UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________________________________________________________________
FORM 10-Q
______________________________________________________________________________________________
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019March 31, 2020
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to _______to _______
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
(I.R.S. 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 Exchange Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.004 per share | RMD | New York Stock Exchange |
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 x 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 and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one):
Large Accelerated Filer | x |
| Accelerated Filer |
| ¨ | |||||
Non-Accelerated Filer |
| ¨ |
| Smaller Reporting Company |
| ¨ | ||||
Emerging Growth 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.
Yes ¨ No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At October 21, 2019,April 27, 2020, there were 143,786,123144,668,429 shares of Common Stock ($0.004 par value) outstanding. This number excludes 41,836,234 shares held by the registrant as treasury shares.
RESMED INC. AND SUBSIDIARIES
Index
Part I | 3 | ||
Item 1 | 3 | ||
3 | |||
4 | |||
Condensed Consolidated Statements of Comprehensive Income (Unaudited) | 5 | ||
Condensed Consolidated Statements of Changes in Equity (Unaudited) | 6 | ||
8 | |||
Notes to the Condensed Consolidated Financial Statements (Unaudited) | 9 | ||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 3 |
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Item 4 |
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Part II |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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Item 1. Financial Statements
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In US$ and in thousands, except share and per share data)
September 30, | June 30, | March 31, | June 30, | |||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 172,154 | $ | 147,128 | $ | 352,861 | $ | 147,128 | ||
Accounts receivable, net of allowance for doubtful accounts of $24,492 and $25,171 | 493,836 | 528,484 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $28,833 and $25,171 | 554,859 | 528,484 | ||||||||
Inventories (note 3) | 357,033 | 349,641 | 358,772 | 349,641 | ||||||
Prepaid expenses and other current assets | 138,075 | 120,113 | 203,266 | 120,113 | ||||||
Total current assets | 1,161,098 | 1,145,366 | 1,469,758 | 1,145,366 | ||||||
Non-current assets: | ||||||||||
Property, plant and equipment, net (note 3) | 382,970 | 387,460 | 397,209 | 387,460 | ||||||
Operating lease right-of-use assets (note 9) | 81,650 | - | 126,277 | - | ||||||
Goodwill (note 4) | 1,856,427 | 1,856,449 | 1,884,458 | 1,856,449 | ||||||
Other intangible assets, net (note 3) | 496,847 | 521,950 | 464,963 | 521,950 | ||||||
Deferred income taxes | 34,232 | 45,478 | 27,321 | 45,478 | ||||||
Prepaid taxes and other non-current assets | 141,334 | 150,979 | 140,557 | 150,979 | ||||||
Total non-current assets | 2,993,460 | 2,962,316 | 3,040,785 | 2,962,316 | ||||||
Total assets | $ | 4,154,558 | $ | 4,107,682 | $ | 4,510,543 | $ | 4,107,682 | ||
Liabilities and Stockholders’ Equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 109,742 | $ | 115,725 | $ | 116,148 | $ | 115,725 | ||
Accrued expenses | 231,253 | 266,359 | 235,201 | 266,359 | ||||||
Operating lease liabilities, current (note 9) | 19,548 | - | 22,795 | - | ||||||
Deferred revenue | 86,954 | 88,667 | 97,110 | 88,667 | ||||||
Income taxes payable (note 6) | 90,968 | 73,248 | 68,278 | 73,248 | ||||||
Short-term debt, net (note 8) | 11,992 | 11,992 | 11,987 | 11,992 | ||||||
Total current liabilities | 550,457 | 555,991 | 551,519 | 555,991 | ||||||
Non-current liabilities: | ||||||||||
Deferred revenue | 82,668 | 81,143 | 84,615 | 81,143 | ||||||
Deferred income taxes | 15,177 | 11,380 | 25,441 | 11,380 | ||||||
Operating lease liabilities, non-current (note 9) | 65,838 | - | 107,251 | - | ||||||
Other long-term liabilities | 2,047 | 2,058 | 7,527 | 2,058 | ||||||
Long-term debt, net (note 8) | 1,208,210 | 1,258,861 | 1,364,849 | 1,258,861 | ||||||
Long-term income taxes payable (note 6) | 112,910 | 126,056 | 112,910 | 126,056 | ||||||
Total non-current liabilities | 1,486,850 | 1,479,498 | 1,702,593 | 1,479,498 | ||||||
Total liabilities | 2,037,307 | 2,035,489 | 2,254,112 | 2,035,489 | ||||||
Commitments and contingencies (note 12) |
|
|
|
| ||||||
Stockholders’ equity: (note 10) | ||||||||||
Preferred stock, $0.01 par value, 2,000,000 shares authorized; NaN issued | - | - | - | - | ||||||
Common stock, $0.004 par value, 350,000,000 shares authorized; 185,605,478 issued and 143,769,244 outstanding at September 30, 2019 and 185,491,064 issued and 143,654,830 outstanding at June 30, 2019 | 575 | 575 | ||||||||
Common stock, $0.004 par value, 350,000,000 shares authorized; | 579 | 575 | ||||||||
Additional paid-in capital | 1,530,011 | 1,511,473 | 1,533,905 | 1,511,473 | ||||||
Retained earnings | 2,500,506 | 2,436,410 | 2,711,639 | 2,436,410 | ||||||
Treasury stock, at cost, 41,836,234 shares at September 30, 2019 and 41,836,234 shares at June 30, 2019 | (1,623,256) | (1,623,256) | ||||||||
Treasury stock, at cost, 41,836,234 shares at March 31, 2020 and June 30, 2019 | (1,623,256) | (1,623,256) | ||||||||
Accumulated other comprehensive loss | (290,585) | (253,009) | (366,436) | (253,009) | ||||||
Total stockholders’ equity | 2,117,251 | 2,072,193 | 2,256,431 | 2,072,193 | ||||||
Total liabilities and stockholders’ equity | $ | 4,154,558 | $ | 4,107,682 | $ | 4,510,543 | $ | 4,107,682 | ||
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(In US$ and in thousands, except per share data)
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||
2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Net revenue | $ | 681,056 | $ | 588,279 | $ | 769,455 | $ | 662,228 | $ | 2,186,669 | $ | 1,901,608 | ||||||
Cost of sales (excluding amortization of acquired intangible assets) | 276,001 | 245,186 | ||||||||||||||||
| ||||||||||||||||||
Cost of sales (exclusive of amortization shown separately below) | 307,657 | 270,318 | 880,633 | 782,874 | ||||||||||||||
Amortization of acquired intangible assets | 12,136 | 10,940 | 37,623 | 27,095 | ||||||||||||||
Total cost of sales | 319,793 | 281,258 | 918,256 | 809,969 | ||||||||||||||
Gross profit | 405,055 | 343,093 | 449,662 | 380,970 | 1,268,413 | 1,091,639 | ||||||||||||
Operating expenses: | ||||||||||||||||||
| ||||||||||||||||||
Selling, general and administrative | 167,440 | 147,303 | 172,441 | 164,529 | 511,304 | 473,410 | ||||||||||||
Research and development | 48,033 | 38,791 | 51,449 | 47,610 | 149,425 | 129,513 | ||||||||||||
Amortization of acquired intangible assets | 18,480 | 12,867 | 8,272 | 11,854 | 21,872 | 24,406 | ||||||||||||
Litigation settlement expenses | - | - | (600) | - | ||||||||||||||
Acquisition related expenses | - | - | - | 6,123 | ||||||||||||||
Total operating expenses | 233,953 | 198,961 | 232,162 | 223,993 | 682,001 | 633,452 | ||||||||||||
Income from operations | 171,102 | 144,132 | 217,500 | 156,977 | 586,412 | 458,187 | ||||||||||||
Other income (loss), net: | ||||||||||||||||||
Interest income | 449 | 922 | 116 | 415 | 766 | 2,014 | ||||||||||||
Interest expense | (10,992) | (3,708) | (9,968) | (12,413) | (31,180) | (23,608) | ||||||||||||
Loss attributable to equity method investments (note 5) | (6,863) | - | (5,295) | (5,996) | (19,082) | (9,371) | ||||||||||||
Other, net | (3,109) | (2,465) | (10,698) | (1,054) | (15,922) | (4,140) | ||||||||||||
Total other income (loss), net | (20,515) | (5,251) | (25,845) | (19,048) | (65,418) | (35,105) | ||||||||||||
Income before income taxes | 150,587 | 138,881 | 191,655 | 137,929 | 520,994 | 423,082 | ||||||||||||
Income taxes | 30,439 | 33,144 | 28,518 | 32,513 | 77,155 | 87,291 | ||||||||||||
Net income | $ | 120,148 | $ | 105,737 | $ | 163,137 | $ | 105,416 | $ | 443,839 | $ | 335,791 | ||||||
Basic earnings per share (note 11) | $ | 0.84 | $ | 0.74 | $ | 1.13 | $ | 0.74 | $ | 3.08 | $ | 2.35 | ||||||
Diluted earnings per share (note 11) | $ | 0.83 | $ | 0.73 | $ | 1.12 | $ | 0.73 | $ | 3.05 | $ | 2.33 | ||||||
Dividend declared per share | $ | 0.39 | $ | 0.37 | $ | 0.39 | $ | 0.37 | $ | 1.17 | $ | 1.11 | ||||||
Basic shares outstanding (000's) | 143,719 | 142,668 | 144,638 | 143,316 | 144,112 | 142,907 | ||||||||||||
Diluted shares outstanding (000's) | 145,099 | 144,030 | 145,680 | 144,333 | 145,490 | 144,344 | ||||||||||||
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In US$ and in thousands)
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||
2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income | $ | 120,148 | $ | 105,737 | $ | 163,137 | $ | 105,416 | $ | 443,839 | $ | 335,791 | ||||||
Other comprehensive income (loss): | ||||||||||||||||||
Foreign currency translation (loss) gain adjustments | (37,576) | (12,872) | (120,318) | (2,501) | (113,427) | (28,490) | ||||||||||||
Comprehensive income | $ | 82,572 | $ | 92,865 | $ | 42,819 | $ | 102,915 | $ | 330,412 | $ | 307,301 | ||||||
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In US$ and in thousands)
