. and our primary markets are senior living; skilled nursing; life plan communities; home
health, home care, and hospice agencies as well as related accountable care organizations. Our MatrixCare management solutions are
primarily sold through direct sales and ancillary solutions are sold both through direct sales and channel partners.
Combined Europe, Asia, and other markets. We market our products in most major countries in combined Europe, Asia and other
markets. We have wholly-owned subsidiaries in Australia, Austria, China, Czech Republic, Denmark, Finland, France, Germany, India,
Ireland, Japan, Korea, Netherlands, New Zealand, Norway, Poland, Sweden, Switzerland, Taiwan, Thailand, and the United Kingdom.
We use a combination of our direct sales force and independent distributors to sell our products in combined Europe, Asia and other
markets. We select independent distributors in each country based on their knowledge of respiratory medicine and a commitment to
sleep apnea therapy. In countries where we sell our products direct, a local senior manager is responsible for direct national sales. In
many countries we sell our products to home healthcare dealers or hospitals who then sell the products to the patients. In Germany,
Australia, New Zealand, and South Korea, we also operate home healthcare business models, in which we provide products and services
directly to patients.
We do not sell our SaaS products in combined Europe, Asia, and other markets.
Manufacturing
We operate a globally distributed manufacturing network designed to optimize quality, cost control, time to market for new product
introduction and supply chain resilience. Our manufacturing operations consist of specialist component production as well as assembly
and testing of our devices, masks and accessories. Of the numerous raw materials, parts and components purchased for assembly of our
therapeutic and diagnostic sleep disorder products, many are available from multiple vendors. We also purchase uniquely configured
components from various suppliers, including some who are single-source suppliers for us. Any reduction or halt in supply from one
of these suppliers could limit our ability to manufacture our products or devices until a replacement supplier is found and qualified. We
generally manufacture to our internal sales forecasts and fill orders as received. We strive for continuous improvement in manufacturing
processes to deliver year-on-year improvement in output, cost and product quality. Each manufacturing site and team are responsible
for the quality of their product group and decisions are based on performance and quality measures, including customer feedback.
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Item 1
RESMED INC. AND SUBSIDIARIES
Our quality management system is based upon the requirements of ISO 9001, ISO 13485, FDA Quality System Regulation for Medical
Devices, European Medical Device Regulation (“MDR”), the Medical Device Directive (93/42/EEC) and other applicable regulations
for the markets in which we sell. Our main manufacturing sites are certified to ISO 13485 and are audited at regular intervals by a
Notified Body. Additionally, our Sydney, Tuas, San Diego, Atlanta and Moreno Valley sites are certified under the Medical Device
Single Audit Program or MDSAP, an audit of medical device manufacturers’ quality management system to satisfy multiple regulatory
requirements. MDSAP audits are conducted by a MDSAP recognized auditing organization and can fulfill the needs of multiple
regulatory jurisdictions (e.g., Australia, Brazil, Canada, Japan, and the United States of America).
Our main manufacturing facilities are located in Tuas, Singapore, which has replaced our former Loyang facility; Sydney, Australia;
Chatsworth, California; Johor Bahru, Malaysia; Atlanta, Georgia and Suzhou, China. Refer to Item 2 for additional details on these
properties.
Third-Party Coverage and Reimbursement
The cost of medical care in many of the countries in which we operate is funded in substantial part by government and private insurance
programs. In Germany and Korea, we receive payments directly from these payors. While we do not generally receive direct payments
for our products from payors in other countries, our success depends on the ability of patients to obtain coverage and adequate
reimbursement from those payors.
In the United States, our products are purchased primarily by home healthcare dealers, hospitals or sleep clinics, who invoice third-party
payors directly for reimbursement. Domestic third-party payors include government payors such as Medicare and Medicaid and
commercial health insurance plans. These payors may deny coverage and reimbursement if they determine that a device is not used in
accordance with certain covered treatment methods, or is experimental, unnecessary or inappropriate. The long-term trend towards cost-
containment, through managed healthcare, or other legislative proposals to reform healthcare, could control or significantly influence
the purchase of healthcare services and products and could result in lower prices for our products. In some foreign markets, such as
France, Germany, and Japan, government reimbursement is currently available for purchase or rental of our products, subject to
constraints such as price controls or unit sales limitations. In Australia, China, and some other foreign markets, there is currently limited
or no reimbursement for devices that treat OSA.
Healthcare reform in the United States continues to bring significant changes to the third-party payor landscape. In 2011, the Centers
for Medicare & Medicaid Services, or CMS, implemented the Durable Medical Equipment, Prosthetics, Orthotics and Supplies
(DMEPOS) competitive bidding program, which included DME that we manufacture and develop, specifically, CPAP and respiratory
assist devices (or bilevel devices), and related supplies and accessories. CMS is required by law to recompete these contracts at least
once every three years. In addition, the 2010 Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act, or collectively, the ACA, required CMS to roll out the competitive bidding process nationally or adjust prices in
non-competitive bidding areas, also known as the non-bid or Round 3 areas, to match competitive bidding prices by 2016. CMS phased
in the new rates beginning January 1, 2016, and the rates became fully effective July 1, 2016. The implementation of the competitive
acquisition program has resulted in reduced Medicare payment for CPAP and respiratory assist devices, and related supplies and
accessories in both competitive bidding areas and non-competitive bidding areas. Through an Interim Final Rule issued in May 2018,
CMS increased the fee schedule amounts for certain DME in non-bid areas that qualify as rural and non-contiguous, setting payment
for these areas for June 1, 2018 to December 31, 2018 at a 50/50 blended reimbursement rate based on the pre-competitive bidding
reimbursement rate and the adjusted reimbursement rate set through competitive bidding.
Due to the lapse of competitive bid contracts as of December 31, 2018, effective January 1, 2019, Medicare beneficiaries could receive
DME from any Medicare-enrolled supplier during a temporary gap in the competitive bidding program between January 1, 2019 and
December 31, 2020. Pricing in competitive bidding areas and non-rural, contiguous non-bid areas continued to use adjusted fee schedule
amounts, subject to annual Consumer Price Index (CPI) adjustments, during this temporary gap period beginning in 2019 through
December 31, 2020. Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the blended fee schedule
amounts for non-bid rural and non-contiguous areas was extended through the end of the COVID-19 public health emergency, which
has been renewed through July 20, 2021, and a blended fee schedule amount was implemented for all other areas for the same period.
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RESMED INC. AND SUBSIDIARIES
CMS competed 16 product categories in Round 2021 of the DMEPOS competitive bidding program, which took effect on January 1,
2021 and extends through December 31, 2021. There have been some revisions to the bidding methodology including the plan to
implement surety bond requirements, lead item pricing, and setting reimbursement rates at the maximum winning bid rate instead of the
median winning bid rate. Although CMS previously expanded the categories of devices subject to competitive bidding to include non-
invasive ventilators, or NIVs, starting in 2021, in response to the COVID-19 pandemic, CMS removed NIVs from Round 2021 of the
DMEPOS Competitive Bidding Program. Of the 15 remaining product categories that were bid for in Round 2021, CMS awarded
competitive bidding contracts for only two categories, off-the-shelf (OTS) back braces and OTS knee braces. Payment for the items
where contracts were not awarded will be based on adjusted fee schedule amounts, pending further rulemaking.
The ACA, which was passed both to expand the number of individuals with healthcare coverage and to develop additional revenue
sources, also included, among other things, a deductible excise tax equal to 2.3% of the price for which medical devices are sold in the
United States on any entity that manufactures or imports medical devices, with limited exceptions, beginning in 2013. However, this
excise tax was subsequently suspended by the U.S. Congress for medical device sales, beginning in 2016 and permanently repealed,
effective January 1, 2020. The ACA also provided for a number of Medicare regulatory requirements, including new face-to-face
encounter requirements for DME and home health services.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021,
the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling
on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special
enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15,
2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and
reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration
projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health
insurance coverage through Medicaid or the ACA.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget
Control Act of 2011 was signed into law, which, among other things, resulted in reductions to Medicare payments to providers of 2%
per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in
effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021, unless additional
Congressional action is taken. In addition, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which,
among other things, further reduced Medicare payments to several providers, including hospitals, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years.
We expect that the ACA, these new laws and other healthcare reform measures that may be adopted in the future may result in additional
reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional
downward pressure on the price that we receive for our products and services. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private payors. The implementation of cost containment
measures or other healthcare reforms may have a material adverse impact on our revenues, profit margins, profitability, operating cash
flows and results of operations.
Service and Warranty
We generally offer either one-year or two-year limited warranties on our devices. In some regions and for certain customers we also
offer extended warranties on our devices for one to three years in addition to our limited warranty. Warranties on mask systems are for
90 days. Our distributors either repair our products with parts supplied by us or arrange shipment of products to our facilities for repair
or replacement. We receive returns of our products from the field for various reasons. We believe that the level of returns experienced
to date is consistent with levels typically experienced by manufacturers of similar devices. We provide for warranties and returns based
on historical data.
Competition
The markets for our products and services are highly competitive. We believe that the principal competitive factors in all of our markets
are product features, value-added solutions, reliability and price. Customer support, reputation and efficient distribution are also
important factors. We compete on a market-by-market basis with various companies, some of which have greater financial, research,
manufacturing and marketing resources than us. The disparity between our resources and those of our competitors may increase as a
result of the trend towards consolidation in the healthcare industry. In addition, some of our competitors are affiliates of customers of
ours, which may make it difficult to compete with them.
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Item 1
Our primary Sleep and Respiratory Care competitors include Philips BV; Fisher & Paykel Healthcare Corporation Limited; DeVilbiss
Healthcare; Apex Medical Corporation; BMC Medical Co. Ltd.; and regional manufacturers. Finally, our products compete with surgical
procedures, nerve stimulation devices and dental appliances designed to treat OSA and other sleep apnea-related respiratory conditions.
The development of new or innovative procedures, devices or therapies, such as pharmaceutical, by others could result in our products
becoming obsolete or noncompetitive, which would harm our revenues and financial condition.
For our SaaS business, the market is highly competitive, rapidly evolving, and subject to changing technology, low barriers to entry,
shifting customer needs and frequent introductions of new products and services. The development of new or innovative solutions by
others could result in our solutions becoming obsolete or noncompetitive, which would harm our revenues and financial condition.
Any product developed by us will have to compete for market acceptance and market share. An important factor in such competition
may be the timing of market introduction of competitive products and solutions. Accordingly, the speed with which we can develop
products and solutions, complete clinical testing and regulatory clearance processes and provide commercial supply of products and
solutions to the market are important competitive factors. In addition, our ability to compete will continue to be dependent on
successfully protecting our patents and other intellectual property.
Patents and Proprietary Rights and Related Litigation
We rely on a combination of patents, designs, trademarks, trade secrets, copyrights, and non-disclosure agreements to protect our
proprietary technology and rights. Some of these patents, patent applications and designs relate to significant aspects and features of our
products. We believe the combination of these rights, in aggregate, are of material importance to each of our businesses. Through our
various subsidiaries, as of the date of this report, we own or have licensed rights to approximately 8,300 pending, allowed or granted
patents and designs. Patents and designs have various statutory terms based on the legislation in individual jurisdictions which may be
subject to change. Of our patents, 598 U.S. patents and 1,423 foreign patents are due to expire in the next five years. We believe that
the expiration of these patents will not have a material adverse impact on our competitive position.
Litigation has been necessary in the past and may be necessary in the future to enforce patents issued to us, to protect our rights, or to
defend third-party claims of infringement by us of the proprietary rights of others. The defense and prosecution of patent claims,
including pending claims, as well as participation in other inter-party proceedings, can be expensive and time-consuming, even in those
instances in which the outcome is favorable to us. Patent laws regarding the enforceability of patents vary from country to country.
Therefore, there can be no assurance that patent issues will be uniformly resolved, or that local laws will provide us with consistent
rights and benefits.
Government Regulations
FDA
Our products are subject to extensive regulation particularly as to safety, efficacy and adherence to FDA Quality System Regulation,
and related manufacturing standards. Medical device products are subject to rigorous FDA and other governmental agency regulations
in the United States and similar regulations of foreign agencies abroad. The FDA regulates the design, development, research, preclinical
and clinical testing, introduction, manufacture, advertising, labeling, packaging, marketing, distribution, import and export, and record
keeping for such products, in order to ensure that medical products distributed in the United States are safe and effective for their
intended use. In addition, the FDA is authorized to establish special controls to provide reasonable assurance of the safety and
effectiveness of most devices. Non-compliance with applicable requirements can result in import detentions, fines, civil and
administrative penalties, injunctions, suspensions or losses of regulatory approvals, recall or seizure of products, operating restrictions,
refusal of the government to approve product export applications or allow us to enter into supply contracts, and criminal prosecution.
Unless an exemption applies, the FDA requires that a manufacturer introducing a new medical device or a new indication for use of an
existing medical device obtain either a Section 510(k) premarket notification clearance or a premarket approval, or PMA, before
introducing it into the U.S. market. The type of marketing authorization is generally linked to the classification of the device. The FDA
classifies medical devices into one of three classes (Class I, II or III) based on the degree of risk the FDA determines to be associated
with a device and the level of regulatory control deemed necessary to ensure the device’s safety and effectiveness.
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RESMED INC. AND SUBSIDIARIES
Our products currently marketed in the United States are marketed pursuant to 510(k) pre-marketing clearances and are either Class I or
Class II devices. The process of obtaining a Section 510(k) clearance generally requires the submission of performance data and often
clinical data, which in some cases can be extensive, to demonstrate that the device is “substantially equivalent” to a device that was on
the market before 1976 or to a device that has been found by the FDA to be “substantially equivalent” to such a pre-1976 device, a
predecessor device is referred to as “predicate device.” As a result, FDA clearance requirements may extend the development process
for a considerable length of time. In addition, in some cases, the FDA may require additional review by an advisory panel, which can
further lengthen the process. The PMA process, which is reserved for new devices that are not substantially equivalent to any predicate
device and for high-risk devices or those that are used to support or sustain human life, may take several years and requires the
submission of extensive performance and clinical information.
Medical devices can be marketed only for the indications for which they are cleared or approved. After a device has received 510(k)
clearance for a specific intended use, any change or modification that significantly affects its safety or effectiveness, such as a significant
change in the design, materials, method of manufacture or intended use, may require a new 510(k) clearance or PMA approval and
payment of an FDA user fee. The determination as to whether or not a modification could significantly affect the device’s safety or
effectiveness is initially left to the manufacturer using available FDA guidance; however, the FDA may review this determination to
evaluate the regulatory status of the modified product at any time and may require the manufacturer to cease marketing and recall the
modified device until 510(k) clearance or PMA approval is obtained. The manufacturer may also be subject to significant regulatory
fines or penalties.
Any devices we manufacture and distribute pursuant to clearance or approval by the FDA are subject to pervasive and continuing
regulation by the FDA and certain state agencies. These include product listing and establishment registration requirements, which help
facilitate FDA inspections and other regulatory actions. As a medical device manufacturer, all of our manufacturing facilities are subject
to inspection on a routine basis by the FDA. We are required to adhere to applicable regulations setting forth detailed cGMP
requirements, as set forth in the QSR, which require, manufacturers, including third-party manufacturers, to follow stringent design,
testing, control, documentation and other quality assurance procedures during all phases of the design and manufacturing process.
Noncompliance with these standards can result in, among other things, fines, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, refusal of the government to grant 510(k) clearance or PMA approval of devices, withdrawal
of marketing approvals and criminal prosecutions. We believe that our design, manufacturing and quality control procedures are in
compliance with the FDA’s regulatory requirements.
We must also comply with post-market surveillance regulations, including medical device reporting requirements which require that we
review and report to the FDA any incident in which our products may have caused or contributed to a death or serious injury. We must
also report any incident in which our product has malfunctioned if that malfunction would likely cause or contribute to a death or serious
injury if it were to recur.
Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission.
Medical devices approved or cleared by the FDA may not be promoted for unapproved or uncleared uses, otherwise known as “off-
label” promotion. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses,
and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial
monetary penalties and criminal prosecution.
Sales of medical devices outside the United States are subject to regulatory requirements that vary widely from country to country.
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Item 1
In the European Economic Area, (which is comprised of the 27 member states of the European Union plus Norway, Iceland and
Liechtenstein), or EEA, manufacturers of medical devices need to comply with the Essential Requirements laid out in Annex I to the
EU Medical Devices Directive (Council Directive 93/42/EEC) or with the General Safety and Performance Requirements (GSPR) of
the new EU Medical Devices Regulation (EU 2017/745). Compliance with these requirements is a prerequisite to be able to affix the
CE mark to medical devices, without which they cannot be marketed or sold in the EEA. To demonstrate compliance with the Essential
Requirements and the GSPR and obtain the right to affix the CE Mark, manufacturers of medical devices must undergo a conformity
assessment procedure, which varies according to the type of medical device and its classification. Except for low-risk medical devices
(Class I with no measuring function and which are not sterile), where the manufacturer can issue an EC Declaration of Conformity based
on a self-assessment of the conformity of its products with the Essential Requirements and the GSPR, a conformity assessment procedure
requires the intervention of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct
conformity assessments. Depending on the relevant conformity assessment procedure, the Notified Body would audit and examine the
Technical File and the quality system for the manufacture, design and final inspection of the devices. The Notified Body issues a CE
Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical
device and its manufacturer and their conformity with the Essential Requirements and GSPR. This Certificate entitles the manufacturer
to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the Essential Requirements and GSPR
must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during
normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal
conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against
the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by
suitable evidence.
All manufacturers placing medical devices into the market in the EEA must comply with the EU Medical Device Vigilance System.
Under this system, incidents must be reported to the relevant authorities of the member states of the EEA, and manufacturers are required
to take Field Safety Corrective Actions, or FSCAs, to reduce a risk of death or serious deterioration in the state of health associated with
the use of a medical device that is already placed on the market. An incident is defined as any malfunction or deterioration in the
characteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or
indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state
of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be
communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety
Notices. Where appropriate, our products commercialized in Europe are CE marked and classified as either Class I or Class II.
On April 5, 2017, the European Parliament passed the Medical Devices Regulation, which repeals and replaces the EU Medical Devices
Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, the regulations would be
directly applicable (i.e., without the need for adoption of EEA member State laws implementing them) in all EEA member states and
are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices
Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across
the EEA for medical devices and in vitro diagnostic devices and ensure a high level of safety and health while supporting innovation.
The Medical Device Regulation was meant to become applicable three years after publication (in May 2020). However, on April 23,
2020, to allow EEA national authorities, notified bodies, manufacturers and other actors to focus fully on urgent priorities related to the
COVID-19 pandemic, the European Council and Parliament adopted Regulation 2020/561, postponing the date of application of the
Medical Device Regulation by one year. The Medical Device Regulation thus became applicable on May 26, 2021. Devices lawfully
placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021 may generally continue to be made available
on the market or put into service until May 26, 2025. The Medical Devices Regulation, among other things:
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strengthens the rules on placing devices on the market and reinforces surveillance once they are available;
establishes explicit provisions on manufacturers' responsibilities for the follow-up of the quality, performance and safety of
devices placed on the market;
improves the traceability of medical devices throughout the supply chain to the end-user or patient through a unique
identification number;
sets up a central database to provide patients, healthcare professionals and the public with comprehensive information on
products available in the EU; and
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strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional
check by experts before they are placed on the market.
We have received certification or initiated the Medical Device Regulation certification process at several locations, including Sydney,
Australia; San Diego, California; and Lyon, France. We continue to transition our certification profile to meet the new Medical Device
Regulation requirements.
Other regulatory bodies
Our devices are sold in multiple countries and often need to be registered with local regulatory bodies such as the Therapeutic Goods
Administration in Australia, Health Canada in Canada and CFDA in China.
Other Healthcare Laws
We are subject to a number of laws and regulations that may restrict our business practices, including, without limitation, anti-kickback,
false claims and transparency laws with respect to payments and other transfers of value made to physicians and other healthcare
providers. The government has interpreted these laws broadly to apply to the marketing and sales activities of manufacturers and
distributors as well as revenue cycle management companies like us.
The federal Anti-Kickback Statute prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving,
offering or providing remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an
individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made,
in whole or in part, under federal healthcare programs such as Medicare and Medicaid. In addition, a person or entity does not need to
have actual knowledge of this statute or specific intent to violate it in order to have committed a violation.
The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be
presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be
made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request
or demand” for money or property presented to the U.S. government. The civil False Claims Act also applies to false submissions that
cause the government to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish
liability under the civil False Claims Act. In addition, a claim including items or services resulting from a violation of the federal Anti-
Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Private suits filed under the
civil False Claims Act, known as qui tam actions, can be brought by individuals on behalf of the government. These individuals may
share in any amounts paid by the entity to the government in fines or settlement.
The federal Civil Monetary Penalties Law prohibits, among other things, the offering or transfer of remuneration to a Medicare or state
healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular
provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies.
Additionally, there has been a recent trend of increased federal and state regulation of payments and transfers of value provided to
healthcare professionals or entities.
The federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, biologicals, and medical devices or
supplies that require premarket approval by or notification to the FDA, and for which payment is available under Medicare, Medicaid
or the Children’s Health Insurance Program, to report annually to CMS information related to (i) payments and other transfers of value
to teaching hospitals, physicians (as defined by statute) and, beginning in 2022, physician assistants, nurse practitioners and other
practitioners, and (ii) ownership and investment interests held by such providers and their immediate family members. Applicable
manufacturers are required to submit annual reports to CMS.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created federal criminal statutes that prohibit
among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully
obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare
benefits, items or services. Like the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of these statutes
or specific intent to violate them in order to have committed a violation.
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Item 1
Also, many U.S. states and countries outside the U.S. have similar fraud and abuse statutes or regulations that may be broader in scope
and may apply regardless of payor, in addition to items and services reimbursed under government programs. In addition, in the U.S.,
certain states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing
practices and/or require the tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities.
The shifting commercial compliance environment and the need to build and maintain robust systems to comply with different compliance
or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may fail to comply fully with one
or more of these requirements. If our operations are found to be in violation of any of the health regulatory laws described above or any
other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and administrative penalties,
damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, additional integrity
oversight and reporting obligations, contractual damages, reputational harm, administrative burdens, diminished profits and future
earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business
and our results of operations.
Data Privacy and Security Laws
Under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, which
we collectively refer to as HIPAA, the Department of Health and Human Services, or HHS, has issued regulations, including the HIPAA
Privacy, Security and Breach Notification Rules, to protect the privacy and security of protected health information, or PHI, used or
disclosed by covered entities including health care providers and their business associates, as well as covered subcontractors. HIPAA
also regulates standardization of data content, codes and formats used in health care transactions and standardization of identifiers for
health plans and providers. Penalties for violations of HIPAA regulations include significant civil and criminal penalties for each
violation. In addition to federal privacy and security regulations, there are a number of state laws governing confidentiality and security
of personally identifiable information that are applicable to our business. For example, the California Consumer Privacy Act, or the
CCPA, became effective on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal
information, opt out of certain personal information sharing and receive detailed information about how their personal information is
used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide
such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as
well as a private right of action for data breaches that is expected to increase data breach litigation. Although the law includes limited
exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact
our processing of personal information depending on the context. CCPA’s implementation standards and enforcement practices are
likely to remain uncertain for the foreseeable future, and the CCPA may increase our compliance costs and potential liability. Further,
the California Privacy Rights Act, or CPRA, recently passed in California and not only revises but expands upon CCPA. The CPRA
will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on
data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California
data protection agency authorized to issue substantive regulations and could result in increased privacy and information security
enforcement. The majority of the provisions will go into effect on January 1, 2023, will supersede the CCPA, and additional compliance
investment and potential business process changes may be required. In the event that we are subject to or affected by HIPAA, the CCPA,
the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws
could adversely affect our financial condition. Similar privacy laws have been proposed at the federal level and in other states.
In some of our operations, such as those involving our cloud-based software digital health applications, we are a business associate
under HIPAA and therefore required to comply with the HIPAA Security Rule, Breach Notification Rule and certain provisions of the
HIPAA Privacy Rule, as well as the terms of our business associate agreements that we enter into with our covered entity customers,
and are subject to significant civil and criminal penalties for failure to do so.
In addition, the General Data Protection Regulation, or GDPR, went into effect in May 2018. The GDPR imposes stringent data
protection requirements for the processing of personal data of individuals in the European Economic Area, or EEA. The GDPR has
increased our obligations, for example, by imposing higher standards for obtaining consent from individuals to process their personal
data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines for data breach
notifications, limiting retention periods and secondary use of information (including for research purposes), increasing requirements
pertaining to health data and pseudonymised (i.e., key-coded) data and imposing additional obligations when we contract with third
party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal
data out of the EEA, including to the United States; recent legal developments in Europe have created complexity and uncertainty
regarding such transfers of personal data from the EEA to the United States. For example, on July 16, 2020, the Court of Justice of the
European Union, or CJEU, invalidated the EU-US Privacy Shield Framework, or Privacy Shield, under which personal data could be
transferred from the EEA to United States entities that had self-certified under the Privacy Shield scheme. While the CJEU upheld the
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adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal
data transfer mechanism, and potential alternative to the Privacy Shield), the CJEU ruled that the underlying data transfers must be
assessed on a case-by-case basis by the data controller to determine whether the personal data will be adequately protected. As a result,
on June 4, 2021 the European Commission published a decision adopting an updated set of new standard contractual clauses designed
to address issues identified by the CJEU. Existing data transfers that rely on the old standard contractual clauses can continue to be used
until December 27, 2022 and the use of the new standard contractual clauses will still need to be assessed on a case-by-case basis taking
into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals.