Common Stock | Additional | Treasury Stock | Retained | Accumulated | Common Stock | Additional | Treasury Stock | Retained | Accumulated | |||||||||||||||||||
Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | |||||||||||||
Balance, June 30, 2019 | 185,491 | $ | 575 | $ | 1,511,473 | (41,836) | $ | (1,623,256) | $ | 2,436,410 | $ | (253,009) | $ | 2,072,193 | 185,491 | $ | 575 | $ | 1,511,473 | (41,836) | $ | (1,623,256) | $ | 2,436,410 | $ | (253,009) | $ | 2,072,193 |
Common stock issued on exercise of options | 110 | - | 5,609 | - | - | - | - | 5,609 | 110 | - | 5,609 | - | - | - | - | 5,609 | ||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 4 | - | (327) | - | - | - | - | (327) | 4 | - | (327) | - | - | - | - | (327) | ||||||||||||
Stock-based compensation costs | - | - | 13,256 | - | - | - | - | 13,256 | - | - | 13,256 | - | - | - | - | 13,256 | ||||||||||||
Other comprehensive income | - | - | - | - | - | - | (37,576) | (37,576) | - | - | - | - | - | - | (37,576) | (37,576) | ||||||||||||
Net income | - | - | - | - | - | 120,148 | - | 120,148 | - | - | - | - | - | 120,148 | - | 120,148 | ||||||||||||
Dividends declared | - | - | - | - | - | (56,052) | - | (56,052) | - | - | - | - | - | (56,052) | - | (56,052) | ||||||||||||
Balance, September 30, 2019 | 185,605 | $ | 575 | $ | 1,530,011 | (41,836) | $ | (1,623,256) | $ | 2,500,506 | $ | (290,585) | $ | 2,117,251 | 185,605 | $ | 575 | $ | 1,530,011 | (41,836) | $ | (1,623,256) | $ | 2,500,506 | $ | (290,585) | $ | 2,117,251 |
Common stock issued on exercise of options | 117 | - | 6,498 | - | - | - | - | 6,498 | ||||||||||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 576 | 3 | (40,764) | - | - | - | - | (40,761) | ||||||||||||||||||||
Common stock issued on employee stock purchase plan | 137 | - | 12,190 | - | - | - | - | 12,190 | ||||||||||||||||||||
Treasury stock purchases | - | - | - | - | - | - | - | |||||||||||||||||||||
Stock-based compensation costs | - | - | 14,057 | - | - | - | - | 14,057 | ||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 44,467 | 44,467 | ||||||||||||||||||||
Net income | - | - | - | - | - | 160,554 | - | 160,554 | ||||||||||||||||||||
Dividends declared | - | - | - | - | - | (56,150) | - | (56,150) | ||||||||||||||||||||
Balance, December 31, 2019 | 186,435 | $ | 578 | $ | 1,521,992 | (41,836) | $ | (1,623,256) | $ | 2,604,910 | $ | (246,118) | $ | 2,258,106 | ||||||||||||||
Common stock issued on exercise of options | 34 | 1 | 1,815 | - | - | - | - | 1,816 | ||||||||||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 30 | - | (4,014) | - | - | - | - | (4,014) | ||||||||||||||||||||
Common stock issued on employee stock purchase plan | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Treasury stock purchases | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Stock-based compensation costs | - | - | 14,112 | - | - | - | - | 14,112 | ||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (120,318) | (120,318) | ||||||||||||||||||||
Net income | - | - | - | - | - | 163,137 | - | 163,137 | ||||||||||||||||||||
Dividends declared | - | - | - | - | - | (56,408) | - | (56,408) | ||||||||||||||||||||
Balance, March 31, 2020 | 186,499 | $ | 579 | $ | 1,533,905 | (41,836) | $ | (1,623,256) | $ | 2,711,639 | $ | (366,436) | $ | 2,256,431 | ||||||||||||||
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(In US$ and in thousands)
Common Stock | Additional Paid-in | Treasury Stock | Retained | Accumulated Other Comprehensive | Common Stock | Additional | Treasury Stock | Retained | Accumulated | |||||||||||||||||||
Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | Shares | Amount | Capital | Shares | Amount | Earnings | Income (Loss) | Total | |||||||||||||
Balance, June 30, 2018 | 184,316 | $ | 571 | $ | 1,450,821 | (41,636) | $ | (1,600,412) | $ | 2,432,328 | $ | (224,328) | $ | 2,058,980 | 184,316 | $ | 571 | $ | 1,450,821 | (41,636) | $ | (1,600,412) | $ | 2,432,328 | $ | (224,328) | $ | 2,058,980 |
Common stock issued on exercise of options | 12 | - | 513 | - | - | - | - | 513 | 12 | - | 513 | - | - | - | - | 513 | ||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 2 | - | (141) | - | - | - | - | (141) | 2 | - | (141) | - | - | - | - | (141) | ||||||||||||
Common stock issued on employee stock purchase plan | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Treasury stock purchases | - | (1) | - | (200) | (22,844) | - | - | (22,845) | - | (1) | - | (200) | (22,844) | - | - | (22,845) | ||||||||||||
Stock-based compensation costs | - | - | 12,476 | - | - | - | - | 12,476 | - | - | 12,476 | - | - | - | - | 12,476 | ||||||||||||
Other comprehensive income | - | - | - | - | - | - | (12,872) | (12,872) | - | - | - | - | - | - | (12,872) | (12,872) | ||||||||||||
Net income | - | - | - | - | - | 105,737 | - | 105,737 | - | - | - | - | - | 105,738 | - | 105,738 | ||||||||||||
Cumulative effect of change in accounting | - | - | - | - | - | (188,799) | - | (188,799) | - | - | - | - | - | (188,799) | - | (188,799) | ||||||||||||
Dividends declared | - | - | - | - | - | (52,793) | - | (52,793) | - | - | - | - | - | (52,794) | - | (52,794) | ||||||||||||
Balance, September 30, 2018 | 184,330 | $ | 570 | $ | 1,463,669 | (41,836) | $ | (1,623,256) | $ | 2,296,473 | $ | (237,200) | $ | 1,900,256 | 184,330 | $ | 570 | $ | 1,463,669 | (41,836) | $ | (1,623,256) | $ | 2,296,473 | $ | (237,200) | $ | 1,900,256 |
Common stock issued on exercise of options | 36 | - | 1,263 | - | - | - | - | 1,263 | ||||||||||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 623 | 2 | (27,343) | - | - | - | - | (27,341) | ||||||||||||||||||||
Common stock issued on employee stock purchase plan | 129 | 1 | 10,575 | - | - | - | - | 10,576 | ||||||||||||||||||||
Treasury stock purchases | - | - | - | - | - | - | - | |||||||||||||||||||||
Stock-based compensation costs | - | - | 12,541 | - | - | - | - | 12,541 | ||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (13,117) | (13,117) | ||||||||||||||||||||
Net income | - | - | - | - | - | 124,639 | - | 124,639 | ||||||||||||||||||||
Dividends declared | - | - | - | - | - | (52,773) | - | (52,773) | ||||||||||||||||||||
Balance, December 31, 2018 | 185,118 | $ | 573 | $ | 1,460,705 | (41,836) | $ | (1,623,256) | $ | 2,368,339 | $ | (250,317) | $ | 1,956,044 | ||||||||||||||
Common stock issued on exercise of options | 55 | - | 2,896 | - | - | - | - | 2,896 | ||||||||||||||||||||
Common stock issued on vesting of restricted stock units, net of shares withheld for tax | 9 | - | (330) | - | - | - | - | (330) | ||||||||||||||||||||
Common stock issued on employee stock purchase plan | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Treasury stock purchases | - | - | - | - | - | - | - | - | ||||||||||||||||||||
Stock-based compensation costs | - | - | 12,828 | - | - | - | - | 12,828 | ||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (2,501) | (2,501) | ||||||||||||||||||||
Net income | - | - | - | - | - | 105,416 | - | 105,416 | ||||||||||||||||||||
Dividends declared | - | - | - | - | - | (53,024) | - | (53,024) | ||||||||||||||||||||
Balance, March 31, 2019 | 185,182 | $ | 573 | $ | 1,476,099 | (41,836) | $ | (1,623,256) | $ | 2,420,731 | $ | (252,818) | $ | 2,021,329 | ||||||||||||||
RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In US$ and in thousands)
Three Months Ended | Nine Months Ended | |||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 120,148 | $ | 105,737 | $ | 443,839 | $ | 335,791 | ||||
Adjustment to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 37,954 | 30,424 | 116,341 | 108,203 | ||||||||
Amortization of right-of-use-assets | 5,963 | - | 19,524 | - | ||||||||
Stock-based compensation costs | 13,256 | 12,477 | 41,421 | 37,856 | ||||||||
Loss attributable to equity method investments (note 5) | 6,863 | - | 19,082 | 9,371 | ||||||||
Impairment of equity investments (note 5) | 2,590 | 1,711 | 14,519 | 8,801 | ||||||||
Gain on previously held equity interest (note 13) | - | (1,909) | ||||||||||
Changes in fair value of business combination contingent consideration | (8) | (183) | (7) | (272) | ||||||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||||||
Accounts receivable | 28,286 | 20,342 | (34,140) | (1,482) | ||||||||
Inventories | (14,204) | (15,661) | (22,564) | (55,002) | ||||||||
Prepaid expenses, net deferred income taxes and other current assets | (8,407) | (7,703) | (68,724) | (17,453) | ||||||||
Accounts payable, accrued expenses and other | (30,078) | (99,025) | (57,301) | (106,671) | ||||||||
Net cash provided by operating activities | 162,363 | 48,119 | 471,990 | 317,233 | ||||||||
Cash flows from investing activities: | ||||||||||||
Purchases of property, plant and equipment | (22,671) | (12,994) | (77,360) | (46,507) | ||||||||
Patent registration costs | (2,069) | (2,611) | (7,391) | (6,556) | ||||||||
Business acquisitions, net of cash acquired (note 13) | - | (126,439) | ||||||||||
Business acquisitions, net of cash acquired | (27,910) | (951,565) | ||||||||||
Purchases of investments (note 5) | (2,741) | (2,467) | (31,616) | (31,092) | ||||||||
Payments on maturity of foreign currency contracts | (5,743) | (3,678) | (32,177) | 3,902 | ||||||||
Net cash used in investing activities | (33,224) | (148,189) | (176,454) | (1,031,818) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of common stock, net | 5,609 | 513 | 26,112 | 15,346 | ||||||||
Taxes paid related to net share settlement of equity awards | (326) | (124) | (45,106) | (27,880) | ||||||||
Purchases of treasury stock | - | (19,399) | - | (22,844) | ||||||||
Payments of business combination contingent consideration | (302) | (240) | (302) | (648) | ||||||||
Proceeds from borrowings, net of borrowing costs | 565,000 | 303,000 | 990,000 | 1,414,230 | ||||||||
Repayment of borrowings | (614,003) | (86,133) | (883,012) | (541,394) | ||||||||
Dividends paid | (56,052) | (52,793) | (168,610) | (158,592) | ||||||||
Net cash provided by (used in) financing activities | (100,074) | 144,824 | (80,918) | 678,218 | ||||||||
Effect of exchange rate changes on cash | (4,039) | (3,267) | (8,885) | (5,821) | ||||||||
Net increase in cash and cash equivalents | 25,026 | 41,487 | ||||||||||
Net increase (decrease) in cash and cash equivalents | 205,733 | (42,188) | ||||||||||
Cash and cash equivalents at beginning of period | 147,128 | 188,701 | 147,128 | 188,701 | ||||||||
Cash and cash equivalents at end of period | $ | 172,154 | $ | 230,188 | $ | 352,861 | $ | 146,513 | ||||
Supplemental disclosure of cash flow information: | ||||||||||||
Income taxes paid, net of refunds | $ | 30,937 | $ | 125,005 | $ | 150,801 | $ | 211,816 | ||||
Interest paid | $ | 10,992 | $ | 3,708 | $ | 31,180 | $ | 23,608 | ||||
Fair value of assets acquired, excluding cash | $ | - | $ | 42,807 | $ | 14,922 | $ | 400,804 | ||||
Liabilities assumed | - | (41,905) | (4,294) | (320,923) | ||||||||
Goodwill on acquisition | - | 125,037 | 20,550 | 879,419 | ||||||||
Deferred payments | - | 500 | 232 | (7,568) | ||||||||
Fair value of contingent consideration | (3,500) | (167) | ||||||||||
Cash paid for acquisitions | $ | - | $ | 126,439 | $ | 27,910 | $ | 951,565 | ||||
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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
ResMed Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a Delaware corporation formed in March 1994 as a holding company for the ResMed Group. Through our subsidiaries, we design, manufacture and market equipment for the diagnosis and treatment of sleep-disordered breathing and other respiratory disorders, including obstructive sleep apnea. Our manufacturing operations are located in Australia, Singapore, Malaysia, France, China and the United States. Major distribution and sales sites are located in the United States, Germany, France, the United Kingdom, Switzerland, Australia, Japan, China, Finland, Norway and Sweden.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and the rules of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying financial statements to present fairly the results of the interim periods. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending June 30, 2020.
The condensed consolidated financial statements for the three and nine months ended September 30,March 31, 2020 and March 31, 2019 and September 30, 2018 are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the year ended June 30, 2019.
Revenue Recognition
We adopted Accounting Standard Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” on July 1, 2018. 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 2 – Segment Information forThe following table summarizes our net revenue disaggregated by segment, product and region for the three months ended September 30, 2019 and 2018.(in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
U.S., Canada and Latin America | ||||||||||||
Devices | $ | 196,497 | $ | 181,269 | $ | 586,907 | $ | 540,190 | ||||
Masks and other | 197,052 | 168,726 | 584,901 | 494,792 | ||||||||
Total Sleep and Respiratory Care | $ | 393,549 | $ | 349,995 | $ | 1,171,808 | $ | 1,034,982 | ||||
Software as a Service | 89,560 | 79,942 | 263,156 | 190,614 | ||||||||
Total | $ | 483,109 | $ | 429,937 | $ | 1,434,964 | $ | 1,225,596 | ||||
Combined Europe, Asia and other markets | ||||||||||||
Devices | $ | 195,038 | $ | 155,178 | $ | 509,274 | $ | 463,053 | ||||
Masks and other | 91,308 | 77,113 | 242,431 | 212,959 | ||||||||
Total Sleep and Respiratory Care | $ | 286,346 | $ | 232,291 | $ | 751,705 | $ | 676,012 | ||||
Global revenue | ||||||||||||
Devices | $ | 391,535 | $ | 336,447 | $ | 1,096,181 | $ | 1,003,243 | ||||
Masks and other | 288,360 | 245,839 | 827,332 | 707,751 | ||||||||
Total Sleep and Respiratory Care | $ | 679,895 | $ | 582,286 | $ | 1,923,513 | $ | 1,710,994 | ||||
Software as a Service | 89,560 | 79,942 | 263,156 | 190,614 | ||||||||
Total | $ | 769,455 | $ | 662,228 | $ | 2,186,669 | $ | 1,901,608 | ||||
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
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. The following table summarizes our contract balances (in thousands):
September 30, 2019 | June 30, 2019 | Balance sheet caption | March 31, | June 30, | Balance sheet caption | |||||||||||
Contract assets | ||||||||||||||||
Accounts receivable, net | $ | 493,836 | $ | 528,484 | Accounts receivable, net | $ | 554,859 | $ | 528,484 | Accounts receivable, net | ||||||
Unbilled revenue, current | 8,572 | 9,834 | Prepaid expenses and other current assets | 8,545 | 9,834 | Prepaid expenses and other current assets | ||||||||||
Unbilled revenue, non-current | 4,709 | 4,592 | Prepaid taxes and other non-current assets | 5,920 | 4,592 | Prepaid taxes and other non-current assets | ||||||||||
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Contract liabilities | ||||||||||||||||
Deferred revenue, current | (86,954) | (88,667) | Deferred revenue (current liabilities) | (97,110) | (88,667) | Deferred revenue (current liabilities) | ||||||||||
Deferred revenue, non-current | (82,668) | (81,143) | Deferred revenue (non-current liabilities) | (84,615) | (81,143) | Deferred revenue (non-current liabilities) | ||||||||||
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Transaction price determination
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. In our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies with changes in marketing incentives (e.g., rebates, discounts, free goods) and returns offered to 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.
Many of our Sleep and Respiratory Care contracts have a single performance obligation which is the shipment of our therapy-based equipment. However, when the Sleep and Respiratory Care or SaaS contract has 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 the performance obligation.
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. 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.
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.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
New Accounting Pronouncements
(a) Recently issued accounting standards not yet adopted
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 is effective for us beginning in the first quarter of the fiscal year ending June 30, 2021 and will be adopted using a modified retrospective approach. We currently do not expect the adoption to have a material impact on our consolidated financial statements.
ASU No. 2017-04 “Intangibles-Goodwill and Other (Topic 350):Other: Simplifying the Test for Goodwill Impairment”
In January 2017, the FASB issued Accounting Standards UpdateASU No. 2017-04, (ASU 2017-04) “Intangibles-Goodwill and Other (Topic 350):Other: Simplifying the Test for Goodwill Impairment.”Impairment” (Topic 350). ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. This guidance is effective for us beginning in the fourth quarter of fiscal year June 30, 2020 and early adoption is permitted. We currently perform a Step 0, or qualitative, impairment assessment for our Reporting Units, which we expect to continue and, therefore, anticipate that the adoption of ASU 2017-04 will not have a material impact on our consolidated financial statements.
TableIn March 2020, the FASB issued ASU No. 2020-04, “Facilitation of Contents
the Effects of Reference Rate Reform on Financial Reporting” (Topic 848), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective for us as of March 12, 2020 through December 31, 2022. We are currently evaluating the impact that this guidance, if elected, will have on our consolidated financial statements. | |
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(b) Recently adopted accounting pronouncements
ASU No. 2016-02, “Leases”
In February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”)ASU No. 2016-02, “Leases” (Topic 842). Under the new guidance, lessees are required to recognize a right-of-use asset (“ROU”) and a lease liability on the balance sheet for all leases, other than those that meet the definition of a short-term lease. This update will establish a lease asset and lease liability by lessees for those leases classified as operating under current GAAP. Leases are classified as either operating or finance under the new guidance. Operating leases result in straight-line expense in the income statement, similar to prior operating lease treatment, and finance leases result in more expense being recognized in the earlier years of the lease term, similar to prior capital lease treatment. For lessors, the update more closely aligns lease accounting to comparable guidance in the new revenue standards described.