The exact scope and applicability of the new standard contractual clauses is currently unclear, particularly regarding transfers to parties
outside the EEA who are already subject to the GDPR. We are awaiting further clarification from the European Commission and
therefore the full scope of application of the standard contractual clauses remains subject to review and change as we get a better
understanding from the European Commission and national regulators. European data protection law provides that EEA member states
may make their own further laws and regulations limiting the processing of genetic, biometric or health data, which could limit our
ability to use and share personal data or could cause our costs could increase, and harm our business and financial condition. The GDPR
and other similar regulations impose additional conditions in order to satisfy such consent for electronic marketing, such as a prohibition
on pre-checked tick boxes and bundled consents, thereby requiring customers to affirmatively consent for a given purpose through
separate tick boxes or other affirmative action. Failure to comply with the requirements of GDPR and the applicable national data
protection and marketing laws of the EEA member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide
annual turnover of the preceding financial year, whichever is higher, and other administrative penalties as well as individual claims for
compensation.
Further, from January 1, 2021, we have had to comply with the GDPR and the United Kingdom GDPR, which, together with the
amended United Kingdom Data Protection Act 2018, retains the GDPR in United Kingdom national law. The United Kingdom data
protection regime has the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The relationship between
the United Kingdom and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how United
Kingdom data protection laws and regulations will develop in the medium to longer term. On June 28, 2021, the European Commission
adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom
without additional safeguards. However, the United Kingdom adequacy decision will automatically expire in June 2025 unless the
European Commission renews or extends that decision and remains under review by the Commission during this period. These changes
may lead to additional costs and increase our overall risk exposure.
Numerous other state, federal and foreign laws, including consumer protection laws and regulations, govern the collection,
dissemination, use, access to, confidentiality and security of patient health information. In addition, Congress and some states are
considering new laws and regulations that further protect the privacy and security of medical records or medical information. With the
recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, all 50 states have
passed laws regulating the actions that a business must take if it experiences a data breach, such as prompt disclosure to affected
customers. Generally, these laws are limited to electronic data and make some exemptions for smaller breaches. Congress has also been
considering similar federal legislation relating to data breaches. The Federal Trade Commission, or FTC, and states’ Attorneys General
have also brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC
Act. In addition to data breach notification laws, some states have enacted statutes and rules requiring businesses to reasonably protect
certain types of personal information they hold or to otherwise comply with certain specified data security requirements for personal
information. These laws may apply directly to our business or indirectly by contract when we provide services to other companies. We
intend to continue to comprehensively protect all personal information and to comply with all applicable laws regarding the protection
of such information.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process,
and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to
comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial
condition and results of operations, damage our reputation and customers’ trust.
Human Capital
At ResMed, our mission of transforming patient care in the out-of-hospital setting through innovative solutions and tech-driven
integrated care is achieved by our commitment and efforts in fostering an inclusive environment that creates a strong sense of belonging,
unlocking the potential, passion and creativity of our people. Our Code of Business Conduct & Ethics, Diversity and Inclusion programs
and other practices and policies on workplace behavior, discrimination and harassment, health and safety, and employee benefits
reinforce this environment and facilitate talent attraction, retention, and development.
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As of June 30, 2021, we had approximately 7,970 employees or contingent workers, of which approximately 3,490 were employed in
cost of sales activities including areas such as warehousing and manufacturing, 1,370 in research and development and 3,110 in sales,
marketing and administration. Of our employees and contingent workers, approximately 2,960 (37%) were located in the United States,
Canada and Latin America, 2,080 (26%) in Asia, 1,550 (19%) in Australia and 1,380 (17%) in Europe. We believe that the success of
our business will depend, in part, on our ability to attract and retain qualified personnel.
Diversity & Inclusion
Our values of belonging, inclusion and diversity for success enables us to unlock the strengths of our people to transform healthcare and
improve lives. Current strategic key initiatives include the management and expansion of Employee Resource Groups (“ERG”) and their
leaders and Executive Sponsors, learning and development opportunities around the concepts of leading inclusively, inclusion in the
workforce and unconscious bias, talent acquisition efforts around a sourcing and hiring competitive edge strategy, external relationships
and partnerships, and internal metrics and measurements.
Employee Resource Groups. We place high value on inclusion-building initiatives that create opportunities around cultural
awareness and social learnings; this is largely done through engaging employees in our ERG programs supported by employees with
diverse backgrounds, experiences or characteristics who share a common interest in professional development, improving corporate
culture and delivering sustained business results. We maintain our ERG chapters worldwide and currently have nine groups: Black,
Asia-American-Pacific Islander, LGBTQIA+, Hispanic and Latin, Veterans, Women, Women in Sales, Parents and Mosaics in Ireland
and India that collectively focus on local and culturally appropriate inclusion-building needs.
Learning & Development of D&I Values. Our leaders across the organization work directly with the Director of Diversity to identify
and provide awareness trainings for their teams. We are launching a day of learning in each region for employees to learn more about
diversity and inclusion.
Strategic Inclusive Development. A Global Council of Ambassadors meets every two months to review and assess developments,
observations and impressions related to ongoing diversity and inclusion efforts. We are in the process of updating our policies and
Employee Handbook to formalize certain inclusivity initiatives. Additionally, we are assessing the language within the source code of
our products and platforms to ensure that is inclusive and does not perpetuate racist stereotypes.
Leadership Engagement. C-Suite Executives alongside the COO and CEO receive quarterly updates on diversity data and inclusion-
building efforts. Additionally, the CEO and senior leaders across the organization have diversity and inclusion objectives embedded in
their annual and quarterly goals.
Sourcing & Recruiting. We train our recruiting workforce in diversity sourcing strategies and partners with external organizations
that develop and supply diverse talent. In addition, we are building a diversity dashboard to better understand its metrics around
applicants, candidates and its current workforce. Campaigns are being designed to collect more internal data and efforts are being made
around gathering prospective candidates.
Talent Development and Retention
Building and strengthening our talent pipeline is imperative to our success. Our approach to talent and performance is designed to ensure
employees and managers have regular feedback conversations about performance goals and development, to enable our high-
performance culture, and to create an environment where we achieve our strategy
At ResMed, we have specific career and development pathways designed for specific roles in consultation with operational management,
human resources, and learning and development specialists. We provide online courses that are role-specific, with formal tracking of
employee completion and performance. Online and face-to-face courses on operational compliance issues are developed and delivered
in-house. Online compliance courses on ResMed’s Code of Business Conduct and Ethics, diversity and inclusion, US Foreign Corrupt
Practices Act, and health and safety are developed by our Learning and Development team with external subject-matter advisers.
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Employee Safety and COVID-19 Related Measures
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We believe maintaining a physically safe and mentally healthy working environment is essential in supporting our people deliver their
best work. We employ global standards to provide the framework upon which locally compliant, integrated and effective health and
safety management systems are built that enable the capability, autonomy & accountability of the local leaders to manage health and
safety through day to day functions. Our approach is to place health & safety as a positive contributor to innovation, continuous
improvement and business sustainability through focusing on making work easier which in turn makes work safer and more efficient.
In response to COVID-19, we maximized the production of ventilators, masks, and other respiratory devices to reach the patients who
needed them most. This required keeping our employees safe and healthy, and keeping our manufacturing and distribution centers safe
and operational. As such, in compliance with government regulations, we invested in creating safe work environments for our
employees by implementing the following measures:
• Adding work from home flexibility;
• Adjusting attendance policies to encourage those who are sick to stay home;
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Increasing cleaning protocols across all locations;
Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and
procedures;
Facilitating access to and encouraging vaccination of our employees
Implementing temperature screening of employees at our sites;
• Establishing new physical distancing procedures for employees who need to be onsite;
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Providing additional personal protective equipment and cleaning supplies;
• Modifying workspaces
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Implementing protocols to address actual and suspected COVID-19 cases and potential exposure; and
Prohibiting all domestic and international non-essential travel for all employees.
As COVID-19 restrictions abate, we may lift some of these measures in certain locations based on local needs and in accordance with
local regulations.
Employee Engagement
We regularly seek employee feedback and sentiment about our workplace through a global engagement surveys that enable our people
to comment on matters related to their employment experience. We openly share the survey results throughout the company and
encourage teams to put in place action plans at global and local levels to address priority issues. Where benchmarks are available, our
results are evaluated against comparable peer groups.
Employee Wellbeing
We are committed to improving the quality of life of our customers, our people and their families. We recognize the benefits of a
healthy workforce and promote a holistic and inclusive approach to health and safety. Our health and wellbeing programs differ by
country and may include company-sponsored health insurance, retirement savings plans, sleep apnea screening and treatment,
smoking cessation, gym membership discounts, seasonal flu vaccinations, and many other programs to drive healthy behaviors and
awareness.
As part of our commitment to addressing the stigma of mental health, leadership continually communicates the importance of self-
care, asking for help, and setting work/life boundaries. We provide a comprehensive, company-funded global Employee Assistance
Program (EAP) offering free local, expert mental health services for our people and their household through one-on-one support,
monthly webinars, online courses, and crisis intervention services. Additionally, we implemented a company-wide Wellbeing Day for
our people to focus on their mental, social and physical health.
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ITEM 1A RISK FACTORS
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Item 1A
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below in addition to the
other cautionary statements and risks described elsewhere, and the other information contained, in this Report and in our other filings
with the SEC, including our subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our
business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on us, our business,
financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock will likely
decline, and you may lose all or part of your investment.
The following is a summary of the risks that are more fully described in the following section below:
Risks Related to Our Business and Industry
Summary of Risk Factors
• Our inability to compete successfully in our markets may harm our business.
• Consolidation in the health care industry could have an adverse effect on our revenues and results of operations.
• Our business, financial condition and results of operations could be harmed by the effects of the COVID-19 pandemic.
• We are subject to various risks relating to international activities that could affect our overall profitability.
• Our products are the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may
be unfavorable, or perceived as unfavorable, and could have a material adverse effect on our business, financial condition, and
results of operations.
• We are subject to potential product liability claims that may exceed the scope and amount of our insurance coverage, which
would expose us to liability for uninsured claims.
• Our intellectual property may not protect our products, and/or our products may infringe on the intellectual property rights of
third-parties.
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If we fail to attract, develop and retain key employees our business may suffer.
• Our leverage and debt service obligations could adversely affect our business.
Risks Related to Manufacturing, IT Systems, Commercial Operations and Plans for Future Growth
• Disruptions in the supply of components from our suppliers could result in a significant reduction in sales and profitability.
• We are increasingly dependent on information technology systems and infrastructure.
• Actual or attempted breaches of security, unauthorized disclosure of information, denial of service attacks or the perception
that personal and/or other sensitive or confidential information in our possession is not secure, could result in a material loss
of business, substantial legal liability or significant harm to our reputation.
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• We may not be able to realize the anticipated benefits from acquisitions, which could adversely affect our operating results.
• Our business depends on our ability to market effectively to dealers of home healthcare products and sleep clinics.
• Our SaaS business depends substantially on customers entering into, renewing, upgrading and expanding their agreements for
cloud services, term licenses, and maintenance and support agreements with us. Any decline in our customer renewals, upgrades
or expansions could adversely affect our future operating results.
If our SaaS products fail to perform properly or if we fail to develop enhancements, we could lose customers, become subject
to service performance or warranty claims and our market share could decline.
If there are interruptions or performance problems associated with our technology or infrastructure, our existing SaaS customers
may experience service outages, and our new customers may experience delays in the deployment of our platforms.
If we are unable to support our continued growth, our business could suffer.
If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to manufacture our products for a
substantial amount of time and our sales and profitability will decline.
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Risks Related to Non-Compliance with Laws, Regulations and Healthcare Industry Shifts
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Item 1A
• Healthcare reform may have a material adverse effect on our industry and our results of operations.
• Government and private insurance plans may not adequately reimburse our customers for our products, which could result in
reductions in sales or selling prices for our products.
• Failure to comply with anti-kickback and fraud regulations could result in substantial penalties and changes in our business
operations.
• Our use and disclosure of individually identifiable information, including health information, is subject to federal, state and
foreign privacy and security regulations, and our failure to comply with those regulations or to adequately secure the
information we hold could result in significant liability or reputational harm.
• Our business activities are subject to extensive regulation, and any failure to comply could have a material adverse effect on
our business, financial condition, or results of operations.
• Product sales, introductions or modifications may be delayed or canceled as a result of FDA regulations or similar foreign
regulations, which could cause our sales and profits to decline.
• We are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes. Our
failure to comply with these standards could have an adverse effect on our business, financial condition, or results of operations.
• Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder
their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from
being developed, cleared or approved or commercialized in a timely manner or at all, which could negatively impact our
business.
• Off-label marketing of our products could result in substantial penalties.
• Laws regulating consumer contacts could adversely affect our business operations or create liabilities.
• Tax laws, regulations, and enforcement practices are evolving and may have a material adverse effect on our results of
operations, cash flows and financial position.
• We are subject to tax audits by various tax authorities in many jurisdictions.
Risks Related to the Securities Markets and Ownership of Our Common Stock
• Our results of operations may be materially affected by global economic conditions generally, including conditions in the
financial markets.
• Our quarterly operating results are subject to fluctuation for a variety of reasons.
• Delaware law and provisions in our charter and could make it difficult for another company to acquire us.
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Risk Factors
Item 1A
Risks Related to Our Business and Industry
Our inability to compete successfully in our markets may harm our business. The markets for our products, which encompass
Sleep and Respiratory Care products and SaaS offerings, are highly competitive and are characterized by frequent product improvements
and evolving technology. Our ability to compete successfully depends, in part, on our ability to develop, manufacture and market
innovative new products. For our Sleep and Respiratory Care business, the development of innovative new products by our competitors
or the discovery of alternative treatments or potential cures for the conditions that our products treat could make our products
noncompetitive or obsolete. Current competitors, new entrants, academics, and others are trying to develop new devices, alternative
treatments or cures, and pharmaceutical solutions to the conditions our products treat. For SaaS, the market for business management
software is highly competitive, rapidly evolving, subject to changing technology, with low barriers to entry, shifting customer needs and
frequent introductions of new products and services. Many prospective customers have invested substantial personnel and financial
resources to implement and integrate their current business management software into their operations and, therefore, may be reluctant
or unwilling to change from their current solution or provider to one of our platforms or products.
Additionally, some of our competitors have greater financial, research and development, manufacturing and marketing resources than
we do. The past several years have seen a trend towards consolidation in the healthcare industry and in the markets for our products.
Industry consolidation could result in greater competition if our competitors combine their resources, if our competitors are acquired by
other companies with greater resources than ours, or if our competitors become affiliated with customers of ours. This competition could
increase pressure on us to reduce the selling prices of our products or could cause us to increase our spending on research and
development and sales and marketing. If we are unable to develop innovative new products, maintain competitive pricing, and offer
products that consumers perceive to be as good as those of our competitors, our sales and gross margins could decrease which would
harm our business.
Consolidation in the health care industry could have an adverse effect on our revenues and results of operations. Many home
health care dealers and out-of-hospital health providers are consolidating, which may result in greater concentration of purchasing power.
As the health care industry consolidates, competition to provide goods and services to industry participants may become more intense.
These industry participants may try to use their market power to negotiate price concessions or reductions for medical devices and
components produced by us. If we are forced to reduce our prices because of consolidation in the health care industry, our revenues may
decrease and our consolidated earnings, financial condition, and/or cash flows may suffer.
Our business, financial condition and results of operations could be harmed by the effects of the COVID-19 pandemic. We are
subject to risks related to the global pandemic associated with COVID-19, which have had an adverse impact on certain aspects of our
business. Specifically, diagnostic pathways for sleep apnea treatment, including physician practices, HME suppliers and sleep clinics,
have been impacted and, in some instances, been required, to temporarily close due to governments’ “shelter-in-place” orders,
quarantines or similar orders or restrictions enacted to control the spread of COVID-19. In some countries, new patients are prescribed
sleep apnea treatment through hospitals that are directing their resources to critical care, including COVID-19 treatment. Although
certain governments have begun to reduce or remove COVID-19 restrictions to varying degrees, we cannot predict the impact that will
have on diagnostic and prescription pathways and demand for our products designed to treat sleep apnea. Furthermore, we cannot predict
the extent, speed and effectiveness of worldwide containment and vaccination efforts and the impact of these factors will have on our
employees, customers, vendors and patients.
While we have experienced increased demand for our respiratory care products due to the nature of COVID-19, we do not expect the
same level of demand to continue as vaccination programs expand and infection rates decline globally. Decreases in future demand may
result in excess inventory, which we may be unable to sell. Furthermore, due to governments’ varying restrictions on international and
domestic travel, access to labor for our manufacturing facilities could be adversely impacted.
Our SaaS business has also been affected by COVID-19 and measures taken to control the spread of COVID-19. Some of our existing
and potential SaaS customers are HME distributors and have been impacted by the same temporary business closures noted above. We
also have existing and potential SaaS customers that operate care facilities and are either receiving and treating patients infected with
COVID-19 or have implemented significant measures to safeguard their facilities against a potential COVID-19 outbreak. Given these
challenging business conditions, businesses may be deterred from adopting new or changing SaaS platforms, which may adversely
impact our ability to engage new customers for our SaaS businesses, or expand the services used by existing customers.
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We currently utilize third parties to, among other things, manufacture components and materials for our devices. Disruptions relating to
the COVID-19 pandemic, including current shelter-in-place orders, could prevent employees, suppliers, distributors, and others from
accessing manufacturing facilities and from transporting our products or the components required to manufacture our products. Further,
worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in component shortages that have and may continue
to impact our ability to manufacture our devices. If either we or any third-party parties in the supply chain for materials used in the
production of our devices continue to be adversely impacted by the restrictions resulting from the COVID-19 pandemic, our supply
chain may be disrupted, limiting our ability to manufacture our devices. These disruptions may, among other things, impact our ability
to produce and supply products in quantities necessary to satisfy customer demand, which could negatively impact our results of
operations.
Health regulatory agencies globally may also experience disruptions in their operations as a result of the COVID-19 pandemic. Any
delay or de-prioritization of our product development activities or delay in regulatory review resulting from such disruptions could
materially affect our results of operations. We are also competing with participants in other industries, like the automobile industry for
example, for essential inputs for our products, which may result in higher prices or scarcity of supply.
In addition to existing travel restrictions, countries may continue to close borders, impose prolonged quarantines, and restrict travel,
which have disrupted and may continue to disrupt our ability to move our product by air and sea. While we expect COVID-19 to
negatively impact certain aspects of our business, given the rapid and evolving nature of the virus and the uncertainty about its impact
on society and the global economy, we cannot predict the extent to which it will affect our global operations.
We are subject to various risks relating to international activities that could affect our overall profitability. We manufacture
substantially all of our products outside the United States and sell a significant portion of our products in non-U.S. markets. Sales in
combined Europe, Asia and other markets accounted for approximately 39% and 38% of our net revenues in the years ended June 30,
2021 and June 30, 2020 respectively. Our sales and operations outside of the U.S. are subject to several difficulties and risks that are
separate and distinct from those we face in the U.S., including:
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fluctuations in currency exchange rates;
tariffs and other trade barriers;
compliance with foreign medical device manufacturing regulations;
difficulty in enforcing agreements and collecting receivables through foreign legal systems;
reduction in third-party payor reimbursement for our products;
inability to obtain import licenses;
the impact of public health epidemics/pandemics on the global economy, such as COVID-19 that has spread globally;
changes in trade policies and in U.S. and foreign tax policies;
possible changes in export or import restrictions; and
the modification or introduction of other governmental policies with potentially adverse effects.
Any of the above factors may have a material adverse effect on our ability to increase or maintain our non-U.S. sales.
Our products are the subject of clinical trials conducted by us, our competitors, or other third parties, the results of which may
be unfavorable, or perceived as unfavorable, and could have a material adverse effect on our business, financial condition, and
results of operations. As a part of the regulatory process to obtain marketing clearance for new products and new indications for
existing products, or for other reasons, we conduct and participate in numerous clinical trials with a variety of study designs, patient
populations, and trial endpoints. We, our competitors, or other third parties may also conduct clinical trials involving our commercially
marketed products. The results of clinical trials may be unfavorable or inconsistent with previous findings, or could identify safety
signals associated with our products. Current or future clinical trials may not meet primary endpoints, may reveal disadvantages of our
products and solutions for various markets we address, or could generate unfavorable or inconsistent clinical data. Clinical data, or the
market’s or regulatory bodies’ perception of the clinical data, may adversely impact our ability to obtain product clearances or approvals,
and our position in, and share of, the markets in which we participate. Moreover, if these clinical trials identify serious safety issues
associated with our marketed products, potentially adverse consequences could result, including that regulatory authorities could
withdraw clearances or approvals of our products, we could be required to halt the marketing and sales of our products or recall our
products, we could be required to update our product labeling with additional warnings, we could be sued and held liable for harm
caused to patients, and our reputation may suffer. Any of these could have a material adverse impact on our business, financial condition,
and results of operations.
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We are subject to potential product liability claims that may exceed the scope and amount of our insurance coverage, which
would expose us to liability for uninsured claims. We are subject to potential product liability claims as a result of the design,
manufacture and marketing of medical devices. Any product liability claim brought against us, with or without merit, could result in the
increase of our product liability insurance rates. In addition, we would have to pay any amount awarded by a court in excess of our
policy limits. Our insurance policies have various exclusions, and thus we may be subject to a product liability claim for which we have
no insurance coverage, in which case, we may have to pay the entire amount of any award. We cannot assure you that our insurance
coverage will be adequate or that all claims brought against us will be covered by our insurance and we cannot assure you that we will
be able to obtain insurance in the future on terms acceptable to us or at all. A successful product liability claim brought against us in
excess of our insurance coverage, if any, may require us to pay substantial amounts, which could harm our business. We may also be
affected by the product recalls and other risks associated with the products of our competitors if customers and patients are uncertain if
issues affecting our competitors may also affect us.
Our intellectual property may not protect our products, and/or our products may infringe on the intellectual property rights of
third-parties. We rely on a combination of patents, trade secrets and non-disclosure agreements to protect our intellectual property.
Our success depends, in part, on our ability to obtain and maintain U.S. and foreign patent protection for our products, their uses and
our processes to preserve our trade secrets and to operate without infringing on the proprietary rights of third-parties. We have a number
of pending patent applications, and we do not know whether any patents will issue from any of these applications. We do not know
whether any of the claims in our issued patents or pending applications will provide us with any significant protection against competitive
products or otherwise be commercially valuable. Legal standards regarding the validity of patents and the proper scope of their claims
are still evolving, and there is no consistent law or policy regarding the valid breadth of claims. Additionally, there may be third-party
patents, patent applications and other intellectual property relevant to our products and technology which are not known to us and that
block or compete with our products. We face the risks that:
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third-parties will infringe our intellectual property rights;
our non-disclosure agreements will be breached;
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our trade secrets will become known to or independently developed by our competitors;
third-parties will be issued patents that may prevent the sale of our products or require us to license and pay fees or royalties in
order for us to be able to market some of our products; or
third-parties may assert patents and other intellectual property rights against our suppliers, causing interruption in supply of
components or other essential inputs.
Litigation may be necessary to enforce patents issued to us, to protect our proprietary rights, or to defend third-party claims that we have
infringed on proprietary rights of others. If the outcome of any litigation or proceeding brought against us were adverse, we could be
subject to significant liabilities to third-parties, could be required to obtain licenses from third-parties, could be forced to design around
the patents at issue or could be required to cease sales of the affected products. A license may not be available at all or on commercially
viable terms, and we may not be able to redesign our products to avoid infringement. Additionally, the laws regarding the enforceability
of patents vary from country to country, and we cannot assure you that any patent issues we face will be uniformly resolved, or that
local laws will provide us with consistent rights and benefits.
If we fail to attract, develop and retain key employees our business may suffer. Our ability to compete effectively depends on our
ability to attract and retain key employees, including people in senior management, sales, marketing, technology, and research and
development positions. Competition for top talent in the healthcare, technology and SaaS industries can be intense. Our ability to recruit
and retain such talent will depend on a number of factors, including hiring practices of our competitors, compensation and benefits,
work location, work environment and industry economic conditions. If we cannot effectively recruit, develop and retain qualified
employees to drive our strategic goals, our business could suffer.
Our leverage and debt service obligations could adversely affect our business. As of June 30, 2021, our total consolidated debt
was $0.7 billion and we may incur additional indebtedness in the future. Our indebtedness could have adverse consequences, including:
• making it more difficult to satisfy our financial obligations;
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increasing our vulnerability to adverse economic, regulatory and industry conditions;
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry in
which we operate;
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limiting our ability to borrow additional funds for working capital, capital expenditure, acquisitions and general corporate or
other purposes; and
exposing us to greater interest rate risk.
Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal in indebtedness,
which could impede our growth. Our ability to make payments on, and to refinance, our indebtedness, and to fund capital expenditures
will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative,
regulatory, and other factors, many of which are beyond our control.
Risks Related to Manufacturing, IT Systems, Commercial Operations and Plans for Future Growth
Disruptions in the supply of components from our suppliers could result in a significant reduction in sales and profitability. We
purchase configured components for our devices from various suppliers, including some who are single-source suppliers for us.