Effective, July 1, 2019, we adopted the new standard on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In addition, we elected the package of practical expedients permitted under the transition guidance to not reassess (1) whether any expired or existing contracts are, or contain, leases, (2) the lease classification for expired or existing leases, and (3) initial direct costs for existing leases. In preparation for and upon adoption of this guidance, we have designed and operated internal controls over its implementation, which includes a system solution for lease administration, accounting and disclosures of financial information surrounding our leasing arrangements.
The adoption of the guidance on July 1, 2019 resulted in the recognition of ROU assets of $77.6 million and lease liabilities of $81.3 million, which all related to operating leases. The ROU assets were lower than the lease liabilities due to the derecognition of deferred rent balances of $3.7 million. We did not recognize any adjustment to the comparative period presented in the financial statements in accordance with our adoption method. The guidance did not have a material impact on our condensed consolidated statements of income.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
In our Form 10-K for the year ended June 30, 2019, we estimated that the adoption of the guidance would result in the recognition of additional ROU assets and lease liabilities for operating leases of approximately $60.0 million to $70.0 million as of July 1, 2019. This range excluded the impact of our evaluation of lease terms, several contracts that may contain an embedded lease and the final assessment of the lease discount rates. During the quarter ended September 30, 2019, we finalized all remaining implementation work and the increase from our estimate of $60.0 million to $70.0 million to the opening balance of $77.6 million was primarily driven by our determination that we were reasonably certain to exercise extension options at some of our major sites, partially offset by our final discount rates generally being lower than the preliminary rate of 3.5% that was used when calculating our estimated balance upon adoption.
See note 9 - Leases for further disclosures related to our leases under the new guidance.
(c) Adjustment to prior periods
Within our condensed consolidated statements of income for the three and nine months ended March 31, 2020 and 2019, cost of sales has been adjusted to include amortization of acquired intangible assets directly applicable to revenue. As a result, gross profit now includes amortization of acquired intangible assets relating to cost of sales and operating expenses have been reduced by this amount. There was no impact on income from operations, income before taxes or net income, as a result of this reclassification. The adjustments to the previously reported amounts are not material.
The table below presents a reconciliation of amortization of acquired intangible assets by income statement caption summing to total amortization of acquired intangible assets as previously reported (in thousands):
Three Months Ended | Nine Months Ended | |||||
March 31, 2019 | ||||||
Amortization of intangible assets related to cost of sales | $ | 10,940 | $ | 27,095 | ||
Amortization of intangible assets related to operating expenses | 11,854 | 24,406 | ||||
Total | $ | 22,794 | $ | 51,501 | ||
The table below presents a reconciliation of gross profit as previously reported adjusted for the amortization of acquired intangible assets now included in cost of sales (in thousands):
Three Months Ended | Nine Months Ended | |||||
March 31, 2019 | ||||||
Gross profit as previously reported | $ | 391,910 | $ | 1,118,734 | ||
Amortization of intangible assets related to cost of sales | (10,940) | (27,095) | ||||
Gross profit | $ | 380,970 | $ | 1,091,639 | ||
(2) Segment Information
Prior to the three months ended December 31, 2018, we had previously determined the software-as-a-service, or SaaS, line of business was not material to our global operations in terms of revenue and profit, and therefore had not been separately reported as a segment. However, following recent acquisitions, weWe have quantitatively and qualitatively reassessed our segment reporting and determined the SaaS segment is material to the group, and now havethat we operate in 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 1 of our consolidated financial statements included in our Form 10-K for the year ended June 30, 2019. 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, stock-based compensation, amortization expense from acquired intangibles, acquisition related expenses, interest income, interest expense 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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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
The table below presents a reconciliation of net revenues and net operating profit by reportable segments (in millions)thousands):
Three Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||
2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue by segment | ||||||||||||||||||
Total Sleep and Respiratory Care | $ | 594.2 | $ | 540.8 | $ | 679,895 | $ | 582,286 | $ | 1,923,513 | $ | 1,710,994 | ||||||
Software as a Service | 88.3 | 47.5 | 89,560 | 82,196 | 265,258 | 194,897 | ||||||||||||
Deferred revenue fair value adjustment | (1.4) | - | - | (2,254) | (2,102) | (4,283) | ||||||||||||
Total Software as a Service | 86.9 | 47.5 | 89,560 | 79,942 | 263,156 | 190,614 | ||||||||||||
Total | $ | 681.1 | $ | 588.3 | $ | 769,455 | $ | 662,228 | $ | 2,186,669 | $ | 1,901,608 | ||||||
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Net operating profit by segment | ||||||||||||||||||
Sleep and Respiratory Care | $ | 198.2 | $ | 175.3 | $ | 250,209 | $ | 190,203 | $ | 678,468 | $ | 562,490 | ||||||
Software as a Service | 23.8 | 15.3 | 18,738 | 20,457 | 63,874 | 52,737 | ||||||||||||
Total | $ | 222.0 | $ | 190.6 | $ | 268,947 | $ | 210,660 | $ | 742,342 | $ | 615,227 | ||||||
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Reconciling items | ||||||||||||||||||
Corporate costs | $ | 30.9 | $ | 33.6 | $ | 31,039 | $ | 28,635 | $ | 94,933 | $ | 95,133 | ||||||
Amortization of acquired intangible assets | 18.5 | 12.9 | 20,408 | 22,794 | 59,495 | 51,501 | ||||||||||||
Litigation settlement expenses | - | - | (600) | - | ||||||||||||||
Acquisition related expenses | - | - | - | 6,123 | ||||||||||||||
Deferred revenue fair value adjustment | 1.4 | - | - | 2,254 | 2,102 | 4,283 | ||||||||||||
Interest income | (0.4) | (0.9) | (116) | (415) | (766) | (2,014) | ||||||||||||
Interest expense | 11.0 | 3.7 | 9,968 | 12,413 | 31,180 | 23,608 | ||||||||||||
Loss attributable to equity method investments | 6.9 | - | 5,295 | 5,996 | 19,082 | 9,371 | ||||||||||||
Other, net | 3.1 | 2.5 | 10,698 | 1,054 | 15,922 | 4,140 | ||||||||||||
Income before income taxes | $ | 150.6 | $ | 138.9 | $ | 191,655 | $ | 137,929 | $ | 520,994 | $ | 423,082 | ||||||
(3) Supplemental Balance Sheet Information
Components of selected captions in the consolidated condensed balance sheets consisted of the following (in thousands):
Inventories | September 30, | June 30, | March 31, | June 30, | ||||||||
Raw materials | $ | 89,118 | $ | 80,861 | $ | 98,885 | $ | 80,861 | ||||
Work in progress | 2,252 | 2,256 | 2,433 | 2,256 | ||||||||
Finished goods | 265,663 | 266,524 | 257,454 | 266,524 | ||||||||
Total inventories | $ | 357,033 | $ | 349,641 | $ | 358,772 | $ | 349,641 | ||||
Property, Plant and Equipment | March 31, | June 30, | ||||
Property, plant and equipment, at cost | $ | 903,299 | $ | 898,975 | ||
Accumulated depreciation and amortization | (506,090) | (511,515) | ||||
Property, plant and equipment, net | $ | 397,209 | $ | 387,460 | ||
Property, Plant and Equipment | September 30, | June 30, | ||||
Property, plant and equipment, at cost | $ | 894,084 | $ | 898,975 | ||
Accumulated depreciation and amortization | (511,114) | (511,515) | ||||
Property, plant and equipment, net | $ | 382,970 | $ | 387,460 | ||
Other Intangible Assets | September 30, | June 30, | March 31, | June 30, | ||||||||
Developed/core product technology | $ | 377,854 | $ | 401,842 | $ | 380,817 | $ | 401,842 | ||||
Accumulated amortization | (160,151) | (157,651) | (183,720) | (157,651) | ||||||||
Developed/core product technology, net | 217,703 | 244,191 | 197,097 | 244,191 | ||||||||
Customer relationships | 273,372 | 273,114 | 277,997 | 273,114 | ||||||||
Accumulated amortization | (62,612) | (68,630) | (73,681) | (68,630) | ||||||||
Customer relationships, net | 210,760 | 204,484 | 204,316 | 204,484 | ||||||||
Other intangibles | 171,016 | 176,351 | 163,761 | 176,351 | ||||||||
Accumulated amortization | (102,632) | (103,076) | (100,211) | (103,076) | ||||||||
Other intangibles, net | 68,384 | 73,275 | 63,550 | 73,275 | ||||||||
Total other intangibles, net | $ | 496,847 | $ | 521,950 | $ | 464,963 | $ | 521,950 | ||||
Intangible assets consist of developed/core product technology, trade names, non-compete agreements, customer relationships, and patents, which we amortize over the estimated useful life of the assets, generally between two years to fifteen years. There are no expected residual values related to these intangible assets.
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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
(4) Goodwill
A reconciliation of changes in our goodwill by reportable segment is as follows (in thousands):
Three Months Ended September 30, 2019 | Nine Months Ended March 31, 2020 | |||||||||||||||||
Sleep and | SaaS | Total | Sleep and | SaaS | Total | |||||||||||||
Balance at the beginning of the period | $ | 616,965 | $ | 1,239,484 | $ | 1,856,449 | $ | 616,965 | $ | 1,239,484 | $ | 1,856,449 | ||||||
Business acquisitions | 266 | 20,284 | 20,550 | |||||||||||||||
Adjustment to fair values of preliminary purchase price allocations | - | 9,105 | 9,105 | 526 | 16,282 | 16,808 | ||||||||||||
Foreign currency translation adjustments | (9,127) | - | (9,127) | (9,349) | - | (9,349) | ||||||||||||
Balance at the end of the period | $ | 607,838 | $ | 1,248,589 | $ | 1,856,427 | $ | 608,408 | $ | 1,276,050 | $ | 1,884,458 | ||||||
(5) Investments
We have a number of equity investments in privately held companies that are unconsolidated entities and are recorded in the non-current balance of other assets on the consolidated condensed balance sheets. The following table shows a reconciliation of the changes in all of our investments (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||
Equity method investments | ||||||||||||
Balance at the beginning of the period | $ | 21,667 | $ | - | $ | 21,667 | $ | - | ||||
Investments | 17,500 | 25,000 | ||||||||||
Loss attributable to equity method investments | (6,863) | - | (19,082) | (9,371) | ||||||||
Carrying value of equity method investments | 14,804 | - | 20,085 | 15,629 | ||||||||
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Non-marketable securities | ||||||||||||
Balance at the beginning of the period | $ | 30,436 | $ | 41,226 | $ | 30,436 | $ | 41,226 | ||||
Investments | 2,741 | 2,467 | 14,116 | 6,092 | ||||||||
Impairment of investments | (2,590) | (1,711) | (14,519) | (8,801) | ||||||||
Acquisition of controlling interest in previously held investment (note 21) | - | (5,000) | ||||||||||
Carrying value of non-marketable securities | 30,587 | 41,982 | 30,033 | 33,517 | ||||||||
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Total investments in unconsolidated entities | $ | 45,391 | $ | 41,982 | $ | 50,118 | $ | 49,146 | ||||
Equity investments whereby we have significant influence but not control over the investee, and are not the primary beneficiary of the investee’s activities, are accounted for under the equity method. Under this method, we record our share of gains or losses attributable to equity method investments.
Non-marketable equity securities consist of investments in privately held companies without readily determinable fair values, and are reported at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. We estimate the fair value of our equity investments using Level 3 inputs to assess whether impairment losses shall be recorded.
(6) Income Taxes
In accordance with ASC 740 Income Taxes, each interim reporting period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.
Our income tax returns are based on calculations and assumptions subject to audit by various tax authorities. In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws. We regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes. Any final assessment resulting from tax audits may result in material changes to our past or future taxable income, tax payable or deferred tax assets, and may require us to pay penalties and interest that could materially adversely affect our financial results.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
In connection with the audit by the Australian Taxation Office (“ATO”) for the tax years 2009 to 2013, we received Notices of Amended Assessments in March 2018. Based on these assessments, the ATO asserted that we owe $151.7 million in additional income tax and $38.4 million in accrued interest, of which $75.9 million was paid in April 2018 under a payment arrangement with the ATO. In June 2018, we received a notice from the ATO claiming penalties of 50% of the additional income tax that was assessed or $75.9 million. At September 30, 2019,March 31, 2020, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid as we ultimately expect this will be refunded by the ATO. The ATO is currently auditing tax years 2014 to 2017, and we have been notified by the ATO that they intend to audit tax year 2018. We do not agree with the ATO’s assessments and continue to believe we are more likely than not to be successful in defending our position.
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(7) Product Warranties
Changes in the liability for warranty costs, which is included in accrued expenses in our condensed consolidated balance sheets, are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||
Balance at the beginning of the period | $ | 19,625 | $ | 19,227 | $ | 19,625 | $ | 19,227 | ||||
Warranty accruals for the period | 2,901 | 3,948 | 10,879 | 11,601 | ||||||||
Warranty costs incurred for the period | (2,792) | (3,589) | (9,620) | (10,790) | ||||||||
Foreign currency translation adjustments | (572) | (261) | (1,650) | (405) | ||||||||
Balance at the end of the period | $ | 19,162 | $ | 19,325 | $ | 19,234 | $ | 19,633 | ||||
(8) Debt
Debt consisted of the following (in thousands):
September 30, | June 30, | March 31, | June 30, | |||||||||
Short-term debt | $ | 12,009 | $ | 12,012 | $ | 12,000 | $ | 12,012 | ||||
Deferred borrowing costs | (17) | (20) | (13) | (20) | ||||||||
Short-term debt, net | 11,992 | 11,992 | 11,987 | 11,992 | ||||||||
- | - | |||||||||||
Long-term debt | $ | 1,213,000 | $ | 1,262,000 | $ | 1,369,000 | $ | 1,262,000 | ||||
Deferred borrowing costs | (4,790) | (3,139) | (4,151) | (3,139) | ||||||||
Long-term debt, net | $ | 1,208,210 | $ | 1,258,861 | $ | 1,364,849 | $ | 1,258,861 | ||||
Total debt | $ | 1,220,202 | $ | 1,270,853 | $ | 1,376,836 | $ | 1,270,853 | ||||
Credit Facility
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 Amended and RestatedRevolving 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.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
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 September 30, 2019,March 31, 2020, the interest rate that was being charged on the outstanding principal amounts was 3.2%1.9%. An applicable commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving credit facility. As of March 31, 2020, we had $895.0 million available for draw down under the revolving credit facility.
TableWe are required to disclose the fair value of Contents
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financial instruments for which it is practicable to estimate the value, even though these instruments are not recognized at fair value in the consolidated balance sheets. As the Revolving Credit and Term Credit Agreements’ interest rate is calculated as LIBOR plus the spreads described above, its carrying amount is equivalent to its fair value as at March 31, 2020 and June 30, 2019, which was $881.0 million and $1,274.0 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 of no more than 3.50 to 1.00 as of the last day of any fiscal quarter, and will not at any time permit the amount of all priority secured and unsecured debt of us and our subsidiaries to exceed 10% of our consolidated tangible assets, determined as of the end of our most recently ended fiscal quarter.
We 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 March 31, 2020, the Senior Notes have a carrying amount of $500.0 million, excluding deferred borrowing costs, and an estimated fair value of $521.1 million. Quoted market prices in active markets for identical liabilities based inputs (Level 1) were used to estimate fair value.
At September 30, 2019,March 31, 2020, we were in compliance with our debt covenants and there was $1,225.0$1,381.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes.
(9) Leases
We determine whether a contract is, or contains, a lease at inception. ROU assets represent our right to use an underlying asset during the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. We use our incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. ROU assets also include any lease payments made at or before lease commencement and any initial direct costs incurred, and exclude any lease incentives received.
We determine the lease term as the noncancellablenon-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 condensed 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 1415 years, some of which include options to extend or terminate the leases.
Operating lease costs for the three months ended September 30, 2019 were $6.0 million. Short-term and variable lease costs were not material for the three months ended September 30, 2019.
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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
Operating lease costs for the three and nine months ended March 31, 2020 were $7.2 million and $19.6 million, respectively. Short-term and variable lease costs were not material for the three and nine months ended March 31, 2020.
Supplemental balance sheet information related to operating leases was as follows (in thousands, except lease term and discount rate):
September 30, | |||
Operating lease ROU assets | $ | 81,650 | |
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Operating lease liabilities, current portion | 19,548 | ||
Operating lease liabilities, non-current portion | 65,838 | ||
Total operating lease liabilities | $ | 85,386 | |
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Future minimum lease payments under noncancelable leases as of September 30, 2019 and for the periods ending June 30: | |||
2020 | $ | 17,502 | |
2021 | 16,900 | ||
2022 | 12,056 | ||
2023 | 9,629 | ||
2024 | 7,917 | ||
2025 | 5,913 | ||
Thereafter | 24,988 | ||
Total lease payments | $ | 94,905 | |
Less: imputed interest | (9,519) | ||
Total lease liabilities | $ | 85,386 | |
Weighted-average remaining lease term (years) | 7.37 | ||
Weighted-average discount rate | 2.9% | ||
March 31, | ||||
Operating lease ROU assets | $ | 126,277 | ||
Operating lease liabilities, current portion | 22,795 | |||
Operating lease liabilities, non-current portion | 107,251 | |||
Total operating lease liabilities | $ | 130,046 | ||
Weighted-average remaining lease term (years) | 9.0 | |||
Weighted-average discount rate | 3.07 | % | ||
Future minimum lease payments under non-cancellable leases as of March 31, 2020 and for the periods ending June 30 of the years indicated below were as follows (in thousands):
In $000’s | Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||
Minimum lease payments | $ | 150,844 | $ | 7,098 | $ | 24,744 | $ | 18,349 | $ | 14,921 | $ | 12,178 | $ | 10,560 | $ | 62,994 | ||||||||
Less: imputed interest | (20,798) | |||||||||||||||||||||||
Total lease liabilities | $ | 130,046 | ||||||||||||||||||||||
As of September 30, 2019,March 31, 2020, we had additional operating lease commitments of $49.9$14.0 million for manufacturing facilities and office space that have not yet commenced. These leases will commence during the year ended June 30, 20202021 with lease terms of 58 years to 11 years.
Disclosures related to periods prior to adopting the new lease guidance
CertainWe lease certain facilities and equipment are leased under operating leases expiring at various dates. Most of the operating leases contain renewal options. Total expense for all operating leases was $23.4 million, $21.1 million, and $20.1 million for the years ended June 30, 2019, 2018, 2017, and 2016,2017, respectively.