Disruptions to our suppliers, including disruptions in connection with COVID-19, may limit our ability to manufacture our devices in a
timely or cost-effective manner, which could result in a significant reduction in sales and profitability. We cannot assure you that a
replacement supplier would be able to configure its components for our devices on a timely basis or, in the alternative, that we would
be able to reconfigure our devices to integrate the replacement part. A reduction or halt in supply while a replacement supplier
reconfigures its components, or while we reconfigure our devices for the replacement part, would limit our ability to manufacture our
devices in a timely or cost-effective manner, which could result in a significant reduction in sales and profitability. We cannot assure
you that our inventories would be adequate to meet our production needs during any prolonged interruption of supply.
In particular, a global semiconductor supply shortage is having wide-ranging effects across multiple industries, and it has impacted
suppliers that incorporate semiconductors into the parts they supply to us. The semiconductor supply shortage has had, and will continue
to have, an adverse impact on lead times and device production. Extended lead times and decreased availability of key components may
also cause an adverse effect on our financial condition or results of operations. Delays in our ability to produce and deliver our devices
could cause our customers to purchase alternative products from our competitors. If component shortages continue, we will continue to
experience supply interruption and/or may incur significant price increases from these suppliers.
Additionally, increases in product demand, including in response to a recent product recall by one of our competitors, Philips, have
resulted and could continue to result in shipment delays, higher costs for materials and components, and increased expenditures for
freight and other expenses, which have and could continue to negatively impact our profit margins. Although historically we have
generally been able to secure additional supply or take other actions to mitigate supply disruptions, as the impact of the global shortages
in key components, including semiconductors, impacts many industries worldwide, and particularly our supply chain, we could
experience a material adverse effect on our business, results of operations, and financial condition. In addition, in order to secure such
necessary components, we may be obligated to purchase them at prices that are higher than those available in the current market. If
supply constraints continue, our ability to meet demand and our corresponding ability to sell affected products may be materially
reduced. We may have to allocate or prioritize orders for our devices, and our failure to timely deliver desirable products to meet demand
may harm relationships with our customers.
We are increasingly dependent on information technology systems and infrastructure. Our technology systems are potentially
vulnerable to breakdown or other interruption by fire, power loss, system malfunction, unauthorized access and other events. Likewise,
data privacy breaches by employees and others with both permitted and unauthorized access to our systems may pose a risk that sensitive
data may be exposed to unauthorized persons or to the public, or may be permanently lost. While we have invested heavily in the
protection of data and information technology and in related training, there can be no assurance that our efforts will prevent significant
breakdowns, breaches in our systems or other cyber incidents that could have a material adverse effect upon the reputation, business,
operations or financial condition of the company. In addition, significant implementation issues may arise as we continue to consolidate
and outsource certain computer operations and application support activities.
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Actual or attempted breaches of security, unauthorized disclosure of information, denial of service attacks or the perception
that personal and/or other sensitive or confidential information in our possession is not secure, could result in a material loss of
business, substantial legal liability or significant harm to our reputation. We receive, collect, process, use and store a large amount
of information from our clients, our patients and our own employees, including personally identifiable, protected health and other
sensitive and confidential information. This data is often accessed by us through transmissions over public and private networks,
including the Internet. The secure transmission of such information over the Internet and other mechanisms is essential to maintain
confidence in our information technology systems. We have implemented security measures, technical controls and contractual
precautions designed to identify, detect and prevent unauthorized access, alteration, use or disclosure of our clients’, patients’ and
employees’ data. However, the techniques used in these attacks change frequently and may be difficult to detect for periods of time and
we may face difficulties in anticipating and implementing adequate preventative measures. As a result of the COVID-19 pandemic, we
may face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working
remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Beyond external criminal activity,
systems that access or control access to our services and databases may be compromised as a result of human error, fraud or malice on
the part of employees or third parties, or may result from accidental technological failure. Because the techniques used to circumvent
security systems can be highly sophisticated and change frequently, often are not recognized until launched against a target and may
originate from less regulated and remote areas around the world, we may be unable to proactively address all possible techniques or
implement adequate preventive measures for all situations.
If someone is able to circumvent or breach our security systems, they could steal any information located therein or cause serious and
potentially long lasting disruption to our operations. Security breaches or attempts thereof could also damage our reputation and expose
us to a risk of monetary loss and/or litigation, fines and sanctions. We also face risks associated with security breaches affecting third
parties that conduct business with us or our clients and others who interact with our data. While we maintain insurance that covers
certain security and privacy breaches, we may not carry appropriate insurance or maintain sufficient coverage to compensate for all
potential liability.
We are subject to diverse laws and regulations relating to data privacy and security, including HIPAA and European data privacy laws.
Complying with these numerous and complex regulations is expensive and difficult, and failure to comply with these regulations could
result in regulatory scrutiny, fines, civil liability or damage to our reputation. In addition, any security breach or attempt thereof could
result in liability for stolen assets or information, additional costs associated with repairing any system damage, incentives offered to
clients or other business partners to maintain business relationships after a breach, and implementation of measures to prevent future
breaches, including organizational changes, deployment of additional personnel and protection technologies, employee training and
engagement of third-party experts and consultants. Additionally, the costs incurred to remediate any data security or privacy incident
could be substantial.
We cannot assure you that any of our third-party service providers with access to our, or our clients, patients and/or employees’
personally identifiable and other sensitive or confidential information will maintain appropriate policies and practices regarding data
privacy and security in compliance with all applicable laws or that they will not experience data security breaches or attempts thereof,
which could have a corresponding effect on our business.
We may not be able to realize the anticipated benefits from acquisitions, which could adversely affect our operating results. Part
of our growth strategy includes acquiring businesses consistent with our commitment to innovation in developing products for the
diagnosis and treatment of sleep apnea and respiratory care as well as our SaaS business. For example, we acquired MatrixCare in
November 2018 and Propeller Health in January 2019. The success of our acquisitions will depend, in part, on our ability to successfully
integrate the business and operations of the acquired companies. Additionally, our management may have their attention diverted while
trying to integrate these businesses. If we are not able to successfully integrate the operations, we may not realize the anticipated benefits
of the acquisitions fully or at all, or may take longer to realize than expected.
Moreover, we have recorded intangible assets, including goodwill, in connection with our acquisitions. At least on an annual basis, we
must evaluate whether facts and circumstances indicate any impairment of the intangible assets’ values. The qualitative and quantitative
analysis used to test goodwill is dependent upon various considerations and assumptions, including macroeconomic conditions, industry
and market characteristics, projections of acquired companies’ future revenue, discount rates, and expectations of future cash flows.
While we have made such assumptions in good faith and believe them to be reasonable, the assumptions may turn out to be materially
inaccurate, including for reasons beyond our control. Changes in such assumptions may cause a change in circumstances indicating that
the carrying value of intangible assets may be impaired. Consequently, we may be required to record a significant charge to earnings in
the financial statements during the period in which any impairment of intangible assets is determined.
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Our business depends on our ability to market effectively to dealers of home healthcare products and sleep clinics. We market
our products primarily to home healthcare dealers and to sleep clinics that diagnose OSA and other sleep disorders, as well as to non-
sleep specialist physician practices that diagnose and treat sleep disorders. We believe that these groups play a significant role in
determining which brand of product a patient will use. The success of our business depends on our ability to market effectively to these
groups to ensure that our products are properly marketed and sold by these third-parties.
We have limited resources to market to the sleep clinics, home healthcare dealer branch locations and to the non-sleep specialists, most
of whom use, sell or recommend several brands of products. In addition, home healthcare dealers have experienced price pressures as
government and third-party reimbursement has declined for home healthcare products, and home healthcare dealers are requiring price
discounts and longer periods of time to pay for products purchased from us. We cannot assure you that physicians will continue to
prescribe our products, or that home healthcare dealers or patients will not substitute competing products when a prescription specifying
our products has been written.
We have expanded our marketing activities in some markets to target the population with a predisposition to sleep-disordered breathing
as well as primary care physicians and various medical specialists. We cannot assure you that these marketing efforts will be successful
in increasing awareness or sales of our products.
Our SaaS business depends substantially on customers entering into, renewing, upgrading and expanding their agreements for
cloud services, term licenses, and maintenance and support agreements with us. Any decline in our customer renewals, upgrades
or expansions could adversely affect our future operating results. We typically enter into term-based agreements for our licensed
on-premises offerings, cloud services, and maintenance and support services, which customers have discretion to renew or terminate at
the end of the initial term. In order for us to improve our operating results, it is important that new customers enter into renewable
agreements, and our existing customers renew, upgrade and expand their term-based agreements when the initial contract term expires.
Our customers have no obligation to renew, upgrade or expand their agreements with us after the terms have expired. Our customers’
renewal, upgrade and expansion rates may decline or fluctuate as a result of a number of factors, including their satisfaction or
dissatisfaction with our offerings, our pricing, the effects of general economic conditions, competitive offerings or alterations or
reductions in our customers’ spending levels. If our customers do not renew, upgrade or expand their agreements with us or renew on
terms less favorable to us, our revenues may decline.
If our SaaS products fail to perform properly or if we fail to develop enhancements, we could lose customers, become subject to
service performance or warranty claims and our market share could decline. Our SaaS operations are dependent upon our ability
to prevent system interruptions and, as we continue to grow, we will need to devote additional resources to improving our infrastructure
in order to maintain the performance of our products and solutions. The applications underlying our SaaS products are inherently
complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We
have from time to time found defects in our products and may discover additional defects in the future that could result in data
unavailability, unauthorized access to, loss, corruption or other harm to our customers’ data. While we implement bug fixes and upgrades
as part of our regularly scheduled system maintenance, we may not be able to detect and correct defects or errors before implementing
our products and solutions. Consequently, we or our customers may discover defects or errors after our products and solutions have
been deployed. If we fail to perform timely maintenance, or if customers are otherwise dissatisfied with the frequency and/or duration
of our maintenance services and related system outages, our existing customers could elect not to renew their contracts, delay or withhold
payment, or potential customers may not adopt our products and solutions and our brand and reputation could be harmed. In addition,
the occurrence of any material defects, errors, disruptions in service or other performance problems with our software could result in
warranty or other legal claims against us and diversion of our resources. The costs incurred in addressing and correcting any material
defects or errors in our software and expanding our infrastructure and architecture in order to accommodate increased demand for our
products and solutions may be substantial and could adversely affect our operating results.
If there are interruptions or performance problems associated with our technology or infrastructure, our existing SaaS
customers may experience service outages, and our new customers may experience delays in the deployment of our
platforms. We depend on services from various third parties as well as our own technical operations infrastructure to distribute our
SaaS products via the Internet. If a service provider fails to provide sufficient capacity to support our platform or otherwise experiences
service outages, such failure could interrupt our customers’ access to our service, which could adversely affect their perception of our
platform's reliability and our revenues. Any disruptions in these services, including as a result of actions outside of our control, would
significantly impact the continued performance of our SaaS products. In the future, these services may not be available to us on
commercially reasonable terms, or at all. Any loss of the right to use any of these services could result in decreased functionality of our
SaaS products until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and
integrated into our infrastructure.
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To meet our business needs, we must maintain sufficient excess capacity in our operations infrastructure to ensure that our SaaS products
are accessible. Design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause
our systems to fail, resulting in interruptions in our SaaS products. Any interruptions or delays in our service, whether or not caused by
our products, or as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could
harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase.
Any of the above circumstances or events may harm our reputation, cause customers to terminate their agreements with us, impair our
ability to obtain contract renewals from existing customers, impair our ability to grow our customer base, result in the expenditure of
significant financial, technical and engineering resources, subject us to financial penalties and liabilities under our service level
agreements, and otherwise harm our business, results of operations and financial condition.
If we are unable to support our continued growth, our business could suffer. As we continue to grow, the complexity of our
operations increases, placing greater demands on our management. Our ability to manage our growth effectively depends on our ability
to implement and improve our financial and management information systems on a timely basis and to effect other changes in our
business including the ability to monitor and improve manufacturing systems, information technology, and quality and regulatory
compliance systems, among others. Unexpected difficulties during expansion, the failure to attract and retain qualified employees, the
failure to successfully replace or upgrade our management information systems, the failure to manage costs or our inability to respond
effectively to growth or plan for future expansion could cause our growth to stop. If we fail to manage our growth effectively and
efficiently, our costs could increase faster than our revenues and our business results could suffer.
If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to manufacture our products for a
substantial amount of time and our sales and profitability will decline. Our facilities and the manufacturing equipment we use to
produce our products would be costly to replace and could require substantial lead-time to repair or replace. The facilities may be
affected by natural or man-made disasters, including COVID-19 that has spread globally, and in the event they were affected by a
disaster, we would be forced to rely on third-party manufacturers. Although we believe we possess adequate insurance for the disruption
of our business from causalities, such insurance may not be sufficient to cover all of our potential losses and may not continue to be
available to us on acceptable terms, or at all.
Risks Related to Non-Compliance with Laws, Regulations and Healthcare Industry Shifts
Healthcare reform may have a material adverse effect on our industry and our results of operations. In March 2010, the ACA
was signed into law in the United States. The ACA made changes that significantly impacted the healthcare industry, including medical
device manufacturers. One of the principal purposes of the ACA was to expand health insurance coverage to millions of Americans who
were uninsured. The ACA required adults not covered by an employer or government-sponsored insurance plan to maintain health
insurance coverage or pay a penalty, a provision commonly referred to as the individual mandate.
The ACA also contained a number of provisions designed to generate the revenues necessary to fund the coverage expansions. This
included new fees or taxes on certain health-related industries, including medical device manufacturers. Beginning in 2013, entities that
manufacture, produce or import medical devices were required to pay an excise tax in an amount equal to 2.3% of the price for which
such devices are sold in the United States. This excise tax was applicable to our products that are primarily used in hospitals and sleep
labs, which includes the ApneaLink, VPAP Tx and certain Respiratory Care products. Through a series of legislative amendments, the
tax was suspended beginning in 2016, and permanently repealed effective January 1, 2020. In addition to the competitive bidding
changes discussed above, the ACA also included, among other things, directions to develop organizations that are paid under a new
payment methodology for voluntary coordination of care by groups of providers, such as physicians and hospitals, and the establishment
of a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness
research. The increased funding and focus on comparative clinical effectiveness research, which compares and evaluates the risks and
benefits, clinical outcomes, effectiveness and appropriateness of products, may result in lower reimbursements by payors for our
products and decreased profits to us.
Other federal legislative changes have been proposed and adopted since the ACA was enacted. These changes included an aggregate
reduction in Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013. The CARES Act, which
was signed into law in March 2020 and subsequently amended, suspended the payment reductions from May 1, 2020 through December
31, 2020, and extended the sequester by one additional year, through 2030. In addition, on January 2, 2013, the American Taxpayer
Relief Act of 2012, was signed into law, which, among other things, further reduced Medicare payments to several providers, including
hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five
years.
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The full impact on our business of the ACA and other new laws is uncertain. Nor is it clear whether other legislative changes will be
adopted, if any, or how such changes would affect the demand for our products. Future actions by the administration and the U.S.
Congress including, but not limited to, repeal or replacement of the ACA could have a material adverse impact on our results of
operations or financial condition. Additionally, all or a portion of the ACA and related subsequent legislation may be modified,
repealed or otherwise invalidated through other judicial challenge. On June 17, 2021, the U.S. Supreme Court dismissed the most
recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to
the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period for purposes of
obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through
August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies
and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs
that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through
Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to
challenge, repeal or replace the ACA will impact the ACA or our business.
Various healthcare reform proposals have also emerged at the state level within the United States. The ACA as well as other federal
and/or state healthcare reform measures that may be adopted in the future, singularly or in the aggregate, could have a material adverse
effect on our business, financial condition and results of operations.
Government and private insurance plans may not adequately reimburse our customers for our products, which could result in
reductions in sales or selling prices for our products. Our ability to sell our products depends in large part on the extent to which
coverage and adequate reimbursement for our products will be available from government health administration authorities, private
health insurers and other organizations. These third-party payers are increasingly challenging the prices charged for medical products
and services and can, without notice, deny coverage for our products or treatments that may include the use of our products. Therefore,
even if a product is approved for marketing, we cannot make assurances that coverage and reimbursement will be available for the
product, that the reimbursement amount will be adequate or that the reimbursement amount, even if initially adequate, will not be
subsequently reduced. For example, in some markets, such as Spain, France and Germany, government coverage and reimbursement
are currently available for the purchase or rental of our products but are subject to constraints such as price controls or unit sales
limitations. In other markets, such as Australia, there is currently limited or no reimbursement for devices that treat sleep apnea
conditions. As we continue to develop new products, those products will generally not qualify for coverage and reimbursement until
they are approved for marketing, if at all.
In the United States, we sell our products primarily to home healthcare dealers, hospitals and sleep clinics. Reductions in reimbursement
to our customers by third-party payers, if they occur, may have a material impact on our customers and, therefore, may indirectly affect
our pricing and sales to, or the collectability of receivables we have from, those customers. A development negatively affecting
reimbursement stems from the Medicare competitive bidding program mandated by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA). Under the program, our customers who provide DME must compete to offer products in designated
competitive bidding areas, or CBAs. In addition, under the ACA, in 2016, CMS adjusted the prices in non-competitive bidding areas to
match competitive bidding prices. CMS phased in the new rates beginning January 1, 2016, and were fully effective July 1, 2016. This
program has significantly reduced the Medicare reimbursement to our customers compared with reimbursement in 2011, at the beginning
of the program. The 21st Century Cures Act retroactively adjusted rates in non-bid areas to allow for the higher phase-in rates to be paid
for items furnished between July 1, 2016 and December 31, 2016, rather than the lower fully-adjusted rates. Rules issued by CMS in
2018 resumed the higher phase-in rates in rural and non-contiguous non-competitive bidding areas for items furnished between June 1,
2018 and December 31, 2020. Pursuant to the CARES Act, these higher phase-in rates were extended through December 31, 2020, or
through the end of the COVID-19 public health emergency, and were implemented in areas other than rural areas and noncontiguous
areas for the same period. On March 7, 2019, CMS announced it would initiate a new round of competitive bidding, named Round 2021,
with contracts effective on January 1, 2021 through December 31, 2023. In addition to adopting new bidding processes, CMS expanded
the product categories included in competitive bidding to include non-invasive ventilators. However, due to the COVID-19 pandemic,
CMS removed NIVs from Round 2021 of the DMEPOS Competitive Bidding Program. CPAP, and respiratory assist devices, and related
supplies and accessories, which had been included in prior rounds of competitive bidding, were included in the 15 remaining product
categories that were bid for in Round 2021. However, CMS did not award competitive bidding contracts for any product categories
other than OTS back and knee braces. Payment for items where contracts were not awarded – including CPAP and respiratory assist
devices – will be based on adjusted fee schedule amounts. At this time, we cannot predict the full impact the competitive bidding
program and the developments in the competitive bidding program will have on our business and financial condition. If changes are
made to this program in the future, it could affect amounts being recovered by our customers.
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In addition, our products are the subject of periodic studies by third party agencies, including the Agency for Healthcare Research and
Quality in the United States, intended to review the comparative effectiveness of different treatments of the same illness. Although the
results of comparative effectiveness studies are not intended to mandate any reimbursement policies for public or private payers, it is
not clear what, if any, effect such research will have on the sales of our products. Decreases in third-party reimbursement for our products
or a decision by a third-party payer to not cover our products as a result of a third-party study could have a material adverse effect on
our sales, results of operations and financial condition.
Failure to comply with anti-kickback and fraud regulations could result in substantial penalties and changes in our business
operations. Although in the United States we do not provide healthcare services, submit claims for third-party reimbursement, or
receive payments directly from Medicare, Medicaid or other third-party payors for our products, we are subject to healthcare fraud and
abuse regulation and enforcement by federal, state and foreign governments, which could significantly impact our business. We also are
subject to foreign fraud and abuse laws, which vary by country.
In the United States, the laws that may affect our ability to operate include, but are not limited to:
•
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully
soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce
either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service
for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid.
A person or entity does not need to have actual knowledge of this statute or specific intent to violate the Anti-Kickback Statute
itself to have committed a violation. The U.S. government has interpreted this law broadly to apply to the marketing and sales
activities of manufacturers, distributors and revenue cycle management companies like us. Violations of the federal Anti-
Kickback Statute may result in significant civil monetary penalties for each violation, plus up to three times the remuneration
involved. Violations of the Federal Anti-Kickback Statute can also result in significant criminal penalties and imprisonment;
federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalty laws, that prohibit,
among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government
that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property
to the federal government or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay
or transmit money or property to the federal government. These laws may apply to manufacturers and distributors who provide
information on coverage, coding, and reimbursement of their products to persons who do bill third-party payors. In addition,
the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Violations can result in
debarment, suspension or exclusion from participation in government healthcare programs, including Medicare and Medicaid.
When an entity is determined to have violated the federal civil False Claims Act, the government may impose significant civil
fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid
and other federal healthcare programs.
• HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or
making false statements relating to healthcare matters. A person or entity does not need to have actual knowledge of these
statutes or specific intent to violate them to have committed a violation;
•
•
•
the federal Physician Sunshine Act requirements under the ACA, which impose reporting and disclosure requirements on
device and drug manufacturers for any “transfer of value” made or distributed by certain manufacturers of drugs, devices,
biologics, and medical supplies to physicians (including doctors, dentists, optometrists, podiatrists and chiropractors), teaching
hospitals, and ownership and investment interests held by physicians and their immediate family members. Beginning in 2022,
applicable manufacturers also will be required to report such information regarding payments and transfers of value provided
during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists,
anesthesiology assistants and certified nurse midwives;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that
potentially harm customers; and
state and foreign law equivalents of each of the above federal laws, such as state anti-kickback and false claims laws that may
apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require device
companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral
sources; state laws that require device manufacturers to report information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures.
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The scope and enforcement of these laws are uncertain and subject to rapid change in the current environment of healthcare reform,
especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their
scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,
prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming
and can divert management’s attention from the business. Additionally, as a result of these types of investigations, healthcare providers
and entities may face litigation or have to agree to settlements that can include monetary penalties and onerous compliance and reporting
requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs
or otherwise have an adverse effect on our business.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us
now or in the future, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement, exclusion
from governmental health care programs, additional compliance and reporting obligations, imprisonment and the curtailment or
restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
In December 2019, we entered into a settlement agreement with the U.S. Department of Justice and the U.S. Attorneys’ Offices for the
District Court of South Carolina, the Southern District of California, the Northern District of Iowa and the Eastern District of New York.
The agreement resolved five lawsuits originally brought by whistleblowers under the qui tam provisions of the False Claims Act and
allegations that we: (a) provided DME companies with free telephone call center services and other free patient outreach services that
enabled these companies to order resupplies for their patients with sleep apnea, (b) provided sleep labs with free and below-cost positive
airway pressure masks and diagnostic machines, as well as free installation of these machines, (c) arranged for, and fully guaranteed the
payments due on, interest-free loans that DME supplies acquired from third-party financial institutions for the purchase of our
equipment, and (d) provided non-sleep specialist physicians free home sleep testing devices referred to as “ApneaLink.” We agreed
with the government to civilly resolve these matters for a payment of $39.5 million ($37.5 million to the federal government and $2
million to the various states) and we incurred additional fees and administrative costs that typically accompany such a resolution
amounting to $1.1 million. The specific allegations and the resolution of those allegations are contained in the Company’s settlement
agreement with the adverse parties. The total final costs relating to these matters was $40.6 million.
Contemporaneous with the civil settlement, we also entered into a five-year Corporate Integrity Agreement, or CIA, with the Department
of Health and Human Services Office of Inspector General. The CIA required, among other things, that we implement additional
controls around our product pricing and sales and that we conduct internal and external monitoring of our arrangements with referrals
sources. The settlement agreement with the government and the CIA could result in reputational harm or the curtailment or restructuring
of our operations, any of which could materially adversely affect our financial results and our ability to operate our business. In addition,
our failure to comply with our obligations under the CIA could result in monetary penalties and our exclusion from participating in
federal healthcare programs. The costs associated with compliance with the CIA, or any liability or consequences associated with its
breach, could have an adverse effect on our operations, liquidity and financial condition.
Our use and disclosure of individually identifiable information, including health information, is subject to federal, state and
foreign privacy and security regulations, and our failure to comply with those regulations or to adequately secure the
information we hold could result in significant liability or reputational harm. The privacy and security of personally identifiable
information stored, maintained, received or transmitted electronically is a major issue in the U.S. and abroad. While we strive to comply
with all applicable privacy and security laws and regulations, as well as our own posted privacy policies, legal standards for privacy,
including but not limited to “unfairness” and “deception,” as enforced by the FTC and state attorneys general, continue to evolve and
any failure or perceived failure to comply may result in proceedings or actions against us by government entities or others, or could
cause us to lose audience and customers, which could have a material adverse effect on our business. Recently, there has been an increase
in public awareness of privacy issues in the wake of revelations about the activities of various government agencies and in the number
of private privacy-related lawsuits filed against companies. Concerns about our practices with regard to the collection, use, disclosure,
security or deletion of personally identifiable information or other privacy-related matters, even if unfounded and even if we are in
compliance with applicable laws, could damage our reputation and harm our business.
Numerous foreign, federal and state laws and regulations govern collection, dissemination, use and confidentiality of personally
identifiable health information, including (i) state privacy and confidentiality laws (including state laws requiring disclosure of
breaches); (ii) HIPAA; and (iii) European and other foreign data protection laws, including the GDPR.
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HIPAA establishes a set of national privacy and security standards for the protection of individually identifiable health information, or
protected health information, by health plans, healthcare clearinghouses and healthcare providers that submit certain covered
transactions electronically, or covered entities, and their “business associates,” which are persons or entities that perform certain services
for, or on behalf of, a covered entity that involve creating, receiving, maintaining or transmitting protected health information, as well
as their covered subcontractors. Certain portions of our business, such as the cloud-based software digital health applications, are subject
to HIPAA as a business associate of our covered entity clients. To provide our covered entity clients with services that involve access
to PHI, HIPAA requires us to enter into business associate agreements that require us to safeguard PHI in accordance with HIPAA. As
a business associate, we are also directly liable for compliance with HIPAA. Penalties for violations of HIPAA regulations include civil
and criminal penalties.
HIPAA authorizes state attorneys’ general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs and
attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals
to sue us in civil court for HIPAA violations, its standards have been used as the basis for a duty of care claim in state civil suits such
as those for negligence or recklessness in the misuse or breach of PHI.
HIPAA further requires business associates like us to notify our covered entity clients “without unreasonable delay and in no case later
than 60 calendar days after discovery of the breach.” Covered entities must notify affected individuals “without unreasonable delay and
in no case later than 60 calendar days after discovery of the breach” if their unsecured PHI is subject to an unauthorized access, use or
disclosure. If a breach affects 500 patients or more, covered entities must report it to HHS and local media without unreasonable delay,
and HHS will post the name of the breaching entity on its public website. If a breach affects fewer than 500 individuals, the covered
entity must log it and notify HHS at least annually.
If we are unable to properly protect the privacy and security of health information entrusted to us, our solutions may be perceived as not
secure, we may incur significant liabilities and customers may curtail their use of or stop using our solutions. In addition, if we fail to
comply with the terms of our business associate agreements with our clients, we are liable not only contractually but also directly under
HIPAA.
In addition, the California Consumer Privacy Act of 2018, or CCPA, became effective on January 1, 2020. The CCPA gives California
residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive
detailed information about how their personal information is used by requiring covered companies to provide new disclosures to
California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal
information. The CCPA includes civil penalties for violations, as well as a private right of action for data breaches that is expected to
increase data breach litigation. Although the law includes limited exceptions, including for “protected health information” maintained
by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.
CCPA’s implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and the CCPA
may increase our compliance costs and potential liability. Further, the California Privacy Rights Act, or CPRA, was recently passed in
California and not only revises but expands upon CCPA. The CPRA will impose additional data protection obligations on covered
businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and
opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive
regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect
on January 1, 2023, will supersede the CCPA, and additional compliance investment and potential business process changes may be
required. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection
law, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
We are also subject to laws and regulations in non-U.S. countries covering data privacy and the protection of health-related and other
personal information. For example, EU member states and other jurisdictions have adopted data protection laws and regulations, which
impose significant compliance obligations. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage,
disclosure and security of personal information that identifies or may be used to identify an individual, such as names, contact
information, and sensitive personal data such as health data. These laws and regulations are subject to frequent revisions and differing
interpretations and have generally become more stringent over time.
In addition, the GDPR went into effect in May 2018. The GDPR imposes stringent data protection requirements for the processing of
personal data in the European Economic Area, or EEA. The GDPR imposes several stringent requirements for controllers and processors
of personal data, and increased our obligations, for example, by imposing higher standards for obtaining consent from individuals to
process their personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines
for data breach notifications, limiting retention periods and secondary use of information (including for research purposes), increasing
requirements pertaining to health data and pseudonymized (i.e., key-coded) data and imposing additional obligations when we contract
with third party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer
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of personal data out of the EEA, including to the United States, and recent legal developments in Europe have created complexity and
uncertainty regarding such transfers of personal data from the EEA to the United States. For example, on July 16, 2020, the Court of
Justice of the European Union, or CJEU, invalidated the EU-US Privacy Shield Framework, or Privacy Shield, under which personal
data could be transferred from the EEA to United States entities that had self-certified under the Privacy Shield scheme. While the CJEU
upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an
adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), the CJEU ruled that the underlying data
transfers must be assessed on a case-by-case basis by the data controller to determine whether the personal data will be adequately
protected. As a result, on June 4, 2021 the European Commission published a decision adopting an updated set of new standard
contractual clauses designed to address issues identified by the CJEU. Existing data transfers that rely on the old standard contractual
clauses can continue to be used until December 27, 2022 and the use of the new standard contractual clauses will still need to be assessed
on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance
laws and rights of individuals. The exact scope and applicability of the new standard contractual clauses is currently unclear, particularly
regarding transfers to parties outside the EEA who are already subject to the GDPR. We are awaiting further clarification from the
European Commission and therefore the full scope of application of the standard contractual clauses remains subject to review and
change as we get a better understanding from the European Commission and national regulators. European data protection law provides
that EEA member states may make their own further laws and regulations limiting the processing of genetic, biometric or health data,
which could limit our ability to use and share personal data or could cause our costs could increase, and harm our business and financial
condition. The GDPR and other similar regulations impose additional conditions in order to satisfy such consent for electronic marketing,
such as a prohibition on pre-checked tick boxes and bundled consents, thereby requiring customers to affirmatively consent for a given
purpose through separate tick boxes or other affirmative action. Failure to comply with the requirements of GDPR and the applicable
national data protection and marketing laws of the EEA member states may result in fines of up to €20,000,000 or up to 4% of the total
worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties as well as individual
claims for compensation.
In addition, from January 1, 2021, we have had to comply with the GDPR and United Kingdom GDPR, which, together with the amended
United Kingdom Data Protection Act 2018, retains the GDPR in United Kingdom national law. The United Kingdom GDPR mirrors
the fines under the GDPR, i.e., fines up to the greater of £17.5 million or 4% of global turnover. The relationship between the United
Kingdom and the EU in relation to certain aspects of data protection law remains unclear, and it is unclear how United Kingdom data
protection laws and regulations will develop in the medium to longer term. On June 28, 2021, the European Commission adopted an
adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without
additional safeguards. However, the United Kingdom adequacy decision will automatically expire in June 2025 unless the European
Commission renews or extends that decision and remains under review by the Commission during this period.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process,
and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. Any failure or
perceived failure by us to comply with privacy or security laws, policies, legal obligations or industry standards or any security incident
that results in the unauthorized release or transfer of personally identifiable information may also result in governmental enforcement
actions and investigations, fines and penalties, litigation and/or adverse publicity, including by consumer advocacy groups, and could
cause our customers to lose trust in us, which could have an adverse effect on our reputation and business. Such failures could have a
material adverse effect on our financial condition and operations. If the third parties we work with violate applicable laws, contractual
obligations or suffer a security breach, such violations may also put us in breach of our obligations under privacy laws and regulations
and/or could in turn have a material adverse effect on our business.
Our business activities are subject to extensive regulation, and any failure to comply could have a material adverse effect on our
business, financial condition, or results of operations. We are subject to extensive U.S. federal, state, local and international
regulations regarding our business activities. Failure to comply with these regulations could result in, among other things, recalls of our
products, substantial fines and criminal charges against us or against our employees. Furthermore, certain of our products could be
subject to recall if the Food and Drug Administration, or the FDA, other regulators or we determine, for any reason, that those products
are not safe or effective. Any recall or other regulatory action could increase our costs, damage our reputation, affect our ability to
supply customers with the quantity of products they require and materially affect our operating results.
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Product sales, introductions or modifications may be delayed or canceled as a result of FDA regulations or similar foreign
regulations, which could cause our sales and profits to decline. Unless a product is exempt, before we can market or sell a new
medical device in the United States, we must obtain FDA clearance or approval, which can be a lengthy and time-consuming process.
We generally receive clearance from the FDA to market our products in the United States under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act or our products are exempt from the Section 510(k) clearance process. The 510(k) clearance process can be
expensive, time-consuming and uncertain. In the 510(k) clearance process, the FDA must determine that a proposed device is
“substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology
and safety and effectiveness, in order to clear the proposed device for marketing. The FDA has a high degree of latitude when evaluating
submissions and may determine that a proposed device submitted for 510(k) clearance is not substantially equivalent to a predicate
device. After a device receives 510(k) premarket notification clearance from the FDA, any modification that could significantly affect
its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, packaging,
and certain manufacturing processes may require a new 510(k) clearance or premarket approval. We have modified some of our Section
510(k) approved products without submitting new Section 510(k) notices, which we do not believe were required. However, if the FDA
disagrees with us and requires us to submit new Section 510(k) notifications for modifications to our existing products, we may be
required to stop marketing the products while the FDA reviews the Section 510(k) notification.
Any new product introduction or existing product modification could be subjected to a lengthier, more rigorous FDA examination
process. For example, in certain cases we may need to conduct clinical trials of a new product before submitting a 510(k) notice. We
may also be required to obtain premarket approvals for certain of our products. Indeed, recent trends in the FDA’s review of premarket
notification submissions suggest that the FDA is often requiring manufacturers to provide new, more expansive, or different information
regarding a particular device than what the manufacturer anticipated upon 510(k) submission. This has resulted in increasing uncertainty
and delay in the premarket notification review process. For example, in November 2018, FDA officials announced steps that the FDA
intended to take to modernize the 510(k) premarket notification pathway. Among other things, the FDA announced that it planned to
develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included
plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially
publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more
than 10 years old. In September 2019, the FDA also issued revised final guidance establishing a “Safety and Performance Based
Pathway” for “manufacturers of certain well-understood device types” allowing manufacturers to rely on objective safety and
performance criteria recognized by the FDA to demonstrate substantial equivalence, obviating the need for manufacturers to compare
the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA has developed and
maintains a list of device types appropriate for the “safety and performance based” pathway and continues to develop product-specific
guidance documents that identify the performance criteria and recommended testing methodologies for each such device type, where
feasible. Some of these proposals have not yet been finalized or adopted, although the FDA may work with Congress to implement
such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional
regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict
our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business.
The FDA’s ongoing review of the 510(k) program may make it more difficult for us to make modifications to our previously cleared
products, either by imposing stricter requirements on when a manufacturer must submit a new 510(k) for a modification to a previously
cleared product, or by applying more onerous review criteria to such submissions. FDA continues to review its 510(k) clearance process
which could result in additional changes to regulatory requirements or guidance documents which could increase the costs of compliance
or restrict our ability to maintain current clearances. The requirements of the more rigorous premarket approval process and/or
significant changes to the 510(k) clearance process could delay product introductions and increase the costs associated with FDA
compliance. Marketing and sale of our products outside the United States are also subject to regulatory clearances and approvals, and
if we fail to obtain these regulatory approvals, our sales could suffer. We cannot assure you that any new products we develop will
receive required regulatory approvals from U.S. or foreign regulatory agencies.
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We are subject to substantial regulation related to quality standards applicable to our manufacturing and quality processes.
Our failure to comply with these standards could have an adverse effect on our business, financial condition, or results of
operations. The FDA regulates the approval, manufacturing, and sales and marketing of many of our products in the United States.
Significant government regulation also exists in Canada, Japan, Europe, and other countries in which we conduct business. As a device
manufacturer, we are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s
Quality System Regulation requirements, which require manufacturers of medical devices to adhere to certain regulations, including
testing, quality control and documentation procedures. In addition, the federal Medical Device Reporting regulations require us to
provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a
death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. Compliance with
applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA.
In the European Community, we are required to maintain certain ISO certifications in order to sell our products and must undergo
periodic inspections by notified bodies to obtain and maintain these certifications. Failure to comply with current governmental
regulations and quality assurance guidelines could lead to temporary manufacturing shutdowns, product recalls or related field actions,
product shortages or delays in product manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the
marketplace, and/or manufacturing quality issues with respect to our products could lead to product recalls or related field actions,
withdrawals, and/or declining sales.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder
their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from
being developed, cleared or approved or commercialized in a timely manner or at all, which could negatively impact our
business. The ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including
government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and
accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average
review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that
fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at
the FDA and other agencies may also slow the time necessary for medical devices or modifications to cleared or approved medical
devices to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example,
over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times
and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most foreign
inspections of manufacturing facilities, and subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance
inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other
policy measures in response to the COVID-19 pandemic. Subsequently, on July 10, 2020, the FDA announced its intention to resume
certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this
risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging
from mission critical inspections to resumption of all regulatory activities. If a prolonged government shutdown occurs, or if global
health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other
regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our
regulatory submissions, which could have a material adverse effect on our business.
Off-label marketing of our products could result in substantial penalties. The FDA strictly regulates the promotional claims that
may be made about FDA-cleared products. In particular, clearance under Section 510(k) only permits us to market our products for the
uses indicated on the labeling cleared by the FDA. We may request additional label indications for our current products, and the FDA
may deny those requests outright, require additional expensive clinical data to support any additional indications or impose limitations
on the intended use of any cleared products as a condition of clearance. If the FDA determines that we have marketed our products for
off-label use, we could be subject to fines, injunctions or other penalties. It is also possible that other federal, state or foreign enforcement
authorities might take action if they consider our business activities to constitute promotion of an off-label use, which could result in
significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion
from participation in government healthcare programs, and the curtailment of our operations. Any of these events could significantly
harm our business and results of operations and cause our stock price to decline.
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Table of Contents
PART I
Item 1A
RESMED INC. AND SUBSIDIARIES
Laws regulating consumer contacts could adversely affect our business operations or create liabilities. Our business activities
include contacts with consumers in different parts of the world. Certain laws, such as the U.S. Telephone Consumer Protection Act,
regulate telemarketing practices and certain automated outbound contacts with consumers, such as phone calls, texts or emails. Our use
of outbound contacts may be restricted by existing laws, or by laws, regulations, or regulatory decisions that may be adopted in the
future. Similarly, certain data privacy laws, including CCPA, and subsequently CPRA, and the GDPR require disclosure of our privacy
practices to consumers. If we are found to have violated these laws or regulations, we may be subjected to substantial fines, penalties,
or liabilities to consumers.
Tax laws, regulations, and enforcement practices are evolving and may have a material adverse effect on our results of
operations, cash flows and financial position. Tax laws, regulations, and administrative practices in various jurisdictions are
evolving and may be subject to significant changes due to economic, political, and other conditions. There are many transactions that
occur during the ordinary course of business for which the ultimate tax determination is uncertain, and significant judgment is required
in evaluating and estimating our provision and accruals for taxes. Governments are increasingly focused on ways to increase tax
revenues, particularly from multinational corporations, which may lead to an increase in audit activity and aggressive positions taken
by tax authorities.
Changes or clarifications to U.S. tax laws could materially affect the tax treatment of our domestic and foreign earnings. The
Organisation for Economic Co-operation and Development, an international association of 34 countries, including the United States,
released the final reports from its Base Erosion and Profit Shifting, or BEPS, Action Plans, which aim to standardize and modernize
global tax policies. The BEPS Action Plans propose revisions to numerous tax rules, including country-by-country reporting, permanent
establishment, hybrid entities and instruments, transfer pricing, and tax treaties. The BEPS Action Plans have been or are being enacted
by countries where we have operations. Additionally, the U.S. Treasury department recently proposed the adoption of
a global minimum corporate tax rate of at least 15%, which, if enacted, could negatively impact our effective tax rate.
Developments in relevant tax laws, regulations, administrative practices and enforcement practices could have a material adverse effect
on our operating results, financial position and cash flows, including the need to obtain additional financing.
We are subject to tax audits by various tax authorities in many jurisdictions. Our income tax returns are based on calculations
and assumptions that require significant judgment, and are 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.
We are under audit by the Australian Taxation Office (the “ATO”) for the years 2009 to 2018 (the “Audit Period”). The audits primarily
involve a transfer pricing dispute in which the ATO asserts we should have paid additional Australian taxes on income derived from our
Singapore operations. The ATO issued Notices of Amended Assessments for the tax years 2009 to 2013 seeking a total of $266.0
million, consisting of $151.7 million in additional income tax and $114.3 million in penalties and interest. The 2014 to 2018 periods are
still under audit and we have not yet received any Notices of Amended Assessments relative to those periods.
We are engaged in advanced discussions with the ATO to settle the dispute for the entire Audit Period. Given the stage of those
discussions, during the year ended June 30, 2021, we recorded $395.3 million of gross unrecognized tax benefits, including $47.5 million
of accrued interest and penalties. This amount reflects our estimate of the potential tax liability and is subject to change.
Included in the balance of uncertain tax positions as of June 30, 2021 were $248.7 million of net unrecognized tax benefits that, if
recognized, would reduce the effective income tax rate in future periods. This amount represents the $395.3 million of gross
unrecognized tax, adjusted for tax credits and deductions of $146.6 million.
If the matter were to progress to litigation, we continue to believe we are more likely than not to be successful in defending our position.
If we are not successful in litigation, we will be required to pay some or all of the additional income tax, accrued interest and penalties,
including potential additional amounts relating to the 2014 to 2018 periods.
The timing and resolution of the ATO audits are inherently uncertain, and the amounts we might ultimately pay or receive in credits and
deductions, if any, upon resolution of issues raised by the ATO may differ materially from the amounts accrued. Although it is expected
that the amount of unrecognized tax benefits may change in the next 12 months, an estimate of the range of the possible change cannot
be made.
Outside the ATO audit describe above, tax years 2017 to 2020 remain subject to future examination by the major tax jurisdictions in
which we are subject to tax.
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Table of Contents
PART I
Risks Related to the Securities Markets and Ownership of Our Common Stock
RESMED INC. AND SUBSIDIARIES
Item 1A
Our results of operations may be materially affected by global economic conditions generally, including conditions in the
financial markets. Global economic conditions could make it difficult for us, our customers and our suppliers to accurately forecast
and plan future business activities. Adverse economic conditions could cause customers to reduce or delay their purchases, which could
impact our revenue, our ability to manage inventory levels, collect customer receivables, and potentially decrease our profitability. In
addition, prevailing economic conditions could constrain the supply of components used in the manufacturing of our products, which
may result in higher costs and impact our ability to meet customer demand. We cannot predict the timing, strength, or duration of any
economic slowdown, or the speed of any subsequent economic recovery. If the economy or markets in which we operate were to
deteriorate, our business, financial condition, and results of operations may be adversely affected.
Our quarterly operating results are subject to fluctuation for a variety of reasons. Our operating results have, from time to time,
fluctuated on a quarterly basis and may be subject to similar fluctuations in the future. These fluctuations may result from a number of
factors, including:
•
•
•
•
•
•
•
•
•
•
•
the introduction of new products by us or our competitors;
the geographic mix of product sales;
the success and costs of our marketing efforts in new regions;
changes in third-party payor reimbursement;
timing of regulatory clearances and approvals;
costs associated with acquiring and integrating new businesses, technologies and product offerings;
timing of orders by distributors;
expenditures incurred for research and development;
competitive pricing in different regions;
the effect of foreign currency transaction gains or losses; and
other activities, including product recalls, by our competitors.
Fluctuations in our quarterly operating results may cause the market price of our common stock to fluctuate.
Delaware law and provisions in our charter and could make it difficult for another company to acquire us. Provisions of our
certificate of incorporation may have the effect of delaying or preventing changes in control or management which might be beneficial
to us or our security holders. In particular, our board of directors has the authority to issue up to 2,000,000 shares of preferred stock and
to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or
action by the stockholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control, may discourage bids for our common stock at a premium over the market price of
our common stock and may adversely affect the market price of our common stock and the voting and other rights of the holders of our
common stock.
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Table of Contents
PART I
RESMED INC. AND SUBSIDIARIES
Items 1B – 4
ITEM 1B UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or
more before the end of our fiscal year 2021 that remain unresolved.
ITEM 2 PROPERTIES
We conduct our operations in both owned and leased properties. Our principal executive offices and U.S. sales facilities consist of
approximately 230,000 square feet and are located on Spectrum Center Boulevard in San Diego, California, in a building we own. We
have our primary research and development facilities, as well as office and manufacturing facilities at our owned site in Sydney,
Australia. Other facilities are in Atlanta, Georgia, and Moreno Valley, California, U.S.A.; Singapore; Munich, Germany; Lyon, France;
Suzhou, China; and Johor Bahru, Malaysia. We have established a new, purpose-built manufacturing facility in Tuas, Singapore that
has replaced our former Loyang facility.
We believe that our facilities are adequate to meet the needs of our current business operations. At June 30, 2021, our principal owned
and leased properties were as follows:
Location
San Diego, California
Sydney, Australia
Suzhou, China
Atlanta, Georgia
Singapore (1)
Moreno Valley, California
Chatsworth, California
Munich, Germany
Lyon, France
Minneapolis, United States
Halifax, Canada
Johor Bahru, Malaysia
Ownership Status
(Owned / Leased)
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Square
footage
230,000 Corporate headquarters, engineering, research and development, sales and administration
224,000 Manufacturing, engineering, research and development, sales and administration
53,000 Manufacturing, engineering, research and development
Primary Usage
522,000
Manufacturing, warehouse and distribution, SaaS sales and administration, engineering,
research and development
299,000 Manufacturing, engineering, research and development, sales and administration
244,000 Warehouse and distribution
72,000 Manufacturing, engineering, research and development
60,000 Sales and distribution
52,000 Sales and distribution
51,000 SaaS sales and administration, engineering, research and development
47,000 Engineering, research and development
46,000 Manufacturing, engineering, research and development
(1)
Leased property in Singapore excludes our 95,000 square foot Loyang manufacturing facility, which was in the process of being vacated and did not have
significant operations as of June 30, 2021.
ITEM 3 LEGAL PROCEEDINGS
We are involved in various legal proceedings, claims, investigations and litigation that arise in the ordinary course of our business. See
Note 17 – Legal Actions, Contingencies and Commitments of the Notes to Consolidated Financial Statements (Part II, Item 8) included
in this report, which is incorporated by reference herein.
Litigation is inherently uncertain. Accordingly, we cannot predict with certainty the outcome of these matters. But we do not expect the
outcome of these matters to have a material adverse effect on our consolidated financial statements when taken as a whole.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable.
-39-
Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
PART II
Item 5
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NYSE under the symbol “RMD”. As of July 31, 2021, there were 28 holders of record of our
common stock, although the actual number of stockholders of our common stock is greater than this number of holders of record and
many of these holders of record own shares as nominees on behalf of other beneficial owners.
Securities Authorized for Issuance Under Equity Compensation Plans
The information included under Item 12 of Part III of this Report, “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters,” is hereby incorporated by reference into this Item 5 of Part II of this Report.
Purchases of Equity Securities
On February 21, 2014, our board of directors approved our current 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. 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 after February 21, 2014 have been executed
under this program.
In fiscal year 2019, we temporarily suspended our share repurchase program due to recent acquisitions, and more recently, as a response
to the COVID-19 pandemic. As a result, we did not repurchase any shares during the twelve months ended June 30, 2021. However,
there is no expiration date for this program, and we may, at any time, elect to resume the share repurchase program as the circumstances
allow. Since the inception of the share buyback programs, we have repurchased 41.8 million shares at a total cost of $1.6 billion. At
June 30, 2021, 12.9 million additional shares can be repurchased under the approved share repurchase program.
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
PERFORMANCE GRAPH
Item 5
This performance graph is furnished and shall not be deemed “filed” with the SEC or subject to Section 18 of the Exchange Act, nor
shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended.
The following graph compares the cumulative total stockholders return on our common stock from June 30, 2016 through June 30, 2021,
with the comparable cumulative return of the S&P 500 index, the S&P 500 Health Care index, and the Dow Jones U.S. Medical Devices
index. The graph assumes that $100 was invested in our common stock and each index on June 30, 2016. In addition, the graph assumes
the reinvestment of all dividends paid. The stock price performance on the following graph is not necessarily indicative of future stock
price performance.
The following table shows total indexed return of stock price plus reinvestments of dividends, assuming an initial investment of $100
at June 30, 2016, for the indicated periods.
Index
ResMed Inc.
S&P 500
S&P 500 Health Care
Dow Jones U.S. Medical Devices
As of June 30,
2016
100
100
100
100
2017
126
115
111
123
2018
170
130
116
148
2019
203
140
129
178
2020
323
148
141
195
2021
418
205
177
266
-41-
Table of Contents
PART II
ITEM 6 SELECTED FINANCIAL DATA
RESMED INC. AND SUBSIDIARIES
Item 6
The following table summarizes certain selected consolidated financial data for, and as of the end of, each of the fiscal years in the five-
year period ended June 30, 2021. The data set forth below should be read together with Item 7 of Part II of this report, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 of Part II of this report, “Consolidated Financial
Statements and Supplementary Data”, and related notes included elsewhere in this report. The consolidated statement of income data
for the years ended June 30, 2021, 2020 and 2019 and the consolidated balance sheet data as of June 30, 2021 and 2020 are derived
from our audited consolidated financial statements included elsewhere in this report. The consolidated statement of income data for the
years ended June 30, 2018 and 2017 and the consolidated balance sheet data as of June 30, 2019, 2018 and 2017 are derived from our
audited consolidated financial statements not included in this report. Historical results do not necessarily indicate the results to be
expected in the future, and the results for the years presented should not be considered to indicate our future results of operations.