Future minimum lease payments (including interest) under non-cancelablenon-cancellable operating leases at June 30, 2019 were as follows (in thousands):
Fiscal Years | Operating Leases | ||
2020 | $ | 23,500 | |
2021 | 17,161 | ||
2022 | 12,403 | ||
2023 | 9,478 | ||
2024 | 7,916 | ||
Thereafter | 27,555 | ||
Total minimum lease payments | $ | 98,013 | |
Fiscal Years Ending June 30 | |||||||||||||||||||||
In $000’s | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | ||||||||||||||
Operating leases | $ | 98,013 | $ | 23,500 | $ | 17,161 | $ | 12,403 | $ | 9,478 | $ | 7,916 | $ | 27,555 | |||||||
The supplemental cash flow information for the three and nine months ended March 31, 2020 was as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||
March 31, 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||
Operating cash flows from operating leases | $ | 6,301 | $ | 17,352 | ||
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Right of use assets obtained in exchange for new lease liabilities: | ||||||
Operating leases | $ | 34,876 | $ | 51,573 | ||
(10) Stockholders’ Equity
Preferred Stock. In April 1997, the board of directors designated 2.0 million shares of our $0.01 par value preferred stock as Series A Junior Participating Preferred Stock. NaN shares were issued or outstanding at September 30, 2019March 31, 2020 and June 30, 2019.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
Stock Options and Restricted Stock Units. We have granted stock options and restricted stock units to personnel, including officers and directors, in accordance with the amended and restated ResMed Inc. 2009 Incentive Award Plan (as amended and restated, the “2009 Plan”). The options have expiration dates of seven years from the date of grant and the options and restricted stock units vest over one year to four years.
At September 30, 2019,March 31, 2020, the maximum number of shares of our common stock authorized for issuance under the 2009 Plan was 51.1 million shares. The number of securities remaining available for future issuance under the 2009 Plan at September 30, 2019March 31, 2020 was 16.315.8 million.
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The following table summarizes option activity during the threenine months ended September 30, 2019:March 31, 2020:
Options | Weighted | Weighted | Options | Weighted | Weighted | |||||||||||
Outstanding at beginning of period | 1,260,114 | $ | 72.91 | 4.4 | 1,260,114 | $ | 72.91 | 4.4 | ||||||||
Granted | - | - | 162,180 | 146.34 | ||||||||||||
Exercised | (110,379) | 50.81 | (260,666) | 53.41 | ||||||||||||
Forfeited | - | - | (4,342) | 110.19 | ||||||||||||
Outstanding at end of period | 1,149,735 | $ | 75.03 | 4.5 | 1,157,286 | $ | 87.45 | 4.6 | ||||||||
Exercise price of granted options | $ | - | $ | 146.34 | ||||||||||||
Options exercisable at end of period | 594,087 | $ | 60.89 | 724,040 | $ | 70.70 | ||||||||||
The following table summarizes the activity of restricted stock units during the threenine months ended September 30, 2019:March 31, 2020:
Restricted | Weighted | Weighted | Restricted | Weighted | Weighted | |||||||||||
Outstanding at beginning of period | 1,446,170 | $ | 77.21 | 1.6 | 1,446,170 | $ | 77.21 | 1.6 | ||||||||
Granted | 3,316 | 129.63 | 361,986 | 140.98 | ||||||||||||
Vested | (5,186) | 72.33 | ||||||||||||||
Vested* | (915,450) | 61.00 | ||||||||||||||
Performance factor adjustment | 289,678 | - | ||||||||||||||
Expired / cancelled | (13,355) | 79.40 | (31,545) | 89.37 | ||||||||||||
Forfeited | (6,361) | 79.40 | (5,023) | 89.37 | ||||||||||||
Outstanding at end of period | 1,424,584 | $ | 77.29 | 1.4 | 1,145,816 | $ | 103.46 | 1.8 | ||||||||
*Includes 305,719 shares netted for tax
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. During the threenine months ended September 30,March 31, 2020 and March 31, 2019, we issued 137,000 and September 30, 2018, we did not issue any129,000 shares to our employees associated with the ESPP.ESPP, respectively. At September 30, 2019,March 31, 2020, the number of shares remaining available for future issuance under the ESPP is 2.42.1 million shares.
(11) Earnings Per Share
Basic earnings per share is computed by dividing the net income available to common stockholders by the weighted average number of shares of common stock outstanding. For purposes of calculating diluted earnings per share, the denominator includes both the weighted average number of shares of common stock outstanding and the number of dilutive common stock equivalents such as stock options and restricted stock units.
The weighted average number of outstanding stock options and restricted stock units not included in the computation of diluted earnings per share were 693267,556 and 10,006356,583 for the three months ended September 30,March 31, 2020 and March 31, 2019, respectively, and September 30, 2018,128,789 and 161,314 for the nine months ended March 31, 2020 and March 31, 2019, respectively, were not included in the computation of diluted earnings per share as the effect would have been anti-dilutive.
Basic and diluted earnings per share are calculated as follows (in thousands except per share data):
Three Months Ended | ||||||
2019 | 2018 | |||||
Numerator: | ||||||
Net income | $ | 120,148 | $ | 105,737 | ||
Denominator: | ||||||
Basic weighted-average common shares outstanding | 143,719 | 142,668 | ||||
Effect of dilutive securities: | ||||||
Stock options and restricted stock units | 1,380 | 1,362 | ||||
Diluted weighted average shares | 145,099 | 144,030 | ||||
Basic earnings per share | $ | 0.84 | $ | 0.74 | ||
Diluted earnings per share | $ | 0.83 | $ | 0.73 | ||
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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
Basic and diluted earnings per share are calculated as follows (in thousands except per share data):
Three Months Ended | Nine Months Ended | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Numerator: | ||||||||||||
Net income | $ | 163,137 | $ | 105,416 | $ | 443,839 | $ | 335,791 | ||||
Denominator: | ||||||||||||
Basic weighted-average common shares outstanding | 144,638 | 143,316 | 144,112 | 142,907 | ||||||||
Effect of dilutive securities: | ||||||||||||
Stock options and restricted stock units | 1,042 | 1,017 | 1,378 | 1,437 | ||||||||
Diluted weighted average shares | 145,680 | 144,333 | 145,490 | 144,344 | ||||||||
Basic earnings per share | $ | 1.13 | $ | 0.74 | $ | 3.08 | $ | 2.35 | ||||
Diluted earnings per share | $ | 1.12 | $ | 0.73 | $ | 3.05 | $ | 2.33 | ||||
(12) Legal Actions and Contingencies
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
As described in note 6 – Income Taxes, we received Notices of Amended Assessments from the ATO for the tax years 2009 to 2013. Based on these assessments, the ATO asserted that we owe $151.7 million in additional income tax and $38.4 million in accrued interest, of which $75.9 million was paid in April 2018 under a payment arrangement with the ATO. In June 2018, we received a notice from the ATO claiming penalties of 50% of the additional income tax that was assessed, or $75.9 million. At September 30, 2018, we recorded a receivable in prepaid taxes and other non-current assets for the amount paid as we ultimately expect this will be refunded by the ATO. We do not agree with the ATO’s assessments and we continue to believe we are more likely than not to be successful in defending our position. However, if we are not successful, we will not receive a refund of the amount paid in April 2018 and we would be required to pay the remaining additional income tax, accrued interest and penalties, which would be recorded as income tax expense. The ATO is currently auditing tax years 2014 to 2017, and we have also been notified by the ATO that they intend to audit tax year 2018.
In connection with the recent changechanges in U.S. Taxtax laws and the analysis of historical tax filings, we identified an administrative oversight in our prior year tax filingfilings relating to a gain on an internal legal entity reorganization. We have applied for relief from the U.S. Internal Revenue Service (“IRS”) and have amended the related tax returns required to correct the administrative oversight, which would indefinitely deferoversight. On March 26, 2020, we received written notice from the recognition of this gain. We believe it is more likely than notIRS stating that we will be granted thisour relief requests were granted. As such, no additional tax or penalties are owed and therefore, have not recorded a reserve in relation to this matter during the three months ended September 30, 2019.has been closed.
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 recourse, either limited or full, whereby we are responsible for repaying the financing company should the customer default. We record a contingent provision, which is estimated based on historical default rates. This is applied to receivables sold with recourse and is recorded in accrued expenses.
The following table summarizes the amount of receivables sold with recourse (in thousands):
Three Months Ended September 30, | Nine Months Ended | |||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||
Total receivables sold: | ||||||||||||
Full recourse | $ | - | $ | 10,082 | $ | - | $ | 28,846 | ||||
Limited recourse | 33,673 | 18,824 | 99,785 | 70,847 | ||||||||
Total | $ | 33,673 | $ | 28,906 | $ | 99,785 | $ | 99,693 | ||||
The following table summarizes the maximum exposure on outstanding receivables sold with recourse and provision for doubtful accounts (in thousands):
September 30, | June 30, | |||||
Maximum exposure on outstanding receivables: | ||||||
Full recourse | $ | 9,952 | $ | 19,209 | ||
Limited recourse | 13,509 | 10,241 | ||||
Total | $ | 23,461 | $ | 29,450 | ||
Contingent provision for receivables with recourse | $ | (2,747) | $ | (1,752) | ||
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PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
The following table summarizes the maximum exposure on outstanding receivables sold with recourse and provision for doubtful accounts (in thousands):
March 31, | June 30, | |||||
Maximum exposure on outstanding receivables: | ||||||
Full recourse | $ | 1,870 | $ | 19,209 | ||
Limited recourse | 23,436 | 10,241 | ||||
Total | $ | 25,306 | $ | 29,450 | ||
Contingent provision for receivables with recourse | $ | (4,764) | $ | (1,752) | ||
(13) Business Combinations
Nine months ended March 31, 2020
On January 31, 2020, we completed the acquisition of 100% of the membership interests in SnapWorx, LLC (“SnapWorx”), a software company providing patient contact management and workflow optimization for the sleep apnea resupply market. This acquisition has been accounted for as a business combination using purchase accounting and the results of SnapWorx are included in our consolidated financial statements from the acquisition date. This acquisition is not considered a material business combination and accordingly pro forma information is not provided. The acquisition was funded by drawing on our existing credit facility and through cash on-hand.