Consolidated Statement of Income Data
(In thousands, except per share data):
Net revenue
Cost of sales (exclusive of amortization shown separately below)
Amortization of acquired intangible assets
Total cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Amortization of acquired intangible assets
Restructuring expenses
Litigation settlement expenses
Acquisition related expenses
Total operating expenses
Income from operations
Other income:
Interest income (expense), net
Loss attributable to equity method investments
Other, net
Total other income (loss), net
Income before income taxes
Income taxes
Net income
Basic earnings per share
Diluted earnings per share
Dividends per share
Weighted average:
Basic shares outstanding
Diluted shares outstanding
$
$
$
$
2021
3,196,825
1,312,598
45,127
1,357,725
1,839,100
670,387
225,284
31,078
8,673
-
-
935,422
903,678
2020
2,957,013
1,189,624
49,603
1,239,227
1,717,786
676,689
201,946
30,092
-
(600)
-
908,127
809,659
Years Ended June 30,
2019
2,606,572
1,069,987
42,514
1,112,501
1,494,071
645,010
180,651
32,424
9,401
41,199
6,123
914,808
579,263
2018
2,340,196
978,032
27,266
1,005,298
1,334,898
600,369
155,149
19,117
18,432
-
-
793,067
541,831
(23,627)
(11,205)
14,816
(20,016)
883,662
409,157
474,505 $
3.27 $
3.24 $
1.56 $
(39,356)
(25,058)
(12,157)
(76,571)
733,088
111,414
621,674 $
4.31 $
4.27 $
1.56 $
(33,857)
(15,833)
(10,726)
(60,416)
518,847
114,255
404,592 $
2.83 $
2.80 $
1.48 $
(11,977)
-
(8,542)
(20,519)
521,312
205,724
315,588 $
2.21 $
2.19 $
1.40 $
145,313
146,451
144,338
145,652
143,111
144,484
142,764
143,987
2017
2,066,737
864,992
29,477
894,469
1,172,268
553,968
144,467
17,101
12,358
8,500
10,076
746,470
425,798
(11,151)
-
4,096
(7,055)
418,743
76,459
342,284
2.42
2.40
1.32
141,360
142,453
Consolidated Balance Sheet Data (In thousands):
Working capital
Total assets
Long-term debt, less current maturities
Total stockholders’ equity
$
$
2021
662,991 $
4,728,125
643,351
2,885,679 $
2020
As of June 30,
2019
920,698 $
4,587,376
1,164,133
2,497,027 $
589,375 $
4,107,682
1,258,861
2,072,193 $
2018
554,468 $
3,063,923
269,988
2,058,980 $
2017
1,283,877
3,468,487
1,078,611
1,960,266
-42-
Table of Contents
PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to help the reader
understand our results of operations and financial condition. It is provided as a supplement to, and should be read in conjunction with
the selected financial data and consolidated financial statements and notes included in this report.
We are a global leader in the development, manufacturing, distribution and marketing of medical devices and cloud-based software
applications that diagnose, treat and manage respiratory disorders, including SDB, COPD, neuromuscular disease and other chronic
diseases. SDB includes obstructive sleep apnea and other respiratory disorders that occur during sleep. Our products and solutions are
designed to improve patient quality of life, reduce the impact of chronic disease and lower healthcare costs as global healthcare systems
continue to drive a shift in care from hospitals to the home and lower cost settings. Our cloud-based digital health applications, along
with our devices, are designed to provide connected care to improve patient outcomes and efficiencies for our customers.
Since the development of continuous positive airway pressure therapy, we have expanded our business by developing or acquiring a
number of products and solutions for a broader range of respiratory disorders including technologies to be applied in medical and
consumer products, ventilation devices, diagnostic products, mask systems for use in the hospital and home, headgear and other
accessories, dental devices, and cloud-based software informatics solutions to manage patient outcomes and customer and provider
business processes. Our growth has been fueled by geographic expansion, our research and product development efforts, acquisitions
and an increasing awareness of SDB and other respiratory conditions like chronic obstructive pulmonary disease as significant health
concerns.
We are committed to ongoing investment in research and development and product enhancements. During fiscal year 2021, we invested
$225.3 million on research and development activities, which represents 7.0% of net revenues with a continued focus on the development
and commercialization of new, innovative products and solutions that improve patient outcomes, create efficiencies for our customers
and help physicians and providers better manage chronic disease and lower healthcare costs. During fiscal year 2021 we commenced a
controlled product launch of AirSense 11, which will be followed by a broader launch throughout fiscal year 2022. AirSense 11 will
introduce new features such as a touch screen, algorithms for patients new to therapy and digital enhancements, such as over-the-air
update capabilities. Due to multiple acquisitions, including Brightree in April 2016, HEALTHCAREfirst in July 2018 and MatrixCare
in November 2018, our operations now include out-of-hospital software platforms designed to support the professionals and caregivers
who help people stay healthy in the home or care setting of their choice. These platforms comprise our SaaS business. These products,
our cloud-based remote monitoring and therapy management system, and a robust product pipeline, should continue to provide us with
a strong platform for future growth.
We have determined that we have two operating segments, which are the sleep and respiratory disorders sector of the medical device
industry (“Sleep and Respiratory Care”) and the supply of business management software as a service to out-of-hospital health providers
(“SaaS”).
Net revenue in fiscal year 2021 increased to $3,196.8 million, an increase of 8% compared to fiscal year 2020. Gross profit increased
for the year ended June 30, 2021 to $1,839.1 million, from $1,717.8 million for the year ended June 30, 2020, an increase $121.3 million
or 7%. Our net income for the year ended June 30, 2021 was $474.5 million or $3.24 per diluted share compared to net income of
$621.7 million or $4.27 per diluted share for the year ended June 30, 2020. Unrecognized tax benefits as described at note 14 – Income
Taxes impacted our diluted earnings per share by $1.70 for the year ended June 30, 2021.
Total operating cash flow for fiscal year 2021 was $736.7 million and at June 30, 2021, our cash and cash equivalents totaled $295.3
million. At June 30, 2021, our total assets were $4.7 billion and our stockholders’ equity was $2.9 billion. We paid a quarterly dividend
of $0.39 per share during fiscal 2021 with a total amount of $226.7 million paid to stockholders.
In order to provide a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency
fluctuations, we provide certain financial information on a “constant currency basis”, which is in addition to the actual financial
information presented. In order to calculate our constant currency information, we translate the current period financial information
using the foreign currency exchange rates that were in effect during the previous comparable period. However, constant currency
measures should not be considered in isolation or as an alternative to U.S. dollar measures that reflect current period exchange rates, or
to other financial measures calculated and presented in accordance with accounting principles generally accepted in the United States
(“GAAP”).
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7
For discussion related to the results of operations and changes in financial condition for the fiscal year ended June 30, 2020 compared
to fiscal year June 30, 2019, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in our Annual Report for the Year Ended June 30, 2020, which was filed with the United States Securities and Exchange
Commission on August 13, 2020.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic.
Our primary goal during the COVID-19 pandemic is the preservation of life. We have prioritized protecting the health and safety of our
employees and continuing to use our employees’ talents and our resources to help society meet and overcome the challenges the
pandemic poses.
During the year ended June 30, 2021, we observed immaterial incremental demand for our ventilator devices and masks associated with
the COVID-19 pandemic. Although there is still substantial uncertainty, we believe the global demand for ventilators and other
respiratory support devices used to treat COVID-19 patients has largely been met. As such, we do not expect material COVID-19-
generated demand for our ventilator products for the fiscal year ending June 30, 2022.
Diagnostic pathways for sleep apnea treatment, including physician practices, HME suppliers and sleep clinics, have been impacted
and, in some instances, been required, to temporarily close due to governments’ “shelter-in-place” orders, quarantines or similar orders
or restrictions enacted to control the spread of COVID-19. In some countries, new patients are prescribed sleep apnea treatment through
hospitals that are directing their resources to critical care, including COVID-19 treatment. The impact on these diagnostic and
prescription pathways has resulted in a decrease in demand from new patients for our products designed to treat sleep apnea. Although
certain governments have begun to reduce or remove COVID-19 restrictions and implement vaccination programs to varying degrees,
we are uncertain as to the duration and extent of the impact on demand for our sleep devices. However, due to the nature of the installed
base of existing patients using our devices, we have not seen any significant adverse impact on demand for re-supply of our masks.
Our SaaS business has also been affected by COVID-19 and measures taken to control the spread of COVID-19. Some of our existing
and potential SaaS customers are HME distributors and have been impacted by the same temporary business closures noted above. We
also have existing and potential SaaS customers that operate care facilities and are either receiving and treating patients infected with
COVID-19 or have implemented significant measures to safeguard their facilities against a potential COVID-19 outbreak. Given these
challenging business conditions, businesses may be deterred from adopting new or changing SaaS platforms, which may adversely
impact our ability to engage new customers for our SaaS businesses, or expand the services used by existing customers.
Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees.
We have endeavored and continue to follow recommended actions of government and health authorities to protect our employees
worldwide, but since COVID-19 was declared a pandemic in March 2020, we were able to broadly maintain our operations, and we are
beginning the slow and careful process of progressively returning to work in some of our offices around the world. The pandemic has
not negatively impacted our liquidity position.
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Table of Contents
PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Fiscal Year Ended June 30, 2021 Compared to Fiscal Year Ended June 30, 2020
Net Revenues. Net revenue for the year ended June 30, 2021 increased to $3,196.8 million from $2,957.0 million for the year ended
June 30, 2020, an increase of $239.8 million or 8% (a 6% increase on a constant currency basis). The following table summarizes our
net revenue disaggregated by segment, product and region for the year ended June 30, 2021 compared to the year ended June 30, 2020
(in thousands):
U.S., Canada and Latin America
Devices
Masks and other
Total Sleep and Respiratory Care
Software as a Service
Total
Combined Europe, Asia and other markets
Devices
Masks and other
Total Sleep and Respiratory Care
Global revenue
Devices
Masks and other
Total Sleep and Respiratory Care
Software as a Service
Total
*
Year Ended June 30,
2021
2020
% Change
Constant
Currency*
863,661 $
841,452
1,705,113 $
373,590
2,078,703 $
792,766
779,561
1,572,327
354,632
1,926,959
746,379 $
371,743
1,118,122 $
715,056
314,998
1,030,054
1,610,040 $
1,213,195
2,823,235 $
373,590
3,196,825 $
1,507,822
1,094,559
2,602,381
354,632
2,957,013
9 %
8
8
5
8
4 %
18
9
7 %
11
8
5
8
(2) %
11
2
3 %
9
6
5
6
$
$
$
$
$
$
$
$
Constant currency numbers exclude the impact of movements in international currencies.
Sleep and Respiratory Care
Net revenue from our Sleep and Respiratory Care business for the year ended June 30, 2021 increased to $2,823.2 million from $2,602.4
million for the year ended June 30, 2020, an increase of $220.9 million or 8%. Movements in international currencies against the U.S.
dollar positively impacted net revenues by approximately $75.2 million for the year ended June 30, 2021. Excluding the impact of
currency movements, total net revenue from our Sleep and Respiratory Care business for the year ended June 30, 2021 increased by 6%
compared to the year ended June 30, 2020. The increase in net revenue was primarily attributable to an increase in unit sales of our
devices and masks, including recovery of core sleep patient flow that was previously impacted by the pandemic and increased demand
following a recent product recall by one of our competitors, partially offset by decreased COVID-19 related demand for our ventilators.
Net revenue from our Sleep and Respiratory Care business in the United States, Canada and Latin America for the year ended June 30,
2021 increased to $1,705.1 million from $1,572.3 million for the year ended June 30, 2020, an increase of $132.8 million or 8%. The
increase was primarily due to an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was
previously impacted by the pandemic and increased demand following a recent product recall by one of our competitors, partially offset
by decreased COVID-19 related demand for our ventilators.
Net revenue from our Sleep and Respiratory Care business in combined Europe, Asia and other markets increased for the year ended
June 30, 2021 to $1,118.1 million from $1,030.1 million for the year ended June 30, 2020, an increase of $88.1 million or 9% (an
increase of 2% on a constant currency basis). The constant currency increase in sales in combined Europe, Asia and other markets
predominantly reflects an increase in unit sales of our devices and masks, including recovery of core sleep patient flow that was
previously impacted by the pandemic, partially offset by decreased COVID-19-related demand for our ventilators.
Net revenue from devices for the year ended June 30, 2021 increased to $1,610.0 million from $1,507.8 million for the year ended
June 30, 2020, an increase of $102.2 million or 7%, including an increase of 9% in the United States, Canada and Latin America and an
increase of 4% in combined Europe, Asia and other markets (a 2% decrease on a constant currency basis). Excluding the impact of
foreign currency movements, device sales for the year ended June 30, 2021 increased by 3%.
Net revenue from masks and other for the year ended June 30, 2021 increased to $1,213.2 million from $1,094.6 million for the year
ended June 30, 2020, an increase of 11%, including an increase of 8% in the United States, Canada and Latin America and an increase
of 18% in combined Europe, Asia and other markets (an 11% increase on a constant currency basis). Excluding the impact of foreign
currency movements, masks and other sales increased by 9%, compared to the year ended June 30, 2020.
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PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Software as a Service
Net revenue from our SaaS business for the year ended June 30, 2021 was $373.6 million, compared to $354.6 million for the year ended
June 30, 2020, an increase of $19.0 million or 5%. The increase was predominantly due to continued growth in resupply service
offerings.
Gross Profit and Gross Margin. Gross profit increased for the year ended June 30, 2021 to $1,839.1 million from $1,717.8 million
for the year ended June 30, 2020, an increase of $121.3 million or 7%. Gross profit as a percentage of net revenue was 57.5% for the
year ended June 30, 2021, compared with the 58.1% for the year ended June 30, 2020. The decrease in gross margin was due primarily
to product mix changes, declines in average selling prices and geographic mix changes, partially offset by lower amortization of acquired
intangibles.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased for the year ended June 30,
2021 to $670.4 million from $676.7 million for the year ended June 30, 2020, a decrease of $6.3 million or 1%. The selling, general and
administrative expenses, as reported in U.S. dollars, were unfavorably impacted by the movement of international currencies against the
U.S. dollar, which increased our expenses by approximately $22.4 million. Excluding the impact of foreign currency movements, selling,
general and administrative expenses for the year ended June 30, 2021 decreased by 4% compared to the year ended June 30, 2020. As
a percentage of net revenue, selling, general and administrative expenses for the year ended June 30, 2021 improved to 21.0% compared
to 22.9% for the year ended June 30, 2020. The constant currency decrease in selling, general and administrative expenses was primarily
due to decreases in travel and entertainment and bad debt expenses, partially offset by increases in employee-related expenses.
Research and Development Expenses. Research and development expenses increased for the year ended June 30, 2021 to
$225.3 million from $201.9 million for the year ended June 30, 2020, an increase of $23.3 million or 12%. The research and development
expenses were unfavorably impacted by the movement of international currencies against the U.S. dollar, which increased our expenses
by approximately $8.1 million, as reported in U.S. dollars. Excluding the impact of foreign currency movements, research and
development expenses for the year ended June 30, 2021 increased by 8% compared to the year ended June 30, 2020. As a percentage of
net revenue, research and development expenses were 7.0% for the year ended June 30, 2021 compared to 6.8% for the year ended
June 30, 2020. The constant currency increase in research and development expenses was primarily due to increased investment in our
digital health technologies and SaaS solutions.
Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets for the year ended June 30, 2021 totaled
$31.1 million compared to $30.1 million for the year ended June 30, 2020.
Restructuring Expenses. In November 2020, we closed our POC 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 the 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 income. We do not expect to incur additional expenses
in connection with this activity in the future.
Total Other Income (Loss), Net. Total other income (loss), net for the year ended June 30, 2021 was a loss of $20.0 million, compared
to a loss of $76.6 million for the year ended June 30, 2020. The decrease was partially due to a decrease in interest expense to
$24.0 million for the year ended June 30, 2021 compared to $40.3 million for the year ended June 30, 2020. Additionally, we recognized
an unrealized gain of $14.5 million on our marketable and non-marketable securities for the year ended June 30, 2021, whereas during
the year ended June 30, 2020, we recorded an impairment of $14.5 million on our non-marketable equity securities. We also recorded
lower losses attributable to equity method investments for the year ended June 30, 2021 of $11.2 million compared to $25.1 million for
the year ended June 30, 2020.
Income Taxes. Our effective income tax rate increased to 46.3% for the year ended June 30, 2021 from 15.2% for the year ended
June 30, 2020. The increase in our effective income tax rate was primarily the result of an increase in unrecognized tax benefits as
outlined below. Excluding the impact of the unrecognized tax benefit, our effective income tax rate for the year ended June 30, 2021
was 18.2%. The increase in our effective tax rate, excluding the impact of the unrecognized tax benefit, was due to the geographic mix
of earnings and lower windfall tax benefits related to the vesting or settlement of employee share-based awards, which reduced our
income tax expense by $12.1 million for the year ended June 30, 2021, as compared to $24.8 million for the year ended June 30, 2020.
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PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are under audit by the Australian Taxation Office (the “ATO”) for the years 2009 to 2018 (the “Audit Period”). The audits primarily
involve a transfer pricing dispute in which the ATO asserts we should have paid additional Australian taxes on income derived from our
Singapore operations. The ATO issued Notices of Amended Assessments for the tax years 2009 to 2013 seeking a total of $266.0
million, consisting of $151.7 million in additional income tax and $114.3 million in penalties and interest. The 2014 to 2018 periods are
still under audit and we have not yet received any Notices of Amended Assessments relative to those periods. A total of $98.8 million
in tax has been prepaid in relation to the Audit Period, which is consistent with ATO procedural audit practice.
We are engaged in advanced discussions with the ATO to settle the dispute for the entire Audit Period. Given the stage of those
discussions, during the year ended June 30, 2021, we recorded $395.3 million of gross unrecognized tax benefits, including $47.5 million
of accrued interest and penalties. This translates to a net amount of $248.7 million of net unrecognized tax benefits after taking into
account tax credits and deductions of $146.6 million.
If the matter were to progress to litigation, we continue to believe we are more likely than not to be successful in defending our position.
If we are not successful in litigation, we will be required to pay some or all of the additional income tax, accrued interest and penalties,
including potential additional amounts relating to the 2014 to 2018 periods.
Our Singapore operations operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various
dates through June 30, 2030. Also, as a result of the U.S. Tax Act, we treated all non-U.S. historical earnings as taxable, effective as of
the year ended June 30, 2018. Therefore, future repatriation of cash held by our non-U.S. subsidiaries, if any, will generally not be
subject to U.S. federal tax.
Net Income and Earnings per Share. As a result of the factors above, our net income for the year ended June 30, 2021 was
$474.5 million compared to net income of $621.7 million for the year ended June 30, 2020. Our earnings per diluted share for the year
ended June 30, 2021 was $3.24 compared to $4.27 for the year ended June 30, 2020, a decrease of 24%. Unrecognized tax benefits as
described at note 14 – Income Taxes reduced our diluted earnings per share for the year ended June 30, 2021 by $1.70 per share.
Summary of Non-GAAP Financial Measures
In addition to financial information prepared in accordance with GAAP, our management uses certain non-GAAP financial measures,
such as non-GAAP revenue, non-GAAP cost of sales, non-GAAP gross profit, non-GAAP gross margin, non-GAAP income from
operations, non-GAAP net income, and non-GAAP diluted earnings per share, in evaluating the performance of our business. We believe
that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide investors better
insight when evaluating our performance from core operations and can provide more consistent financial reporting across periods. For
these reasons, we use non-GAAP information internally in planning, forecasting, and evaluating the results of operations in the current
period and in comparing it to past periods. These non-GAAP financial measures should be considered in addition to, and not superior
to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements
and publicly-filed reports in their entirety and not to rely on any single financial measure. Non-GAAP financial measures as presented
herein may not be comparable to similarly titled measures used by other companies.
The measure “non-GAAP revenue” is equal to GAAP net revenue once adjusted for deferred revenue fair value adjustments applied in
the purchase accounting for previous business combinations. The measure “non-GAAP cost of sales” is equal to GAAP cost of sales
less amortization of acquired intangible assets relating to cost of sales and restructuring expense associated with inventory write-downs
following the closure of the POC business. The measure “non-GAAP gross profit” is the difference between non-GAAP revenue and
non-GAAP cost of sales, and “non-GAAP gross margin” is the ratio of non-GAAP gross profit to non-GAAP revenue.
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
These non-GAAP measures are reconciled to their most directly comparable GAAP financial measures below (in thousands, except
percentages):
GAAP Net revenue
Add back: Deferred revenue fair value adjustment
Non-GAAP revenue
GAAP Cost of sales
Less: Amortization of acquired intangibles
Less: Restructuring - cost of sales
Non-GAAP cost of sales
GAAP gross profit
GAAP gross margin
Non-GAAP gross profit
Non-GAAP gross margin
$
$
$
$
$
$
Year Ended June 30
2021
3,196,825
-
3,196,825
1,357,725
(45,127)
(5,232)
1,307,366
$
$
$
$
2020
2,957,013
2,102
2,959,115
1,239,227
(49,603)
-
1,189,624
1,839,100
$
1,717,786
57.5 %
58.1 %
1,889,459
$
1,769,491
59.1 %
59.8 %
The measure “non-GAAP income from operations” is equal to GAAP income from operations once adjusted for amortization of acquired
intangibles, restructuring expense associated with the closure of the POC business, deferred revenue fair value adjustments applied in
the purchase accounting for previous business combinations and litigation settlement expenses. Non-GAAP income from operations is
reconciled with GAAP income from operations below (in thousands):
GAAP income from operations
Amortization of acquired intangibles - cost of sales
Amortization of acquired intangibles - operating expenses
Restructuring - cost of sales
Restructuring - operating expenses
Deferred revenue fair value adjustment
Litigation settlement expenses
Non-GAAP income from operations
Year Ended June 30
2021
2020
903,678 $
45,127
31,078
5,232
8,673
-
-
993,788 $
809,659
49,603
30,092
-
-
2,102
(600)
890,856
$
$
The measure “non-GAAP net income” is equal to GAAP net income once adjusted for amortization of acquired intangibles (net of tax),
reserve for disputed tax positions, restructuring expense associated with the closure of the POC (net of tax), (gain) loss on marketable
equity securities, fair value adjustments recognized on non-marketable equity securities, deferred revenue fair value adjustments applied
in the purchase accounting for previous business combinations (net of tax) and litigation settlement expenses (net of tax). The measure
“non-GAAP diluted earnings per share” is the ratio of non-GAAP net income to diluted shares outstanding. These non-GAAP measures
are reconciled to their most directly comparable GAAP financial measures below (in thousands, except for per share amounts):
GAAP net income (loss)
Amortization of acquired intangibles - cost of sales, net of tax
Amortization of acquired intangibles - operating expenses, net of tax
Reserve for disputed tax positions
Restructuring - cost of sales, net of tax
Restructuring - operating expenses, net of tax
(Gain) loss on equity investments
Fair value impairment of investment
Deferred revenue fair value adjustment, net of tax
Litigation settlement expenses, net of tax
Non-GAAP net income
Diluted shares outstanding
GAAP diluted earnings per share
Non-GAAP diluted earnings per share
Year Ended June 30
2021
2020
474,505 $
34,642
23,857
248,773
4,663
7,730
(13,549)
-
-
-
780,621 $
146,451
3.24 $
5.33 $
621,674
37,933
23,012
-
-
-
-
9,100
1,610
(528)
692,801
145,652
4.27
4.76
$
$
$
$
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PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
As of June 30, 2021 and June 30, 2020, we had cash and cash equivalents of $295.3 million and $463.2 million, respectively. Working
capital was $663.0 million and $920.7 million, at June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021 we had $0.7 billion
of borrowings under our revolving credit facility, term credit facility and senior notes as compared to $1.2 billion at June 30, 2020. As
of June 30, 2021, we had $1.6 billion available for draw down under the revolving credit facility and a combined total of $1.9 billion in
cash and available liquidity under the revolving credit facility. We believe that cash generated from operations and available borrowings
under our credit facility will be sufficient to fund our operations, including expected capital expenditures, for the next 12 months and
beyond.
As of June 30, 2021 and June 30, 2020, our cash and cash equivalent balances held within the United States amounted to $106.7 million
and $158.8 million, respectively. Our remaining cash and cash equivalent balances at June 30, 2021 and June 30, 2020, of $188.6 million
and $304.4 million, respectively, were held by our non-U.S. subsidiaries. Our cash and cash equivalent balances are held at highly rated
financial institutions.
We repatriated $560.1 million and $400.0 million to the United States during the years ended June 30, 2021 and 2020, respectively,
from earnings generated in each of those years. The amount of the current year foreign earnings that we have repatriated to the United
States in the past has been determined, and the amount that we expect to repatriate during fiscal year 2022 will be determined, based on
a variety of factors, including current year earnings of our foreign subsidiaries, foreign investment needs and the cash flow needs we
have in the United States, such as for the repayment of debt, dividend distributions, and other domestic obligations.
As a result of the U.S. Tax Act, we treated all non-U.S. historical earnings prior to 2018 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, except as discussed in Note 14 –
Income Taxes of the Notes to the Consolidated Financial Statements (Part II, Item 8).