We didhave not yet completed the purchase price allocation in relation to the SnapWorx acquisition. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation. We expect to complete any acquisitionsour purchase price allocation during the threequarter ending June 30, 2020. The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition. The goodwill recognized as part of the acquisition is reflected in the Software as a Service segment and is deductible for tax purposes. It mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.
During the nine months ended SeptemberMarch 31, 2020 we did 0t record any material acquisition-related expenses.
Fiscal year ended June 30, 2019.2019
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.
We have not finalizedcompleted the purchase price allocation in relation to this acquisition as certain appraisals associated with the valuation of income tax positions are not yet complete. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation. We expect to complete our purchase price allocation during the quarter endingended December 31, 2019. The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition. The goodwill recognized as part of the acquisition is reflected in the Software as a Service segment and is not deductible for tax purposes. It mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
The preliminary fair values of assets acquired and liabilities assumed, and the estimated useful lives of intangible assets acquired are as follows (in thousands):
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Preliminary as of | Adjustments | Final | Intangible | |||||||||
Current assets | $ | 50,325 | $ | - | $ | 50,325 | ||||||
Property, plant and equipment | 4,401 | - | 4,401 | |||||||||
Trade names | 18,000 | - | 18,000 | 7 years | ||||||||
Developed technology | 133,000 | - | 133,000 | 7 years | ||||||||
Customer relationships | 114,000 | 2,000 | 116,000 | 15 years | ||||||||
Goodwill | 517,995 | 5,664 | 523,659 | |||||||||
Assets acquired | $ | 837,721 | $ | 7,664 | $ | 845,385 | ||||||
Current liabilities | (13,751) | (255) | (14,006) | |||||||||
Deferred revenue | (18,339) | (166) | (18,505) | |||||||||
Deferred tax liabilities | (41,570) | (7,243) | (48,813) | |||||||||
Debt assumed | (151,665) | - | (151,665) | |||||||||
Total liabilities assumed | $ | (225,325) | $ | (7,664) | $ | (232,989) | ||||||
Net assets acquired | $ | 612,396 | $ | - | $ | 612,396 | ||||||
A reconciliation of the base consideration to the net consideration is as follows (in thousands):
Base consideration | $ | 750,000 | |
Cash acquired | 15,873 | ||
Debt assumed | (151,665) | ||
Net working capital and other adjustments | (1,812) | ||
Net consideration | $ | 612,396 |
Other acquisitions
During the year ended June 30, 2019, we also completed the following acquisitions:
On July 6, 2018, we completed the acquisition of 100% of the shares in HEALTHCAREfirst Holding Company (“HEALTHCAREfirst”), a provider of software solutions and services for home health and hospice agencies, for a total purchase consideration of $126.3 million.
On October 15, 2018, we completed the acquisition of 100% of the shares in HB Healthcare, a homecare provider in South Korea.
On December 11, 2018, we completed the acquisition of assets in Interactive Health Network, a provider of integrated clinical and financial management software solution for long-term care companies.
On December 13, 2018, we completed the acquisition of assets in Apacheta, a provider of cloud-based SaaS software that manages the medical equipment delivery process for home medical equipment dealers.
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On January 6, 2019, we completed the acquisition of Propeller Health, a digital therapeutics company providing connected health solutions for people living with chronic obstructive pulmonary disease and asthma, for a total purchase consideration of $242.9 million, which adjusts for cash acquired and debt assumed at the time of acquisition. We previously held a non-controlling interest in Propeller Health’s outstanding shares. As a result of the acquisition, we recognized a fair value gain of $1.9 million in other income during the year ended June 30, 2019 associated with the previous equity investment.
These acquisitions have been accounted for as business combinations using purchase accounting and are included in our consolidated financial statements from the acquisition dates. These acquisitions, individually and collectively, are not considered a material business combination and accordingly pro forma information is not provided. The acquisitions were funded by drawing on our existing credit facility and through cash on-hand.
Except for the purchase price allocation associated with the Propeller Health acquisition (and the acquisition of MatrixCare, as described above), weWe have completed the purchase price allocation in relation to all of these acquisitions. We expect to complete our purchase price allocation for Propeller Health during the quarter ending December 31, 2019. We do not believe that the completion of this work will materially modify the preliminary purchase price allocation for Propeller Health. The cost of the share acquisitions was allocated to the assets acquired and liabilities assumed based on estimates of their fair values at the date of acquisition. The goodwill recognized as part of these acquisitions, which is predominantly not deductible for tax purposes, mainly represents the synergies that are unique to our combined businesses and the potential for new products and services to be developed in the future. Goodwill from these acquisitions has been reflected in the Software as a Service segment except for the goodwill resulting from the HB Healthcare and Propeller Health acquisitions, which have been recorded in the Sleep and Respiratory Care segment.
PART I – FINANCIAL INFORMATION | Item 1 |
RESMED INC. AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements (Unaudited) | |
The fair values of assets acquired and liabilities assumed of all other acquisitions during the year ended June 30, 2019, excluding MatrixCare, and the estimated useful lives of intangible assets acquired are as follows (in thousands):
| Intangible | |||||
Current assets | $ | 31,648 | ||||
Property, plant and equipment | 2,290 | |||||
Deferred tax assets | 5,211 | |||||
Trade names | 7,828 | 10 years | ||||
Non-compete | 1,000 | 3 years | ||||
Developed technology | 48,280 | 5 to 6 years | ||||
Customer relationships | 53,712 | 5 to 15 years | ||||
Goodwill |
| |||||
Assets acquired | $ |
| ||||
Current liabilities |
| |||||
Deferred revenue | (3,619) | |||||
Deferred tax liabilities | (2,367) | |||||
Debt assumed | (35,104) | |||||
Total liabilities assumed | $ |
| ||||
Net assets acquired | $ | 388,700 | ||||
During the threenine months ended September 30,March 31, 2019, and 2018, we did not record material acquisition related expenses.recorded acquisition-related expenses of $6.1 million.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special 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 projectionsexpectations 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 our annual report on Form 10-K for the fiscal year ended June 30, 2019 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.
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in our annual report on Form 10-K for the fiscal year ended June 30, 2019, in addition to the other cautionary statements and risks described elsewhere in this report and in our other filings with the Securities and Exchange Commission (“SEC”), including our subsequent reports on Forms 10-Q and 8-K. These risks and uncertainties 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.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following is an overview of our results of operations for the three and nine months ended September 30, 2019.March 31, 2020. Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand theour results of operations and financial condition of ResMed Inc.condition. Management’s discussion and analysis is provided as a supplement to, and should be read in conjunction with, the condensed 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 sleep disordered breathing (“SDB”), chronic obstructive pulmonary disease, 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 software digital health applications, along with our devices, are designed to provide connected care to improve patient outcomes and efficiencies for our customers.
Since the development of continuous positive airway pressure therapy, we have expanded our business by developing or acquiring a number of products and solutions for a broader range of respiratory disorders including technologies to be applied in medical and consumer products, ventilation devices, diagnostic products, mask systems for use in the hospital and home, headgear and other accessories, dental devices, portable oxygen concentrators and cloud-based software informatics solutions to manage patient outcomes and customer and provider business processes. Our growth has been fueled by geographic expansion, our research and product development efforts, acquisitions and an increasing awareness of SDB and respiratory conditions like chronic obstructive pulmonary disease as significant health concerns.
We are committed to ongoing investment in research and development and product enhancements. During the three months ended September 30, 2019,March 31, 2020, we invested $48.0$51.4 million on research and development activities 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. Due to multiple acquisitions, including of 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”).
During the three months ended September 30, 2019,March 31, 2020, our net revenue increased by 16% compared to the three months ended September 30, 2018.March 31, 2019. Gross margin was 59.5%58.4% for the three months ended September 30, 2019March 31, 2020 compared to 58.3%57.5% for the three months ended September 30, 2018.March 31, 2019. Diluted earnings per share for the three months ended September 30, 2019March 31, 2020 was $0.83$1.12 per share, compared to $0.73 per share for the three months ended September 30, 2018.March 31, 2019.
At September 30, 2019,March 31, 2020, our cash and cash equivalents totaled $172.2$352.9 million, our total assets were $4.2$4.5 billion and our stockholders’ equity was $2.1$2.3 billion.
In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we provide certain financial information on a “constant currency basis”, which is in addition to the actual financial information presented. 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 U.S. GAAP.
In order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present the following non-GAAP measures as a complement to financial results prepared in accordance with U.S. GAAP: gross profit and gross margin. The non-GAAP financial measures presented herein should not be considered in isolation or as a substitute for operating income and net income prepared in accordance with GAAP.
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.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ComparisonWe have observed increased demand for our ventilator devices and masks, which can be used to treat COVID-19 patients. Due to governments’ varying restrictions on international and domestic travel, access to labor for our manufacturing facilities has been impacted as has the availability of raw materials and components, which are constraining our manufacturing capacity and restricting our ability to meet the substantial demand for ventilators. Our primary focus is maximizing the availability of our ventilators and other respiratory support devices for the patients that need them the most. The increase in our sales for these respiratory care products during the three months ended March 31, 2020, includes numerous countries and regions where COVID-19 infection levels were increasing, particularly in China and Europe. We expect to see continued increased demand for ventilator products for the remainder of the fiscal year ending June 30, 2020.