Inventories at June 30, 2021 were $457.0 million, an increase of $40.1 or 10% over the balance at June 30, 2020 of $416.9 million. The
increase in inventories was required to respond to the increase in unit volumes and the additional complexity and elongation of our
supply chain resulting from ongoing COVID-19 impacts.
Accounts receivable, net of allowance for doubtful accounts, at June 30, 2021 were $614.3 million, an increase of $139.6 million or
29% over the June 30, 2020 accounts receivable balance of $474.6 million. Accounts receivable days’ sales outstanding of 68 days at
June 30, 2021 increased by 3 days compared to 65 days at June 30, 2020. Our allowance for doubtful accounts as a percentage of total
accounts receivable at June 30, 2021 and 2020 was 5.0% and 5.7%, respectively.
We recognize right-of-use assets and lease liabilities on the balance sheet for all operating leases except those that meet the definition
of a short-term lease. As of June 30, 2021 and 2020 our right-of-use assets were $128.6 million and $118.3 million, respectively and
our lease liabilities were $138.4 million and $123.1 million, respectively.
During the year ended June 30, 2021, we generated cash of $736.7 million from operations compared to $802.3 million for the year
ended June 30, 2020. The decrease in cash generated from operations during the year ended June 30, 2021 was primarily due to the
increase in working capital balances and income tax payments. Movements in foreign currency exchange rates during the year ended
June 30, 2021 had the effect of increasing our cash and cash equivalents by $18.5 million, as reported in U.S. dollars.
During the year ended June 30, 2021, we paid $43.5 million associated with business acquisitions, net of cash acquired, compared to
$27.9 million during the year ended June 30, 2020.
We have temporarily suspended our share repurchase program due to acquisitions, and more recently, as a response to the COVID-19
pandemic. Accordingly, we did not repurchase any shares during the years ended June 30, 2021 and 2020. In addition, during fiscal
years 2021 and 2020, we paid to holders of our common stock dividends totaling $226.7 million and $225.1 million, respectively.
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Details of contractual obligations at June 30, 2021 are as follows (in thousands):
Debt
Interest on debt
Operating leases
Purchase obligations
Total
Total
658,000 $
116,400
135,399
1,100,839
2,010,638 $
$
$
2022
2023
Payments Due by June 30,
2025
2024
12,000 $
19,779
29,600
1,099,419
1,160,798 $
146,000 $
19,178
25,573
994
191,745 $
- $
16,725
17,553
426
34,704 $
- $
16,725
12,537
-
29,262 $
2026
Thereafter
- $
16,725
10,916
-
27,641 $
500,000
27,269
39,220
-
566,489
Details of other commercial commitments at June 30, 2021 are as follows (in thousands):
Standby letter of credit
Guarantees*
Total
*
Total
2022
2023
2024
2025
2026
Thereafter
$
$
17,116 $
3,837
20,953 $
3,791 $
205
3,996 $
527 $
74
601 $
12 $
102
114 $
- $
20
20 $
- $
52
52 $
12,786
3,384
16,170
Amount of Commitment Expiration Per Period
These guarantees mainly relate to requirements under contractual obligations with insurance companies transacting with our German subsidiaries and
guarantees provided under our facility leasing obligations.
Refer to Note 17 - Legal Actions, Contingencies and Commitments of the Notes to the Consolidated Financial Statements (Part II,
Item 8) for details of our contingent obligations under recourse provisions.
Segment Information
We have determined that we have two operating segments, which are the Sleep and Respiratory Care segment and the SaaS segment.
See Note 15 – Segment Information of the Notes to the Consolidated Financial Statements (Part II, Item 8) for financial information
regarding segment reporting. Financial information about our revenues from and assets located in foreign countries is also included in
the notes to the consolidated financial statements included in this report.
Credit Facility
On April 17, 2018, we entered into an amended and restated credit agreement, or the Revolving Credit Agreement, as borrower, with
lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger, joint book runner, swing line lender and letter of credit
issuer, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner. The Revolving Credit
Agreement, among other things, provided a senior unsecured revolving credit facility of $800.0 million, with an uncommitted option to
increase the revolving credit facility by an additional $300.0 million.
Additionally, on April 17, 2018, ResMed Limited entered into a syndicated facility agreement, or 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. The Term Credit Agreement, among other things,
provides ResMed Limited a senior unsecured term credit facility of $200.0 million.
On November 5, 2018, we entered into a first amendment to the Revolving Credit Agreement to, among other things, increase the size
of our senior unsecured revolving credit facility from $800.0 million to $1.6 billion, with an uncommitted option to increase the revolving
credit facility by an additional $300.0 million.
Our obligations under the Revolving Credit Agreement are guaranteed by certain of our direct and indirect U.S. subsidiaries, and ResMed
Limited’s obligations under the Term Credit Agreement are guaranteed by us and certain of our direct and indirect U.S. subsidiaries.
The Revolving Credit Agreement and Term Credit Agreement contain customary covenants, including, in each case, a financial covenant
that requires that we maintain a maximum leverage ratio of funded debt to EBITDA (as defined in the Revolving Credit Agreement and
Term Credit Agreement, as applicable). The entire principal amounts of the revolving credit facility and term credit facility, and, in each
case, any accrued but unpaid interest may be declared immediately due and payable if an event of default occurs, as defined in the
Revolving Credit Agreement and the Term Credit Agreement, as applicable. Events of default under the Revolving Credit Agreement
and the Term Credit Agreement include, in each case, failure to make payments when due, the occurrence of a default in the performance
of any covenants in the respective agreements or related documents, or certain changes of control of us, or the respective guarantors of
the obligations borrowed under the Revolving Credit Agreement and Term Credit Agreement.
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Revolving Credit Agreement and Term Credit Agreement each terminate on April 17, 2023, when all unpaid principal and interest
under the loans must be repaid. Amounts borrowed under the Term Credit Agreement will also amortize on a semi-annual basis, with a
$6.0 million principal payment required on each such semi-annual amortization date. The outstanding principal amounts will bear
interest at a rate equal to LIBOR plus 0.75% to 1.50% (depending on the then-applicable leverage ratio) or the Base Rate (as defined in
the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0% to 0.50% (depending on the then-applicable
leverage ratio). At June 30, 2021, the interest rate that was being charged on the outstanding principal amounts was 0.9%. An applicable
commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving
credit facility. At June 30, 2021, we were in compliance with our debt covenants and there was $158.0 million outstanding under the
Revolving Credit Agreement and Term Credit Agreement.
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. Our obligations under the Note Purchase Agreement and the Notes are unconditionally and
irrevocably guaranteed by certain of our direct and indirect U.S. subsidiaries, including ResMed Corp., ResMed Motor Technologies
Inc., Birdie Inc., Inova Labs, Inc., Brightree LLC, Brightree Home Health & Hospice LLC, Brightree Patient Collections LLC, ResMed
Operations Inc., HEALTHCAREfirst Holding Company, HCF Holdco Company, HEALTHCAREfirst, Inc., CareFacts Information
Systems, LLC and Lewis Computer Services, LLC, MatrixCare Holdings Inc., MatrixCare, Inc., Reciprocal Labs Corporation and
ResMed SaaS Inc., under a Subsidiary Guaranty Agreement dated as of July 10, 2019. 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 secured and unsecured debt of us
and our subsidiaries to exceed 10% of our consolidated tangible assets, determined as of the end of our most recently ended fiscal
quarter. This ratio is calculated at the end of each reporting period for which the Note Purchase Agreement requires us to deliver financial
statements, using the results of the 12 consecutive month period ending with such reporting period.
On June 30, 2021, we were in compliance with our debt covenants and there was a total of $658.0 million outstanding under the
Revolving Credit Agreement, Term Credit Agreement and Senior Notes. We expect to satisfy all of our liquidity and long-term debt
requirements through a combination of cash on hand, cash generated from operations and undrawn debt facilities.
Critical Accounting Principles and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect our
reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an
ongoing basis we evaluate our estimates, including those related to allowance for doubtful accounts, inventory reserves, warranty
obligations, goodwill, potentially impaired assets, intangible assets, income taxes and contingencies.
We state these accounting policies in the notes to the financial statements and at relevant sections in this discussion and analysis. The
estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.
We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of
our consolidated financial statements:
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PART II
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(1) Valuation of Goodwill, Intangible and Other Long-Lived Assets. We make assumptions in establishing the carrying value, fair
value and estimated lives of our goodwill, intangibles and other long-lived assets. Our goodwill impairment tests are performed at our
reporting unit level, which is one level below our operating segments. The criteria used for these evaluations include management’s
estimate of the asset’s continuing ability to generate positive income from operations and positive cash flow in future periods compared
to the carrying value of the asset, as well as the strategic significance of any identifiable intangible asset in our business objectives. If
assets are considered to be impaired, we recognize as impairment the amount by which the carrying value of the assets exceeds their fair
value, and for goodwill is limited to the value of goodwill allocated to the impaired reporting unit, as described in Step 1 below. Factors
that would influence the likelihood of a material change in our reported results include significant changes in the asset’s ability to
generate positive cash flow, loss of legal ownership or title to the asset, a significant decline in the economic and competitive
environment on which the asset depends, significant changes in our strategic business objectives, utilization of the asset, and a significant
change in the economic and/or political conditions in certain countries.
We conduct an annual review for goodwill impairment at our reporting unit level based on 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.
(2) Income Tax. We assess our income tax positions and record tax benefits for all years subject to audit based upon management’s
evaluation of the facts, circumstances and information available at the reporting date. If we determine that it is not more likely than not
that we would be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be
charged to income tax expense in the period such determination is made. Alternatively, if we determine that it is more likely than not
that the net deferred tax assets would be realized, any previously provided valuation allowance is reversed. These changes to the
valuation allowance and resulting increases or decreases in income tax expense may have a material effect on our operating results.
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 recognize liabilities for uncertain tax
positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly
assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. Based
on our regular assessment, we may adjust the income tax provision and deferred taxes in the period in which the facts that give rise to a
revision become known.
We are under audit by the Australian Taxation Office (the “ATO”) for the years 2009 to 2018 (the “Audit Period”). The audits primarily
involve a transfer pricing dispute in which the ATO asserts we should have paid additional Australian taxes on income derived from our
Singapore operations. The ATO issued Notices of Amended Assessments for the tax years 2009 to 2013 seeking a total of $266.0
million, consisting of $151.7 million in additional income tax and $114.3 million in penalties and interest. The 2014 to 2018 periods are
still under audit and we have not yet received any Notices of Amended Assessments relative to those periods. A total of $98.8 million
in tax has been prepaid in relation to the Audit Period, which is consistent with ATO procedural audit practice.
We are engaged in advanced discussions with the ATO to settle the dispute for the entire Audit Period. Given the stage of those
discussions, during the year ended June 30, 2021, we recorded $395.3 million of gross unrecognized tax benefits, including $47.5 million
of accrued interest and penalties. This amount reflects our estimate of the potential tax liability and is subject to change.
Included in the balance of uncertain tax positions as of June 30, 2021 were $248.7 million of net unrecognized tax benefits that, if
recognized, would reduce the effective income tax rate in future periods. This amount represents the $395.3 million of gross
unrecognized tax, adjusted for tax credits and deductions of $146.6 million.
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PART II
Item 7
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
If the matter were to progress to litigation, we continue to believe we are more likely than not to be successful in defending our position.
If we are not successful in litigation, we will be required to pay some or all of the additional income tax, accrued interest and penalties,
including potential additional amounts relating to the 2014 to 2018 periods.
The timing and resolution of the ATO audits are inherently uncertain, and the amounts we might ultimately pay or receive in credits and
deductions, if any, upon resolution of issues raised by the ATO may differ materially from the amounts accrued. Although it is expected
that the amount of unrecognized tax benefits may change in the next 12 months, an estimate of the range of the possible change cannot
be made.
Outside the ATO audit describe above, tax years 2017 to 2020 remain subject to future examination by the major tax jurisdictions in
which we are subject to tax.
(3) Revenue Recognition. 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”). 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 to five years. Our contracts do not contain significant financing components.
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 business, the amount of consideration received and revenue recognized varies with changes in marketing
incentives (e.g., rebates, discounts, free goods) and returns offered to customers. 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. We also
recognize discount on products as a reduction to revenue when control is transferred. We adjust the estimate of revenue for the impact
of returned items 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. However, returns of products, excluding warranty-related returns, are infrequent and
insignificant.
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.
Recently Issued Accounting Pronouncements
See Note 3 – New Accounting Pronouncements of the Notes to Consolidated Financial Statements (Part II, Item 8) for a description of
recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations,
financial positions and cash flows.
Off-Balance Sheet Arrangements
As of June 30, 2021, we are not involved in any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K promulgated by the SEC.
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PART II
Item 7A
RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market and Business Risks
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, 2021 (in thousands):
AUD Functional:
Assets
Liability
Foreign Currency Hedges
Net Total
USD Functional:
Assets
Liability
Foreign Currency Hedges
Net Total
EURO Functional:
Assets
Liability
Foreign Currency Hedges
Net Total
SGD Functional:
Assets
Liability
Foreign Currency Hedges
Net Total
U.S.
Dollar
(USD)
456,660
(259,243)
(195,000)
2,417
-
-
-
-
2,825
(42,895)
40,000
(70)
406,966
(246,243)
(200,000)
(39,277)
Euro
(EUR)
42,975
(81,722)
-
(38,747)
-
-
-
-
-
-
-
-
41,001
(10,877)
-
30,124
Canadian
Dollar
(CAD)
Chinese
Yuan
(CNY)
-
-
-
-
22,396
(7,550)
(20,155)
(5,309)
-
-
-
-
-
-
-
-
13,012
(692)
(12,387)
(67)
-
-
-
-
-
-
-
-
899
-
-
899
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Table of Contents
PART II
Item 7A
RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market and Business Risks
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, 2021. The table presents the notional
amounts and weighted average exchange rates by contractual maturity dates for our 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):
Foreign Exchange Contracts
AUD/USD
Contract amount
Ave. contractual exchange rate
AUD/Euro
Contract amount
Ave. contractual exchange rate
SGD/Euro
Contract amount
Ave. contractual exchange rate
SGD/USD
Contract amount
Ave. contractual exchange rate
AUD/CNY
Contract amount
Ave. contractual exchange rate
EUR/USD
Contract amount
Ave. contractual exchange rate
USD/CAD
Contract amount
Ave. contractual exchange rate
Interest Rate Risk
Year 1
Year 2
Total
195,000
AUD 1 =
USD 0.7521
47,406
AUD 1 =
Euro 0.6307
29,629
SGD 1 =
Euro 0.6379
200,000
SGD 1 =
USD 0.7440
12,387
AUD 1 =
CNY 5.0312
40,000
EUR 1 =
USD 1.912
20,155
USD 1 =
CAD 1.2431
-
11,851
AUD 1 =
Euro 0.6700
-
-
-
-
-
-
195,000
AUD 1 =
USD 0.7521
59,257
AUD 1 =
Euro 0.6382
29,629
SGD 1 =
Euro 0.6379
200,000
SGD 1 =
USD 0.7440
12,387
AUD 1 =
CNY 5.0312
40,000
EUR 1 =
USD 1.912
20,155
USD 1 =
CAD 1.2431
Fair Value Assets / (Liabilities)
June 30,
2021
June 30,
2020
(652)
-
1,172
886
(88)
126
(177)
(183)
(130)
(161)
169
-
(44)
(83)
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, 2021, we held cash and cash equivalents of $295.3 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, 2021, there was $158.0 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, 2021, 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. Proceeds
from the issuance and sale of the notes were used to repay borrowings under the revolving credit facility.
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PART II
Item 8
ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESMED INC. AND SUBSIDIARIES
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
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Income for the years ended June 30, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended June 30, 2021, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended June 30, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Schedule II – Valuation and Qualifying Accounts and Reserves
57
59
60
61
62
63
64
85
(b) Supplementary Data
Quarterly Financial Information (unaudited)—The quarterly results for the years ended June 30, 2021 and 2020 are summarized below
(in thousands, except per share amounts):
2021
Net revenue
Gross profit
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
2020
Net revenue
Gross profit
Net income
Basic earnings per share
Diluted earnings per share
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
751,944
438,661
178,372
1.23
1.22
First
Quarter
681,056
391,619
120,148
0.84
0.83
$
$
800,011
462,483
179,514
1.24
1.23
Second
Quarter
736,157
427,130
160,554
1.11
1.10
$
$
768,767
447,258
(78,481)
(0.54)
(0.54)
Third
Quarter
769,455
449,662
163,137
1.13
1.12
$
$
876,103
490,696
195,098
1.34
1.33
Fourth
Quarter
770,343
449,372
177,835
1.23
1.22
Fiscal
Year
3,196,825
1,839,100
474,505
3.27
3.24
Fiscal
Year
2,957,013
1,717,786
621,674
4.31
4.27
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.
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Item 8
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, 2021
and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the
years in the three-year period ended June 30, 2021, 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, 2021, 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 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Change in Accounting Principle
The Company has changed its method of accounting for leases as of July 1, 2019 due to the adoption of the FASB’s Accounting
Standards Codification Topic 842, Leases.
Basis for Opinion
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 the uncertain tax position related to Australian Tax Office audits
As discussed in Note 14 to the consolidated financial statements, the Company’s tax filings in Australia for the years 2009
through 2018 (the Audit Period) are under audit by the Australian Tax Office (ATO). The Company believes it is more likely
than not (greater than a 50% likelihood) that its tax position would be upheld in litigation. However, the Company is engaged
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Table of Contents
PART II
Item 8
RESMED INC. AND SUBSIDIARIES
in advanced discussions with the ATO to settle the dispute for the entire Audit Period and has recorded $395.3 million of
gross unrecognized tax benefits, adjusted for tax credits and deductions of $146.6 million.
We identified the evaluation of the uncertain tax position and related tax credits and deductions related to the ATO audits as a
critical audit matter. This critical audit matter required challenging auditor judgment due to the nature and the complexity of
the applicable tax laws and regulations and involved tax professionals with specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the uncertain tax position related to the ATO audits,
including the gross unrecognized tax benefits and related tax credits and deductions. We involved tax professionals with
specialized skills and knowledge, who assisted in:
•
•
•
•
reading notices, assessments, and other correspondence between the Company and the ATO in connection with the Audit
Period
evaluating the Company’s analysis of the applicable tax laws with the facts, assumptions, and representations made by
the Company
recalculating the Company’s determination of the gross unrecognized tax benefits and the related tax credits and
deductions
inquiring of third-party legal and tax advisors about the Company’s determination to adjust the gross unrecognized tax
benefit related to the ATO audits for certain tax credits and deductions.
We have served as the Company’s auditor since 1994.
San Diego, California
August 16, 2021
/s/ KPMG LLP
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2021 and 2020
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $32,138 and $28,508
at June 30, 2021 and June 30, 2020, respectively
Inventories (note 4)
Prepaid taxes
Prepaid expenses and other current assets
Total current assets
Non-current assets:
Property, plant and equipment, net (note 4)
Operating lease right-of-use assets (note 10)
Goodwill (note 5)
Other intangible assets, net (note 5)
Deferred income taxes (note 14)
Prepaid taxes and other non-current assets
Total non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses (note 7)
Operating lease liabilities, current (note 10)
Deferred revenue
Income taxes payable (note 14)
Short-term debt, net (note 9)
Total current liabilities
Non-current liabilities:
Deferred revenue
Deferred income taxes (note 14)
Operating lease liabilities, non-current (note 10)
Other long-term liabilities
Long-term debt, net (note 9)
Long-term income taxes payable (note 14)
Total non-current liabilities
Total liabilities
Commitments and contingencies (note 17)
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;
187,484,592 issued and 145,648,358 outstanding at June 30, 2021 and
186,723,407 issued and 144,887,175 outstanding at June 30, 2020
Additional paid-in capital
Retained earnings
Treasury stock, at cost, 41,836,234 shares at June 30, 2021 and June 30, 2020
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
Item 8
June 30,
2021
June 30,
2020
$
295,278
$
$
$
$
$
614,292
457,033
72,409
135,745
1,574,757
463,490
128,575
1,927,901
392,582
79,904
160,916
3,153,368
4,728,125
138,008
320,599
23,585
109,611
307,963
12,000
911,766
91,496
11,319
114,779
6,802
643,351
62,933
930,680
1,842,446
-
583
1,622,199
3,079,640
(1,623,256)
(193,487)
2,885,679
4,728,125
$
$
463,156
474,643
416,915
93,484
75,261
1,523,459
417,335
118,348
1,890,324
448,168
41,065
148,677
3,063,917
4,587,376
135,786
270,353
21,263
98,617
64,755
11,987
602,761
87,307
13,011
101,880
8,347
1,164,133
112,910
1,487,588
2,090,349
-
580
1,570,694
2,832,991
(1,623,256)
(283,982)
2,497,027
4,587,376
See accompanying notes to consolidated financial statements.
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PART II
Item 8
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended June 30, 2021, 2020 and 2019
(In thousands, except per share data)
June 30, 2021
June 30, 2020
June 30, 2019
Net revenue - Sleep and Respiratory Care products
Net revenue - Software as a Service
Net revenue
$
2,823,235 $
373,590
3,196,825
2,602,381 $
354,632
2,957,013
Cost of sales - Sleep and Respiratory Care products
Cost of sales - Software as a Service
Cost of sales (exclusive of amortization shown separately below)
Amortization of acquired intangible assets - Sleep and Respiratory Care products
Amortization of acquired intangible assets - Software as a Service
Amortization of acquired intangible assets
Total cost of sales
Gross profit
Selling, general, and administrative
Research and development
Amortization of acquired intangible assets
Restructuring expenses (note 19)
Litigation settlement expenses (note 20)
Acquisition related expenses (note 18)
Total operating expenses
Income from operations
Other income (loss), net:
Interest income
Interest expense
Loss attributable to equity method investments (note 6)
Other, net (note 13)
Total other income (loss), net
Income before income taxes
Income taxes (note 14)
Net income
Basic earnings per share (note 12)
Diluted earnings per share (note 12)
Dividend declared per share
Basic shares outstanding (000's)
Diluted shares outstanding (000's)
1,177,309
135,289
1,312,598
4,895
40,232
45,127
1,357,725
1,839,100
670,387
225,284
31,078
8,673
-
-
935,422
903,678
362
(23,989)
(11,205)
14,816
(20,016)
883,662
409,157
474,505 $
3.27 $
3.24 $
1.56 $
145,313
146,451
1,067,967
121,657
1,189,624
8,584
41,019
49,603
1,239,227
1,717,786
676,689
201,946
30,092
-
(600)
-
908,127
809,659
1,021
(40,377)
(25,058)
(12,157)
(76,571)
733,088
111,414
621,674 $
4.31 $
4.27 $
1.56 $
144,338
145,652
$
$
$
$
See accompanying notes to consolidated financial statements.
2,330,783
275,789
2,606,572
977,223
92,764
1,069,987
8,591
33,923
42,514
1,112,501
1,494,071
645,010
180,651
32,424
9,401
41,199
6,123
914,808
579,263
2,299
(36,156)
(15,833)
(10,726)
(60,416)
518,847
114,255
404,592
2.83
2.80
1.48
143,111
144,484
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PART II
Item 8
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended June 30, 2021, 2020 and 2019
(In US$ thousands)
Net income
Other comprehensive (loss) income:
Foreign currency translation (loss) gain adjustments
Comprehensive income
2021
2020
$
474,505
621,674
2019
404,592
$
90,495
565,000 $
(30,973)
590,701 $
(28,681)
375,911
See accompanying notes to consolidated financial statements.
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years ended June 30, 2021, 2020 and 2019
(In thousands)
Common Stock
Amount
Additional
Paid-in
Capital
1,450,821 (41,636) $ (1,600,412) $
Treasury Stock
Amount
Shares
571 $
Balance, June 30, 2018
Common stock issued on exercise of options
(note 11)
Common stock issued on vesting of restricted stock
units, net of shares withheld for tax (note 11)
Common stock issued on employee stock purchase
plan (note 11)
Treasury stock purchases
Stock-based compensation costs
Other comprehensive income (loss)
Net income
Cumulative effect of change in accounting
standards
Dividends declared
Balance, June 30, 2019
Common stock issued on exercise of options
(note 11)
Common stock issued on vesting of restricted stock
units, net of shares withheld for tax (note 11)
Common stock issued on employee stock purchase
plan (note 11)
Stock-based compensation costs
Other comprehensive income (loss)
Net income
Dividends declared
Balance, June 30, 2020
Common stock issued on exercise of options
(note 11)
Common stock issued on vesting of restricted stock
units, net of shares withheld for tax (note 11)
Common stock issued on employee stock purchase
plan (note 11)
Stock-based compensation costs
Other comprehensive income (loss)
Net income
Cumulative effect adjustment from adoption of the
credit loss standard, net of tax
Dividends declared
Balance, June 30, 2021
Shares
184,316 $
252
638
285
-
-
-
-
-
-
185,491 $
350
617
265
-
-
-
-
186,723 $
64
469
229
-
-
-
-
-
187,485 $
1
3
1
(1)
-
-
-
-
-
575 $
1
3
1
-
-
-
-
580 $
-
2
1
-
-
-
-
-
583 $
12,329
(28,104)
24,364
-
52,063
-
-
-
-
-
-
-
(200)
-
-
-
-
-
-
-
-
(22,844)
-
-
-
-
-
1,511,473 (41,836) $ (1,623,256) $
19,986
(46,061)
28,196
57,100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,570,694 (41,836) $ (1,623,256) $
3,954
(50,209)
33,833
63,927
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,622,199 (41,836) $ (1,623,256) $
Item 8
Accumulated
Other
Retained
Earnings
Comprehensive
Income (Loss)
2,432,328 $
(224,328) $
-
-
-
-
-
-
-
-
-
404,592
(188,798)
(211,712)
2,436,410 $
-
-
(28,681)
-
-
-
(253,009) $
-
-
-
-
-
-
-
-
621,674
(225,093)
2,832,991 $
-
(30,973)
-
-
(283,982) $
-
-
-
-
-
-
-
-
474,505
(1,143)
(226,713)
3,079,640 $
-
90,495
-
-
-
(193,487) $
Total
2,058,980
12,330
(28,101)
24,365
(22,845)
52,063
(28,681)
404,592
(188,798)
(211,712)
2,072,193
19,987
(46,058)
28,197
57,100
(30,973)
621,674
(225,093)
2,497,027
3,954
(50,207)
33,834
63,927
90,495
474,505
(1,143)
(226,713)
2,885,679
See accompanying notes to consolidated financial statements.
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Table of Contents
PART II
Item 8
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2021, 2020 and 2019
(In thousands)
Cash flows from operating activities:
Net income
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Amortization of right-of-use assets
Stock-based compensation costs (note 11)
Loss attributable to equity method investments (note 6)
(Gain) loss on equity investments (note 6)
Restructuring expenses (note 19)
Gain on previously held equity interest
Changes in fair value of business combination contingent consideration
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses, net deferred income taxes and other current assets
Accounts payable, accrued expenses and other
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Patent registration costs
Business acquisitions, net of cash acquired
Purchases of investments (note 6)
Proceeds on maturity of foreign currency contracts
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Taxes paid related to net share settlement of equity awards
Purchases of treasury stock
Payments of business combination contingent consideration
Proceeds from borrowings, net of borrowing costs
Repayment of borrowings
Dividends paid
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds
Interest paid
Fair value of assets acquired, excluding cash
Liabilities assumed
Goodwill on acquisition
Deferred payments
Fair value of contingent consideration
Cash paid for acquisitions
June 30, 2021
June 30, 2020
June 30, 2019
$
474,505 $
621,674 $
404,592
156,758
34,760
63,927
11,205
(14,515)
8,673
-
-
(129,195)
(21,954)
(58,154)
210,708
736,718
(102,712)
(14,114)
(39,067)
(21,788)
19,219
(158,462)
154,850
26,523
57,559
25,058
14,519
-
-
(7)
54,383
(69,881)
(58,999)
(23,424)
802,255
(95,330)
(10,608)
(27,910)
(31,616)
(14,397)
(179,861)
37,790
(50,209)
-
(3,500)
90,000
(612,000)
(226,713)
(764,632)
18,498
(167,878)
463,156
295,278 $
221,359 $
23,989 $
16,671 $
(1,543)
24,671
3,768
-
43,567 $
48,182
(46,061)
-
(302)
1,190,000
(1,284,012)
(225,093)
(317,286)
10,920
316,028
147,128
463,156 $
180,359 $
40,377 $
14,919 $
(4,292)
20,375
408
(3,500)
27,910 $
$
$
$
$
$
150,795
-
52,073
15,833
15,007
-
(1,909)
(286)
(18,013)
(84,188)
(47,575)
(27,278)
459,051
(68,710)
(8,632)
(951,383)
(46,717)
(264)
(1,075,706)
36,727
(28,104)
(22,844)
(909)
1,519,230
(711,745)
(211,712)
580,643
(5,561)
(41,573)
188,701
147,128
242,860
36,156
429,522
(265,217)
794,320
(7,242)
-
951,383
See accompanying notes to consolidated financial statements.
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Table of Contents
PART II
(1) Organization and Basis of Presentation
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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. 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 15 – Segment Information for our net revenue disaggregated by segment, product and region for the years ended June 30, 2021,
2020 and 2019.
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 are provided 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.
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Table of Contents
PART II
The following table summarizes our contract balances as of June 30, 2021 and 2020 (in thousands):
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
Contract assets
Accounts receivable, net
Unbilled revenue, current
Unbilled revenue, non-current
Contract liabilities
Deferred revenue, current
Deferred revenue, non-current
Transaction price determination
2021
2020
Balance sheet caption
$
614,292 $
10,893
6,214
474,643 Accounts receivable, net
9,452 Prepaid expenses and other current assets
6,957 Prepaid taxes and other non-current assets
(109,611)
(91,496)
(98,617) Deferred revenue (current liabilities)
(87,307) Deferred revenue (non-current liabilities)
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. In
our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies with changes in marketing
incentives (e.g., rebates, discounts, free goods) and returns offered to customers and their customers. 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 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.
(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.
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PART II
(d) Fair Value of Financial Instruments
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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 40 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.
Depreciation expense for property, plant, and equipment was $78.4 million, $65.6 million, and $65.9 million for the years ended June 30,
2021, 2020 and 2019, 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 not identified any impairment of intangible assets
during any of the periods presented.
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PART II
(i) Goodwill
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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, 2021, 2020 and 2019, we completed a Step 0 or Qualitative assessment and
determined it was more likely than not that the fair value of our reporting units exceeded their carrying amounts, including goodwill,
and therefore goodwill was 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 other, net on the consolidated
statements of operations.
Equity investments whereby we have significant influence but not control over the investee, and are not the primary beneficiary of the
investee’s activities, are accounted for under the equity method. Under this method, we record our share of gains or losses attributable
to equity method investments as a component of other, 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.
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PART II
(m) Foreign Exchange Risk Management
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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 $556.4 million and $495.2 million at June 30, 2021 and June 30,
2020, respectively, to hedge foreign currency fluctuations. These contracts mature at various dates prior to June 30, 2023.
(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.
(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. Refer to Note 3(b) below for information regarding our adoption of the credit loss standard effective July 1,
2020.
We are also contingently liable, within certain limits, in the event of a customer default, to independent financing companies in
connection with customer financing programs. We monitor the collection status of these installment receivables and provide for
estimated losses separately under accrued expenses within our consolidated balance sheets based upon our historical collection
experience with such receivables and a current assessment of our credit exposure.
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Table of Contents
PART II
(q) Impairment of Long-Lived Assets
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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, 2021, 2020 and 2019.
(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
(a) Recently issued accounting standards not yet adopted
ASU No. 2020-04 “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
(Topic 848), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other
transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance
is effective for us as of March 12, 2020 through December 31, 2022. We will evaluate transactions or contract modifications occurring
as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The ASU is currently not
expected to have a material impact on our consolidated financial statements.
(b) Recently adopted accounting pronouncements
ASU No. 2016-13 “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments”
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13,
“Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), which amends the
impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain
types of financial instruments, including trade receivables. The guidance was adopted effective July 1, 2020 using the modified
retrospective approach. We recognized the cumulative effect of adopting this guidance as an adjustment to the opening balance of
retained earnings of $1.1 million, net of tax, related to our allowance for credit losses for accounts receivable. The adoption of this ASU
did not have a material impact on our consolidated financial statements.
ASU No. 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That Is a Service Contract”
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (Subtopic 350-40), which aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for
capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance was adopted effective July 1, 2020
and applied prospectively. Under the new ASU, capitalized implementation costs are presented as other non-current assets on our
consolidated balance sheets and within operating cash flows on our consolidated statements of cash flows. The adoption of this ASU
did not have a material impact on our consolidated financial statements.
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PART II
(4) Supplemental Balance Sheet Information
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
Components of selected captions in the consolidated balance sheets consisted of the following as of June 30, 2021 and June 30, 2020
(in thousands):
Inventories
Raw materials
Work in progress
Finished goods
Total inventories
Property, Plant and Equipment
Machinery and equipment
Computer equipment
Furniture and fixtures
Vehicles
Clinical, demonstration and rental equipment
Leasehold improvements
Land
Buildings
Property, plant and equipment, at cost
Accumulated depreciation and amortization
Property, plant and equipment, net
(5) Goodwill and Other Intangible Assets, net
Goodwill
$
$
$
$
$
2021
2020
155,419 $
4,647
296,967
457,033 $
128,096
2,807
286,012
416,915
2021
2020
349,022 $
194,386
54,435
5,959
110,620
77,392
54,458
239,357
1,085,629 $
(622,139)
463,490 $
285,287
188,036
54,275
5,513
95,860
60,490
51,803
227,902
969,166
(551,831)
417,335
For each of the years ended June 30, 2021 and June 30, 2020, 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, 2021 (in thousands):
Balance at the beginning of the period
Business acquisitions
Foreign currency translation adjustments
Balance at the end of the period
Other Intangible Assets
Sleep and
Respiratory Care
2021
SaaS
$
$
614,448 $
5,829
12,906
633,183 $
1,275,876 $
18,842
-
1,294,718 $
Total
1,890,324
24,671
12,906
1,927,901
Other intangibles, net are comprised of the following as of June 30, 2021 and June 30, 2020 (in thousands):
Developed/core product technology
Accumulated amortization
Developed/core product technology, net
Customer relationships
Accumulated amortization
Customer relationships, net
Other intangibles
Accumulated amortization
Other intangibles, net
Total other intangibles, net
2021
2020
$
$
383,319 $
(239,049)
144,270
272,703
(90,976)
181,727
197,662
(131,077)
66,585
392,582 $
382,806
(197,670)
185,136
279,370
(80,922)
198,448
177,091
(112,507)
64,584
448,168
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.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
Amortization expense related to identified intangible assets for the years ended June 30, 2021 and June 30, 2020 was $76.2 million and
$79.7 million, respectively. Amortization expense related to patents for the years ended June 30, 2021 and June 30, 2020 was $5.3
million and $8.3 million, respectively. Total estimated annual amortization expense for the years ending June 30, 2022 through June 30,
2026, is shown below (in thousands):
Estimated amortization expense
$
75,009 $
58,028 $
54,211 $
49,741 $
44,556
2022
Fiscal Years Ending June 30
2024
2023
2025
2026
(6) Investments
Equity investments by measurement category as of June 30, 2021 and June 30, 2020 were as follows (in thousands):
Measurement category
Fair value
Measurement alternative
Equity method
Total
2021
2020
$
$
29,084 $
23,002
17,154
69,240 $
-
30,033
14,109
44,142
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
Investments
Observable price adjustments on non-marketable equity securities
Ongoing mark-to-market adjustments on marketable equity securities
Reclassifications (1)
Loss attributable to equity method investments
Carrying value at the end of the period
$
$
30,033 $
2,538
1,000
-
(10,569)
-
23,002 $
- $
5,000
-
13,515
10,569
-
29,084 $
14,109 $
14,250
-
-
-
(11,205)
17,154 $
44,142
21,788
1,000
13,515
-
(11,205)
69,240
(1)
During the year ended June 30, 2021, one of our investments, which was previously accounted for under the measurement alternative, completed its initial
public offering which resulted in a change of accounting methodology to fair value.
The following table shows a reconciliation of the changes in our equity investments for the year ended June 30, 2020 (in thousands):
Balance at the beginning of the period
Investments
Impairment of investments
Loss attributable to equity method investments
Carrying value at the end of the period
Non-marketable
securities
Marketable
securities
Equity method
investments
Total
$
$
30,436 $
14,116
(14,519)
-
30,033 $
- $
-
-
-
- $
21,667 $
17,500
-
(25,058)
14,109 $
52,103
31,616
(14,519)
(25,058)
44,142
Net unrealized gains and losses recognized in the years ended June 30, 2021, 2020 and 2019 for equity investments in non-marketable
and marketable securities still held as of those respective dates were a gain of $14.5 million, a loss of $14.5 million, and a loss of $15.0
million, respectively.
(7) Accrued Expenses
Accrued expenses at June 30, 2021 and June 30, 2020 consist of the following (in thousands):
Product warranties (note 8)
Consulting and professional fees
Value added taxes and other taxes due
Employee related costs
Liability on receivables sold with recourse (note 17)
Accrued interest
Logistics and occupancy costs
Inventory in transit
Other
Total accrued expenses
2021
2020
$
$
22,032 $
21,246
26,542
199,917
8,163
8,338
14,954
7,146
12,261
320,599 $
21,132
18,740
26,627
148,383
6,647
8,313
6,350
21,679
12,482
270,353
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PART II
(8) Product Warranties
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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, 2021 and June 30, 2020 are as follows (in thousands):
Balance at the beginning of the period
Warranty accruals for the period
Warranty costs incurred for the period
Foreign currency translation adjustments
Balance at the end of the period
(9) Debt
Debt at June 30, 2021 and June 30, 2020 consists of the following (in thousands):
Short-term debt
Deferred borrowing costs
Short-term debt, net
Long-term debt
Deferred borrowing costs
Long-term debt, net
Total debt
Credit Facility
$
$
$
$
$
$
2021
2020
21,132 $
14,366
(14,858)
1,392
22,032 $
19,625
14,167
(12,229)
(431)
21,132
2021
2020
12,000 $
-
12,000
-
646,000 $
(2,649)
643,351 $
655,351 $
12,000
(13)
11,987
1,168,000
(3,867)
1,164,133
1,176,120
On April 17, 2018, we entered into an amended and restated credit agreement (the “Revolving Credit Agreement”), as borrower, with
lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger, joint book runner, swing line lender and letter of credit
issuer, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner. The Revolving Credit
Agreement, among other things, provided a senior unsecured revolving credit facility of $800.0 million, with an uncommitted option to
increase the revolving credit facility by an additional $300.0 million.
Additionally, on April 17, 2018, ResMed Limited entered into a Syndicated Facility Agreement (the “Term Credit Agreement”), as
borrower, with lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger and joint book runner, and Westpac
Banking Corporation, as syndication agent, joint lead arranger and joint book runner. The Term Credit Agreement, among other things,
provides ResMed Limited a senior unsecured term credit facility of $200.0 million.
On November 5, 2018, we entered into a first amendment to the Revolving Credit Agreement to, among other things, increase the size
of our senior unsecured revolving credit facility from $800.0 million to $1.6 billion, with an uncommitted option to increase the
revolving credit facility by an additional $300.0 million.
Our obligations under the Revolving Credit Agreement are guaranteed by certain of our direct and indirect U.S. subsidiaries, and ResMed
Limited’s obligations under the Term Credit Agreement are guaranteed by us and certain of our direct and indirect U.S. subsidiaries.
The Revolving Credit Agreement and Term Credit Agreement contain customary covenants, including, in each case, a financial covenant
that requires that we maintain a maximum leverage ratio of funded debt to EBITDA (as defined in the Revolving Credit Agreement and
Term Credit Agreement, as applicable). The entire principal amounts of the revolving credit facility and term credit facility, and, in each
case, any accrued but unpaid interest may be declared immediately due and payable if an event of default occurs, as defined in the
Revolving Credit Agreement and the Term Credit Agreement, as applicable. Events of default under the Revolving Credit Agreement
and the Term Credit Agreement include, in each case, failure to make payments when due, the occurrence of a default in the performance
of any covenants in the respective agreements or related documents, or certain changes of control of us, or the respective guarantors of
the obligations borrowed under the Revolving Credit Agreement and Term Credit Agreement.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
The Revolving Credit Agreement and Term Credit Agreement each terminate on April 17, 2023, when all unpaid principal and interest
under the loans must be repaid. Amounts borrowed under the Term Credit Agreement will also amortize on a semi-annual basis, with a
$6.0 million principal payment required on each such semi-annual amortization date. The outstanding principal amounts will bear
interest at a rate equal to LIBOR plus 0.75% to 1.50% (depending on the then-applicable leverage ratio) or the Base Rate (as defined in
the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0% to 0.50% (depending on the then-applicable
leverage ratio). At June 30, 2021, the interest rate that was being charged on the outstanding principal amounts was 0.9%. An applicable
commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving
credit facility. As of June 30, 2021, we had $1.6 billion available for draw down under the revolving credit facility.
We are required to disclose the fair value of financial instruments for which it is practicable to estimate the value, even though these
instruments are not recognized at fair value in the consolidated balance sheets. As the Revolving Credit and Term Credit Agreements’
interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at June 30,
2021 and June 30, 2020, which was $158.0 million and $680.0 million, respectively. Quoted market prices in active markets for identical
liabilities based inputs (Level 1) were used to estimate fair value.
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,
including ResMed Corp., ResMed Motor Technologies Inc., Birdie Inc., Inova Labs, Inc., Brightree LLC, Brightree Home Health &
Hospice LLC, Brightree Patient Collections LLC, ResMed Operations Inc., HEALTHCAREfirst Holding Company, HCF Holdco
Company, HEALTHCAREfirst, Inc., CareFacts Information Systems, LLC and Lewis Computer Services, LLC, MatrixCare Holdings
Inc., MatrixCare, Inc., Reciprocal Labs Corporation and ResMed SaaS Inc., under a Subsidiary Guaranty Agreement dated as of July 10,
2019. The net proceeds from this transaction were used to pay down borrowings on our Revolving Credit Agreement.
Under the terms of the Note Purchase Agreement, we agreed to customary covenants including with respect to our corporate existence,
transactions with affiliates, and mergers and other extraordinary transactions. We also agreed that, subject to limited exceptions, we will
maintain a ratio of consolidated funded debt to consolidated EBITDA (as defined in the Note Purchase Agreement) of no more than
3.50 to 1.00 as of the last day of any fiscal quarter, and will not at any time permit the amount of all priority secured and unsecured debt
of us and our subsidiaries to exceed 10% of our consolidated tangible assets, determined as of the end of our most recently ended fiscal
quarter. This ratio is calculated at the end of each reporting period for which the Note Purchase Agreement requires us to deliver financial
statements, using the results of the 12 consecutive month period ending with such reporting period.
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, 2021, the Senior Notes have a carrying
amount of $500.0 million, excluding deferred borrowing costs, and an estimated fair value of $530.4 million. Quoted market prices in
active markets for identical liabilities based inputs (Level 1) were used to estimate fair value.
At June 30, 2021, we were in compliance with our debt covenants and there was $658.0 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.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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 15 years, some of which include options to extend or terminate
the leases.
Operating lease costs were $35.5 million for the year ended June 30, 2021 and $26.5 million for the year ended June 30, 2020. Short-
term and variable lease costs were not material for the years ended June 30, 2021 and June 30, 2020.
Future lease payments under non-cancellable leases as of June 30, 2021 and for the periods ending June 30 of the years indicated
below were as follows (in thousands):
Total
2022
2023
2024
2025
2026
Thereafter
Minimum lease payments
Less: imputed interest
Total lease liabilities
$
$
158,247 $
(19,883)
138,364
27,272 $
23,163 $
16,680 $
13,564 $
13,168 $
64,400
As of June 30, 2021, we had additional operating lease commitments of $0.6 million for office space that have not yet commenced.
These leases will commence during the year ended June 30, 2022 with lease terms of 2 years to 3 years.
The supplemental information related to operating leases for the years ended June 30, 2021 and June 30, 2020 was as follows (in
thousands):
Weighted-average inputs:
Weighted-average remaining lease term (years)
Weighted-average discount rate
Cash flow information:
2021
2020
8.5
3.0 %
9.1
3.2 %
Operating cash flows paid for amounts included in the measurement of lease liabilities
Right of use assets obtained in exchange for new lease liabilities:
$
$
27,734
36,130
$
$
24,104
51,663
(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, 2021 and June 30, 2020 were as follows (in thousands):
Sales-type lease revenue
Operating lease revenue
Total lease revenue
2021
2020
$
$
9,758 $
93,431
103,189 $
13,457
87,874
101,331
Our net investment in sales-type leases were classified in the consolidated balance sheets as of June 30, 2021 and June 30, 2020 as
follows (in thousands):
Accounts receivable, net
Prepaid taxes and other non-current assets
Total
2021
2020
$
$
8,026 $
6,214
14,240 $
7,697
6,957
14,654
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PART II
Maturities of sales-type leases as of June 30, 2021 were as follows (in thousands):
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
Total
2022
2023
2024
2025
2026
Thereafter
Remaining lease payments
Less: imputed interest
Present value of remaining lease payments
$
$
15,596 $
(1,356)
14,240
(11) Stockholders’ Equity
8,378 $
5,173 $
1,699 $
174 $
172 $
-
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 new 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 2021 or
2020. As of June 30, 2021, we have repurchased a total of 41.8 million shares at a cost of $1.6 billion. 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, 2021, 12.9 million additional shares can be repurchased under the approved share repurchase program.
Preferred Stock. In April 1997, our board of directors authorized 2,000,000 shares of $0.01 par value preferred stock. No such shares
were issued or outstanding at June 30, 2021.
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, 2021 is 15.5 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 the intrinsic value 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).
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.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
The total fair value of RSUs and PRSUs that vested during the years ended June 30, 2021, 2020 and 2019, was $59.6 million, $56.8
million and $52.3 million, respectively.
The following table summarizes the activity of RSUs, including PRSUs, during year ended June 30, 2021 (in thousands, except years
and per share amounts):
Outstanding at beginning of period
Granted
Vested*
Performance factor adjustment
Expired / cancelled
Forfeited
Outstanding at end of period
* Includes 235 thousand shares netted for tax.
Restricted
Stock
Units
Weighted
Average
Grant-Date
Fair Value
1,132 $
277
(704)
209
(34)
(5)
875 $
103.77
209.02
84.87
-
119.64
119.64
145.19
Weighted
Average
Remaining
Contractual
Term in Years
1.6
1.5
The following table summarizes option activity during the year ended June 30, 2021 (in thousands, except years and per share
amounts):
Outstanding at beginning of period
Granted
Exercised
Forfeited
Outstanding at end of period
Options exercisable at end of period
Options vested and expected to vest at end of period
Weighted
Average
Exercise
Price
89.05
210.18
62.05
-
97.01
82.11
96.37
Weighted
Average
Remaining
Contractual
Term in Years
4.4
3.7
3.2
3.7
Options
1,068 $
56
(64)
-
1,060 $
804 $
1,050 $
The aggregate intrinsic value of options exercised during the fiscal years 2021, 2020 and 2019, was $8.9 million, $31.2 million and
$15.1 million, respectively. As at June 30, 2021, the aggregate intrinsic value of options outstanding, exercisable, and vested and
expected to vest were $158.5 million, $132.1 million and $157.6 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, 2021, the number of shares remaining available for future issuance under the ESPP
is 1.8 million shares.
During years ended June 30, 2021, 2020 and 2019, we issued 229,000, 265,000 and 285,000 shares to our employees in two offerings
and we recognized $10.9 million, $8.0 million and $6.4 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.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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, 2021, 2020 and 2019:
Stock options:
Weighted average grant date fair value
Weighted average risk-free interest rate
Expected life in years
Dividend yield
Expected volatility
ESPP purchase rights:
Weighted average grant date fair value
Weighted average risk-free interest rate
Expected life in years
Dividend yield
Expected volatility
$
$
2021
53.67
0.37%
4.9
0.75%
31%
2020
32.14
1.58%
4.9
1.07%
25%
$
2019
21.92
2.96%
4.9
1.34% - 1.46%
23%
$
$
48.18
0.1%
6 months
0.79% - 0.98%
30% - 60%
$
31.82
1.6%
6 months
0.98% - 1.42%
23% - 60%
22.12
2.4%
6 months
1.40% - 1.47%
23%
The following table summarizes the total stock-based compensation costs incurred and the associated tax benefit recognized during the
years ended June 30, 2021, 2020 and 2019 (in thousands):
Cost of sales
Selling, general and administrative expenses
Research and development expenses
Stock-based compensation costs
Tax benefit
Stock-based compensation costs, net of tax benefit
$
$
2021
2020
2019
4,153 $
51,727
8,047
63,927
(23,346)
40,581 $
3,703 $
47,265
6,591
57,559
(39,534)
18,025 $
3,043
42,700
6,330
52,073
(26,658)
25,415
At June 30, 2021, there was $94.3 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 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 141,000, 164,000 and 200,000 for the years ended June 30, 2021, 2020 and 2019,
respectively, as the effect would have been anti-dilutive.
Basic and diluted earnings per share for the years ended June 30, 2021, 2020 and 2019 are calculated as follows (in thousands except
per share data):
Numerator:
Net income
Denominator:
Basic weighted-average common shares outstanding
Effect of dilutive securities:
Stock options and restricted stock units
Diluted weighted average shares
Basic earnings per share
Diluted earnings per share
2021
2020
2019
$
474,505 $
621,674 $
404,592
145,313
144,338
143,111
1,138
146,451
3.27 $
3.24 $
1,314
145,652
4.31 $
4.27 $
1,373
144,484
2.83
2.80
$
$
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Table of Contents
PART II
(13) Other, net
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
Other, net, in the consolidated statements of income is comprised of the following for the years ended June 30, 2021, 2020 and 2019 (in
thousands):
Gain (loss) on foreign currency transactions and hedging, net
Unrealized gains (losses) on investments (note 6)
Other
Total Other, net
(14) Income Taxes
$
$
2021
2020
2019
(753) $
14,515
1,054
14,816 $
1,331 $
(14,519)
1,031
(12,157) $
1,712
(15,007)
2,569
(10,726)
Income before income taxes for the years ended June 30, 2021, 2020 and 2019, was taxed under the following jurisdictions (in
thousands):
U.S.
Non-U.S.
Income before income taxes
The provision for income taxes is presented below (in thousands):
Current:
Deferred:
Federal
State
Non-U.S.
Federal
State
Non-U.S.
Provision for income taxes
$
$
$
$
2021
2020
2019
71,867 $
811,795
883,662 $
60,548 $
672,540
733,088 $
(34,468)
553,315
518,847
2021
2020
2019
(115,109) $
9,041
531,812
425,744
(22,791)
(4,205)
10,409
(16,587)
409,157 $
9,790 $
6,898
124,602
141,290
(13,000)
(3,335)
(13,541)
(29,876)
111,414 $
28,658
7,595
127,540
163,793
(30,456)
(5,408)
(13,674)
(49,538)
114,255
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, 2021, 2020 and 2019, to pretax income as a result of the following (in thousands):
Taxes computed at statutory U.S. rate
Increase (decrease) in income taxes resulting from:
State income taxes, net of U.S. tax benefit
Research and development credit
Change in valuation allowance
Effect of non-U.S. tax rates
Foreign tax credits
Stock-based compensation expense
Uncertain tax position
Transition tax
Other
Provision for income taxes
2021
2020
2019
$
185,569 $
153,949 $
108,958
4,836
(20,257)
(3,785)
(12,130)
(7,210)
(4,498)
248,773
-
17,859
409,157 $
3,563
(13,595)
7,216
(20,935)
(4,026)
(20,696)
-
-
5,938
111,414 $
2,186
(12,953)
(1,118)
25,045
(7,806)
(11,534)
-
6,038
5,439
114,255
$
We reported net deferred tax assets and liabilities in our consolidated balance sheets at June 30, 2021 and June 30, 2020, as follows (in
thousands):
Non-current deferred tax asset
Non-current deferred tax liability
Net deferred tax asset
$
$
2021
2020
79,904 $
(11,319)
68,585 $
41,065
(13,011)
28,054
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Table of Contents
PART II
Item 8
The components of our deferred tax assets and liabilities at June 30, 2021 and June 30, 2020, are as follows (in thousands):
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Deferred tax assets:
Employee liabilities
Tax credit carry overs
Inventories
Provision for warranties
Provision for doubtful debts
Net operating loss carryforwards
Capital loss carryover
Stock-based compensation expense
Deferred revenue
Research and development capitalization
Lease liabilities
Other
Less valuation allowance
Deferred tax assets
Deferred tax liabilities:
Goodwill and other intangibles
Right of use assets
Deferred tax liabilities
Net deferred tax asset
2021
2020
$
30,080 $
13,753
11,734
4,149
7,334
33,377
6,912
6,080
17,839
58,789
25,751
(5,851)
209,947
(13,106)
196,841
(104,563)
(23,693)
(128,256)
$
68,585 $
21,272
9,295
9,129
3,585
6,594
38,035
10,864
6,035
15,343
39,195
-
(3,006)
156,341
(16,891)
139,450
(111,396)
-
(111,396)
28,054
As of June 30, 2021, we had $25.1 million of U.S. federal and state net operating loss carryforwards and $7.6 million of non-U.S. net
operating loss carryforwards, which expire in various years beginning in 2022 or carry forward indefinitely.
The valuation allowance at June 30, 2021 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 $12.3 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
$33.6 million ($0.23 per diluted share) for the year ended June 30, 2021, $43.8 million ($0.30 per diluted share) for the year ended
June 30, 2020, and $20.3 million ($0.14 per diluted share) for the year ended June 30, 2019.
As a result of the Tax Cuts and Jobs Act of 2017 (the ”U.S. Tax Act”), we have treated all non-U.S. historical earnings as taxable, which
resulted in additional tax expense of $6.0 million during the year ended June 30, 2019, which related to final treasury regulations issued
and temporary guidance published during the year and is payable over eight years. Therefore, future repatriation of cash held by our
non-U.S. subsidiaries will generally not be subject to U.S. federal tax if repatriated. The total amount of these undistributed earnings at
June 30, 2021 amounted to approximately $3.2 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 $202.6 million in U.S. federal deferred taxes and $5.1 million in U.S. state deferred taxes would have been
recognized in the consolidated financial statements.
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.
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.
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
We are under audit by the Australian Taxation Office (the “ATO”) for the years 2009 to 2018 (the “Audit Period”). The audits primarily
involve a transfer pricing dispute in which the ATO asserts we should have paid additional Australian taxes on income derived from our
Singapore operations. The ATO issued Notices of Amended Assessments for the tax years 2009 to 2013 seeking a total of $266.0
million, consisting of $151.7 million in additional income tax and $114.3 million in penalties and interest. The 2014 to 2018 periods are
still under audit and we have not yet received any Notices of Amended Assessments relative to those periods. A total of $98.8 million
in tax has been prepaid in relation to the Audit Period, which is consistent with ATO procedural audit practice.
We are engaged in advanced discussions with the ATO to settle the dispute for the entire Audit Period. Given the stage of those
discussions, during the year ended June 30, 2021, we recorded $395.3 million of gross unrecognized tax benefits, including $47.5 million
of accrued interest and penalties. This amount reflects our estimate of the potential tax liability and is subject to change.
Included in the balance of uncertain tax positions as of June 30, 2021 were $248.7 million of net unrecognized tax benefits that, if
recognized, would reduce the effective income tax rate in future periods. This amount represents the $395.3 million of gross
unrecognized tax, adjusted for tax credits and deductions of $146.6 million.
If the matter were to progress to litigation, we continue to believe we are more likely than not to be successful in defending our position.
If we are not successful in litigation, we will be required to pay some or all of the additional income tax, accrued interest and penalties,
including potential additional amounts relating to the 2014 to 2018 periods.
The timing and resolution of the ATO audits are inherently uncertain, and the amounts we might ultimately pay or receive in credits and
deductions, if any, upon resolution of issues raised by the ATO may differ materially from the amounts accrued. Although it is expected
that the amount of unrecognized tax benefits may change in the next 12 months, an estimate of the range of the possible change cannot
be made.
Outside the ATO audit described above, tax years 2017 to 2020 remain subject to future examination by the major tax jurisdictions in
which we are subject to tax.
(15) Segment Information
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 – 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, acquisition related expenses, deferred revenue fair value adjustment, net interest expense, loss attributable to equity
method investments, and other, net. We neither discretely allocate assets to our operating segments, nor does our Chief Operating
Decision Maker evaluate the operating segments using discrete asset information.
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
The table below presents a reconciliation of net revenues, depreciation and amortization and net operating profit by reportable segments
for the years ended June 30, 2021, 2020 and 2019 (in thousands):
Net revenue by segment
Total Sleep and Respiratory Care
Software as a Service
Deferred revenue fair value adjustment (1)
Total Software as a Service
Total
Depreciation and amortization by segment
Sleep and Respiratory Care
Software as a Service
Amortization of acquired intangible assets and corporate assets
Total
Net operating profit by segment
Sleep and Respiratory Care
Software as a Service
Total
Reconciling items
Corporate costs
Amortization of acquired intangible assets
Restructuring expenses
Litigation settlement expenses
Acquisition related expenses
Deferred revenue fair value adjustment (1)
Interest expense (income), net
Loss attributable to equity method investments
Other, net
Income before income taxes
2021
2020
2019
$
2,823,235 $
2,602,381 $
2,330,783
373,590
-
373,590
3,196,825 $
356,734
(2,102)
354,632
2,957,013 $
281,137
(5,348)
275,789
2,606,572
73,151 $
5,230
78,377
156,758 $
69,444 $
3,850
81,556
154,850 $
1,036,712 $
93,037
1,129,749 $
934,697 $
82,152
1,016,849 $
141,193 $
76,205
8,673
-
-
-
23,627
11,205
(14,816)
883,662 $
125,993 $
79,695
-
(600)
-
2,102
39,356
25,058
12,157
733,088 $
70,094
3,250
77,451
150,795
766,068
74,886
840,954
124,682
74,938
9,401
41,199
6,123
5,348
33,857
15,833
10,726
518,847
$
$
$
$
$
$
$
(1) The deferred revenue fair value adjustment is a purchase price accounting adjustment related to MatrixCare which was acquired on November 13, 2018.
The following table summarizes our net revenue disaggregated by segment, product and region for the years ended June 30, 2021, 2020
and 2019 (in thousands):
U.S., Canada and Latin America
Devices
Masks and other
Total Sleep and Respiratory Care
Software as a Service
Total
Combined Europe, Asia and other markets
Devices
Masks and other
Total Sleep and Respiratory Care
Global revenue
Devices
Masks and other
Total Sleep and Respiratory Care
Software as a Service
Total
2021
2020
2019
863,661 $
841,452
1,705,113 $
373,590
2,078,703 $
792,766 $
779,561
1,572,327 $
354,632
1,926,959 $
746,379 $
371,743
1,118,122 $
715,056 $
314,998
1,030,054 $
1,610,040 $
1,213,195
2,823,235 $
373,590
3,196,825 $
1,507,822 $
1,094,559
2,602,381 $
354,632
2,957,013 $
743,066
677,430
1,420,496
275,789
1,696,285
618,525
291,762
910,287
1,361,591
969,192
2,330,783
275,789
2,606,572
$
$
$
$
$
$
$
$
Revenue information by geographic area for the years ended June 30, 2021, 2020 and 2019 is summarized below (in thousands):
United States
Rest of the World
Total
2021
2020
$
$
1,962,721 $
1,234,104
3,196,825 $
1,828,575 $
1,128,438
2,957,013 $
2019
1,588,655
1,017,917
2,606,572
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PART II
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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, 2021, 2020 and 2019, is summarized
below (in thousands):
Australia
United States
Singapore
Rest of the World
Total
(16) Employee Retirement Plans
2021
2020
186,289
159,815 $
64,182
53,204
463,490 $
162,490
164,155
39,977
50,713
417,335
$
$
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 9.5% 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, 2021, 2020 and
2019, were $10.7 million, $9.5 million and $10.0 million, respectively.
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 $9.6 million, $9.3 million and $6.7 million in fiscal 2021, 2020 and 2019, 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 $2.5 million, $2.9 million and $2.6 million in fiscal 2021, 2020 and 2019, respectively.
(17) 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.
Taxation Matters
We are under audit by the ATO in three different cycles: tax years 2009 to 2013, tax years 2014 to 2017 and tax year 2018. Please refer
to note 14 – Income Taxes, where we have provided an update in relation to this tax dispute in accordance with ASC 740 Income Taxes.
Contingent Obligations Under Recourse Provisions
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, 2021 and 2020, receivables sold with limited recourse were $153.0 million and $154.5 million,
respectively. As of June 30, 2021, the maximum exposure on outstanding receivables sold with recourse and contingent provision were
$30.2 million and $8.2 million, respectively. As of June 30, 2020, the maximum exposure on outstanding receivables sold with recourse
and contingent provision were $22.8 million and $6.6 million, respectively.
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PART II
Commitments
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
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. Obligations under our purchase agreements at June 30, 2021 were as follows (in thousands):
Minimum purchase obligations
Total
1,100,839 $
$
2022
1,099,419 $
2023
2024
2025
2026
Thereafter
994 $
426 $
- $
- $
-
Fiscal Years Ending June 30
(18) Business Combinations
Fiscal years ended June 30, 2021 and June 30, 2020
During the years ended June 30, 2021 and 2020 we did not complete any material business combinations or record material acquisition-
related expenses.
Fiscal year ended June 30, 2019
MatrixCare
On November 13, 2018, we completed the acquisition of 100% of the shares in MatrixCare, Inc. and its subsidiaries (“MatrixCare”), a
provider of software solutions for skilled nursing, life plan communities, senior living and private duty, for base purchase consideration
paid of $750.0 million. This acquisition has been accounted for as a business combination using purchase accounting and included in
our consolidated financial statements from November 13, 2018. The acquisition was paid for using borrowings under our revolving
credit facility.
During the year ended June 30, 2019, revenues of $79.2 million and losses from operations of $9.1 million related to MatrixCare were
included in the consolidated statement of comprehensive income. The losses from operations for the year ended June 30, 2019 was
negatively impacted by $19.0 million of amortization of acquired intangible assets and fair value purchase price adjustments relating to
deferred revenue of $5.3 million. Excluding the impact of these items, revenue for the year ended June 30, 2019 was $84.6 million and
income from operations was $15.3 million.
The acquisition is considered a material business combination and accordingly unaudited pro forma information is presented below for
the year ended June 30, 2019. The pro forma results were prepared using the acquisition method of accounting and combine our historical
results and MatrixCare’s for the year ended June 30, 2019, including the effects of the business combination, primarily amortization
expense related to the fair value of identifiable intangible assets acquired, interest expense associated with the financing obtained by us
in connection with the acquisition, and the elimination of incurred acquisition-related costs.
The pro forma financial information presented below is not necessarily indicative of the results of operations that would have been
achieved if the acquisition occurred at the beginning of the earliest period presented, nor is it intended to be a projection of future results.
The following table summarized unaudited pro forma consolidated results for the year ended June 30, 2019 (in thousands, except per
share information):
Revenue
Net income
Basic earnings per share
Diluted earnings per share
$
$
$
$
2019
2,652,059
446,721
3.12
3.09
The unaudited pro forma consolidated results for the year ended June 30, 2019 reflects primarily the following pro forma pre-tax
adjustments:
• Net amortization expense related to the fair value of identifiable intangible assets acquired of $0.6 million.
• Net interest expense associated with debt that was issued to finance the acquisition of $2.6 million.
• Elimination of pre-tax acquisition-related costs incurred by ResMed and MatrixCare of $3.7 million and $16.7 million,
respectively.
• Net income tax expense of $1.8 million.
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PART II
(19) Restructuring Expenses
RESMED INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Item 8
In November 2020, we closed our Portable Oxygen Concentrator business, which was part of the Sleep and Respiratory Care segment.
During the year ended June 30, 2021, we recognized restructuring expenses of $13.9 million primarily related to inventory write-downs
of $5.2 million, accelerated amortization of acquired intangible assets of $5.1 million, asset impairments of $2.3 million, employee-
related costs of $0.7 million and contract cancellation costs of $0.6 million. Of the total expense recognized during year ended June 30,
2021, the inventory write-down of $5.2 million is presented within cost of sales and the remaining $8.7 million in restructuring costs is
separately disclosed as restructuring expenses on the consolidated statements of operations. The restructure was completed as of June
30, 2021.
During the year ended June 30, 2020, we did not incur material restructuring expenses.
During the year ended June 30, 2019, we incurred restructuring expenses of $9.4 million associated with the reorganization,
rationalization and relocation of some of our research and development and SaaS operations including the closure of our German
research and development site. We recorded the full amount of $9.4 million during the year ended June 30, 2019, within our operating
expenses, which was separately disclosed as restructuring expenses and had $5.4 million remaining in our accruals at year end, which
was paid during the year ended June 30, 2020. The restructuring expenses consisted primarily of severance payments to employees and
contract exit costs associated with several impacted sites.
(20) Litigation Settlement Expenses
We did not recognize any material litigation settlement expenses during the years ended June 30, 2021 and 2020.
During the year ended June 30, 2019 we recognized litigation settlement expenses of $41.2 million associated with a tentative agreement
with the United States Department of Justice to civilly resolve the investigation of certain marketing practices. We finalized the
settlement in December 2019 and announced it in January 2020 on terms that were consistent with our prior reserve. The settlement
amount consisted of the payment to the United States and to various states that joined the action, as well as attorneys’ fees and other
costs to the private litigants that filed the suits that the Department of Justice pursued. We also entered into a corporate integrity
agreement with the Office of the Inspector General of the U.S. Department of Health and Human Services with accompanying oversight
of our sales and marketing practices in the United States for five years.
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PART II
Item 8
SCHEDULE II
RESMED INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
June 30, 2021, 2020 and 2019
(in thousands)
Year ended June 30, 2021
Applied against asset account
Allowance for trade accounts receivable (1)
Year ended June 30, 2020
Applied against asset account
Allowance for trade accounts receivable
Year ended June 30, 2019
Applied against asset account
Allowance for trade accounts receivable
Balance at
Beginning
of Period
Charged to costs
and expenses
Other
(deductions)
Balance at
End of
Period
$
$
$
30,013 $
7,805 $
(5,680) $
32,138
25,171 $
18,283 $
(14,946) $
28,508
19,258 $
12,379 $
(6,466) $
25,171
(1)
Beginning balance is adjusted to reflect the cumulative pre-tax effect of adopting Accounting Standards Update No. 2016-13, “Financial Instruments - Credit
Losses: Measurement of Credit Losses on Financial Instruments” (Topic 326), effective July 1, 2021. Refer to Note 3 - New Accounting Pronouncements of
the Notes to the Consolidated Financial Statements (Part II, Item 8) for additional information.
See accompanying report of independent registered public accounting firm.
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PART II
RESMED INC. AND SUBSIDIARIES
Items 9 – 9B
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that
such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer,
as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls
and procedures as of June 30, 2021. Based on the foregoing, our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2021.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
RESMED INC. AND SUBSIDIARIES
Items 9 – 9B
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles in the United States of America. Our internal control
over financial reporting includes those policies and procedures that:
(i) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
our assets;
(ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
(iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2021. In making this assessment,
management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over
financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the
results of its assessment with the audit committee of our board of directors.
Based on that assessment under the framework in Internal Control-Integrated Framework (2013), management concluded that the
company’s internal control over financial reporting was effective as of June 30, 2021.
KPMG LLP, independent registered public accounting firm, who audited and reported on the consolidated financial statements of
ResMed Inc. included in this report, has issued an attestation report on the effectiveness of internal control over financial reporting.
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Table of Contents
PART II
RESMED INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Items 9 – 9B
To the Stockholders and Board of Directors
ResMed Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited ResMed Inc. and subsidiaries' (the Company) internal control over financial reporting as of June 30, 2021, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of June 30, 2021 and 2020, 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,
2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report
dated August 16, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
San Diego, California
August 16, 2021
/s/ KPMG LLP
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PART II
ITEM 9B OTHER INFORMATION
None.
RESMED INC. AND SUBSIDIARIES
Items 9 – 9B
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Table of Contents
PART III
RESMED INC. AND SUBSIDIARIES
PART III
Items 10 – 14
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item is incorporated by reference from our definitive proxy statement for our next annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 2021.
We have filed as exhibits to this report for the year ended June 30, 2021, the certifications of our chief executive officer and chief
financial officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
ITEM 11 EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference from our definitive proxy statement for our next annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 2021.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference from our definitive proxy statement for our next annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 2021.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference from our definitive proxy statement for our next annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 2021.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is incorporated by reference from our definitive proxy statement for our next annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 2021.
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PART IV
RESMED INC. AND SUBSIDIARIES
PART IV
Items 15 – 16
ITEM 15 EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(a)
(b)
2.1
3.1
3.2
4.1
4.2
10.1*
10.2*
Consolidated Financial Statements and Schedules – The index to our consolidated financial statements and schedules are
set forth in the “Index to Consolidated Financial Statements” under Item 8 of this report.
Exhibit Lists
Agreement and Plan of Merger, dated November 5, 2018, by and among ResMed Operations Inc., Evolved Sub, Inc.,
ResMed Inc., OPEL GI Holdings Limited, in its capacity as the agent acting on behalf of the holders of common stock of
MatrixCare Holdings, Inc., and MatrixCare Holdings, Inc. (Incorporated by reference to Exhibit 2.1 to the Registrant’s
Report on Form 8-K filed on November 8, 2018)
First Restated Certificate of Incorporation of ResMed Inc., as amended. (Incorporated by reference to Exhibit 3.1 to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 2013)
Sixth Amended and Restated Bylaws of ResMed Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Report
on Form 8-K filed on February 26, 2020)
Form of certificate evidencing shares of Common Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant’s
Registration Statement on Form S-1 (No. 33-91094) declared effective on June 1, 1995)
Description of ResMed Inc.’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934
(Incorporated by reference to Exhibit 4.2 to the Registrant’s Report on Form 10-K filed on August 13, 2020)
Form of Indemnification Agreements for our directors and officers. (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Report on Form 8-K filed on June 24, 2009)
Form of Access Agreement for directors. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Report on Form 8-
K filed on June 24, 2009)
10.3* Updated Form of Executive Agreement. (Incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K
filed on July 2, 2012)
10.4* Amendment and Restatement to the ResMed Inc. 2009 Incentive Award Plan. (Incorporated by reference to Appendix B of
ResMed Inc.’s Proxy Statement filed with the Securities and Exchange Commission on September 25, 2017)
10.5* ResMed Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 4.4 to the Registrant’s Report on Form S-
10.6*
10.7*
10.8*
10.9*
8 filed on May 21, 2021)
Form of Restricted Stock Unit Award Agreement for Executive Officers. (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 3, 2011)
Form of Restricted Stock Unit Award Agreement for Directors. (Incorporated by reference to Exhibit 10.2 to the
Registrant’s Report on Form 10-Q for the quarter ended September 30, 2011, filed on November 3, 2011)
Form of Stock Option Grant for Executive Officers. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Report
on Form 10-Q for the quarter ended September 30, 2011, filed on November 3, 2011)
Form of Stock Option Grant for Directors. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Report on Form
10-Q for the quarter ended September 30, 2011, filed on November 3, 2011)
10.10* Form of Performance-Based Restricted Stock Unit Award Agreement for Executive Officers.
10.11* Form of Executive Restricted Stock Unit Award Agreement for Executive Officers.
10.12 Amended and Restated Credit Agreement dated as of April 17, 2018, by and among ResMed Inc., as borrower, each of the
lenders identified on the Revolving Credit Agreement’s signature pages as a lender, MUFG Union Bank, N.A., as
administrative agent, joint lead arranger, joint book runner, swing line lender and l/c issuer, and Westpac Banking
Corporation, as syndication agent, joint lead arranger and joint book runner. (Incorporated by reference to Exhibit 10.1 to
the Registrant’s Report on Form 8-K filed on April 19, 2018)
10.13 Amended and Restated Unconditional Guaranty dated as of April 17, 2018, by each of the guarantors identified on the
Revolving Facility Guaranty’s signature pages as a guarantor, in favor of MUFG Union Bank, N.A., in its capacity as
administrative agent under the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10.2 to the Registrant’s
Report on Form 8-K filed on April 19, 2018)
Syndicated Facility Agreement, dated as of April 17, 2018, by and among ResMed Limited, as borrower, the other parties
party thereto, each of the lenders identified on the Term Credit Agreement’s signature pages as a lender, 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. (Incorporated by reference to Exhibit 10.3 to the Registrant’s
Report on Form 8-K filed on April 19, 2018)
10.14
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PART IV
Items 15 – 16
RESMED INC. AND SUBSIDIARIES
10.15 Unconditional Guaranty dated as of April 17, 2018, by each of the guarantors identified on the Term Facility Guaranty’s
signature pages as a guarantor, in favor of MUFG Union Bank, N.A., in its capacity as administrative agent under the Term
Credit Agreement. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Report on Form 8-K filed on April 19,
2018)
First Amendment to Amended and Restated Credit Agreement, dated November 5, 2018, by and among ResMed Inc., as
borrower, each of the lenders identified in the First Amendment, MUFG Union Bank, N.A., as administrative agent, joint
lead arranger, joint book runner, swing line lender and letter of credit issuer, and Westpac Banking Corporation, as
syndication agent, joint lead arranger and joint book runner. (Incorporated by reference to Exhibit 10.1 to the Registrant’s
Report on Form 8-K filed on November 8, 2018)
The ResMed Inc. 2018 Employee Stock Purchase Plan. (Incorporated by reference to Appendix B of ResMed Inc.’s Proxy
Statement filed with the Securities and Exchange Commission on October 3, 2018.)
10.16
10.17
21.1
23.1
31.1
31.2
32.1
10.18 Note Purchase Agreement, dated July 10, 2019 by and among ResMed Inc. and the purchasers party to that agreement
(including form of 3.24% Series A Senior Note due 2026, form of Series B 3.45% Senior Note due 2029, and form of
Subsidiary Guaranty Agreement). (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 8-K filed
on July 15, 2019)
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
The following materials from ResMed Inc.’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021
formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Income, (iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (iv) the
Consolidated Statements of Cash Flows and (v) related notes.
101
* Management contract or compensatory plan or arrangement
ITEM 16 FORM 10-K SUMMARY
None.
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PART IV
RESMED INC. AND SUBSIDIARIES
SIGNATURES
Signatures
Under the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the authorized persons below.
DATED August 16, 2021
ResMed Inc.
/s/ MICHAEL J. FARRELL
Michael J. Farrell
Chief executive officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
/S/ MICHAEL J. FARRELL
Michael J. Farrell
Chief executive officer and director
(Principal Executive Officer)
/S/ BRETT A. SANDERCOCK
Brett A. Sandercock
Chief financial officer
(Principal Financial Officer and
Principal Accounting Officer)
DATE
August 16, 2021
August 16, 2021
/S/ PETER C. FARRELL
Peter C. Farrell
/S/ CAROL J. BURT
Carol J. Burt
/S/ HARJIT GILL
Harjit Gill
/S/ JAN De WITTE
Jan De Witte
/S/ KAREN DREXLER
Karen Drexler
/S/ RICHARD SULPIZIO
Richard Sulpizio
/S/ RON TAYLOR
Ron Taylor
Non-executive chairman
August 16, 2021
August 16, 2021
August 16, 2021
August 16, 2021
August 16, 2021
August 16, 2021
August 16, 2021
Director
Director
Director
Director
Director
Director
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