While demand for our sleep devices and masks was not materially impacted for the three months ended March 31, 2020, we expect COVID-19 will lead to a temporary decrease in demand for these products from new patients. Specifically, diagnostic pathways for sleep apnea treatment, including home medical equipment suppliers and sleep clinics, have been impacted and, in some instances, been required, or in the future may be required, to temporarily close due to governments’ “shelter-in-place” orders, quarantines or similar orders or restrictions enacted to control the spread of COVID-19. In some countries, new patients are prescribed sleep apnea treatment through hospitals that are directing their resources to critical care, including COVID-19 treatment. We expect the impact on these diagnostic and prescription pathways will likely result in a decrease in demand from new patients for our products designed to treat SDB. Given the ongoing uncertainty regarding the duration and extent of the COVID-19 pandemic and measures taken to control the spread of COVID-19, we are uncertain as to the duration and extent of decreased demand for our sleep devices. However, due to the nature of the installed base of existing patients using our devices, we expect the demand for re-supply of our masks to be less impacted compared to devices.
Our SaaS business may also be affected by COVID-19 and measures taken to control the spread of COVID-19. Some of our existing and potential SaaS customers are home medical equipment distributors and, therefore, have been impacted, or may be impacted, by the same temporary business closures noted above. We also have existing and potential SaaS customers that operate care facilities and are either receiving and treating patients infected with COVID-19 or are implementing significant measures to safeguard their facilities against a potential COVID-19 outbreak. Given these challenging business conditions and the uncertain economic environment, we expect businesses will 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 for the three months ended March 31, 2020, we were able to broadly maintain our operations, and the pandemic has not negatively impacted our liquidity position.
For additional information, please refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Revenue for the Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018
Net RevenuesMarch 31, 2020
Net revenue for the three months ended September 30, 2019March 31, 2020 increased to $681.1$769.5 million from $588.3$662.2 million for the three months ended September 30, 2018,March 31, 2019, an increase of $92.8$107.2 million or 16% (a 17% increase on a constant currency basis). The following table summarizes our net revenue disaggregated by segment, product and region for the three months ended September 30, 2019March 31, 2020 compared to September 30, 2018March 31, 2019 (in millions)thousands):
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||
2019 | 2018 | % Change | Constant Currency* | 2020 | 2019 | % Change | Constant Currency* | |||||||||||||||||
U.S., Canada and Latin America | ||||||||||||||||||||||||
Devices | $ | 186.9 | $ | 172.4 | 8 | % | $ | 196,497 | $ | 181,269 | 8 | % | ||||||||||||
Masks and other | 183.4 | 154.0 | 19 | 197,052 | 168,726 | 17 | ||||||||||||||||||
Total Sleep and Respiratory Care | $ | 370.3 | $ | 326.4 | 13 | $ | 393,549 | $ | 349,995 | 12 | ||||||||||||||
Software as a Service | 86.9 | 47.5 | 83 | 89,560 | 79,942 | 12 | ||||||||||||||||||
Total | $ | 457.2 | $ | 373.9 | 22 | $ | 483,109 | $ | 429,937 | 12 | ||||||||||||||
Combined Europe, Asia and other markets | ||||||||||||||||||||||||
Devices | $ | 151.9 | $ | 151.7 | 0 | % | 4 | % | $ | 195,038 | $ | 155,178 | 26 | % | 29 | % | ||||||||
Masks and other | 72.0 | 62.7 | 15 | 19 | 91,308 | 77,113 | 18 | 22 | ||||||||||||||||
Total Sleep and Respiratory Care | $ | 223.9 | $ | 214.4 | 4 | 8 | $ | 286,346 | $ | 232,291 | 23 | 27 | ||||||||||||
Global revenue | ||||||||||||||||||||||||
Devices | $ | 338.8 | $ | 324.1 | 5 | % | 6 | % | $ | 391,535 | $ | 336,447 | 16 | % | 18 | % | ||||||||
Masks and other | 255.4 | 216.7 | 18 | 19 | 288,360 | 245,839 | 17 | 18 | ||||||||||||||||
Total Sleep and Respiratory Care | $ | 594.2 | $ | 540.8 | 10 | 11 | $ | 679,895 | $ | 582,286 | 17 | 18 | ||||||||||||
Software as a Service | 86.9 | 47.5 | 83 | 83 | 89,560 | 79,942 | 12 | 12 | ||||||||||||||||
Total | $ | 681.1 | $ | 588.3 | 16 | 17 | $ | 769,455 | $ | 662,228 | 16 | 17 | ||||||||||||
*Constant currency numbers exclude the impact of movements in international currencies.
Sleep and Respiratory Care
Net revenue for the three months ended September 30, 2019March 31, 2020 was $594.2$679.9 million, an increase of 10%17% compared to net revenue for the three months ended September 30, 2018.March 31, 2019. Movements in international currencies against the U.S. dollar negatively impacted net revenues by approximately $9.1$8.5 million for the three months ended September 30, 2019.March 31, 2020. Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the three months ended September 30, 2019March 31, 2020 increased by 11%18% compared to the three months ended September 30, 2018.March 31, 2019. The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks and other.including as a result of increased demand for our ventilators due to COVID-19.
Net revenue in U.S., Canada and Latin America for the three months ended September 30, 2019March 31, 2020 increased to $370.3$393.5 million from $326.4$350.0 million for the three months ended September 30, 2018,March 31, 2019, an increase of $43.9$43.6 million or 13%12%. The increase iswas primarily due to an increase in unit sales of our devices and masks and other.masks.
Net revenue in combined Europe, Asia and other markets increased for the three months ended September 30, 2019March 31, 2020 to $223.9$286.3 million from $214.4$232.3 million for the three months ended September 30, 2018,March 31, 2019, an increase of $9.5$54.1 million or 4%23% (a 8%27% increase on a constant currency basis). The constant currency increase in sales in combined Europe, Asia and other markets predominantly reflectswas primarily due to an increase in unit sales of our masks.devices and masks including as a result of increased demand for our ventilators due to COVID-19.
Net revenue from devices for the three months ended September 30, 2019March 31, 2020 increased to $338.8$391.5 million from $324.1$336.4 million for the three months ended September 30, 2018,March 31, 2019, an increase of $14.7$55.1 million or 5%16%, including an increase of 8% in the United States, Canada and Latin America and an increase of 0%26% in combined Europe, Asia and other markets (a 4%29% increase on a constant currency basis). Excluding the impact of foreign currency movements, device sales for the three months ended September 30, 2019March 31, 2020 increased by 6%18%.
Net revenue from masks and other for the three months ended September 30, 2019March 31, 2020 increased to $255.4$288.4 million from $216.7$245.8 million for the three months ended September 30, 2018,March 31, 2019, an increase of 18%$42.5 million or 17%, including an increase of 19%17% in the United States, Canada and Latin America and an increase of 15%18% in combined Europe, Asia and other markets (a 19%22% increase on a constant currency basis). Excluding the impact of foreign currency movements, masks and other sales increased by 19%18%, compared to the three months ended September 30, 2018.March 31, 2019.
Software as a Service
Net revenue from our SaaS business for the three months ended September 30, 2019March 31, 2020 was $86.9$89.6 million, an increase of 83%12% compared to the three months ended September 30, 2018.March 31, 2019. The increase was predominantly due to continued growth in our software-as-a-service product offerings.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Revenue for the Nine Months Ended March 31, 2020
Net revenue for the nine months ended March 31, 2020 increased to $2,186.7 million from $1,901.6 million for the nine months ended March 31, 2019, an increase of $285.1 million or 15% (a 16% increase on a constant currency basis). The following table summarizes our net revenue disaggregated by segment, product and region for the nine months ended March 31, 2020 compared to March 31, 2019 (in thousands):
Nine Months Ended March 31, | ||||||||||||
2020 | 2019 | % Change | Constant Currency* | |||||||||
U.S., Canada and Latin America | ||||||||||||
Devices | $ | 586,907 | $ | 540,190 | 9 | % | ||||||
Masks and other | 584,901 | 494,792 | 18 | |||||||||
Total Sleep and Respiratory Care | $ | 1,171,808 | $ | 1,034,982 | 13 | |||||||
Software as a Service | 263,156 | 190,614 | 38 | |||||||||
Total | $ | 1,434,964 | $ | 1,225,596 | 17 | |||||||
Combined Europe, Asia and other markets | ||||||||||||
Devices | $ | 509,274 | $ | 463,053 | 10 | % | 13 | % | ||||
Masks and other | 242,431 | 212,959 | 14 | 17 | ||||||||
Total Sleep and Respiratory Care | $ | 751,705 | $ | 676,012 | 11 | 15 | ||||||
Global revenue | ||||||||||||
Devices | $ | 1,096,181 | $ | 1,003,243 | 9 | % | 11 | % | ||||
Masks and other | 827,332 | 707,751 | 17 | 18 | ||||||||
Total Sleep and Respiratory Care | $ | 1,923,513 | $ | 1,710,994 | 12 | 14 | ||||||
Software as a Service | 263,156 | 190,614 | 38 | 38 | ||||||||
Total | $ | 2,186,669 | $ | 1,901,608 | 15 | 16 | ||||||
*Constant currency numbers exclude the impact of movements in international currencies.
Sleep and Respiratory Care
Net revenue for the nine months ended March 31, 2020 was $1,923.5 million, an increase of 12% compared to net revenue for the nine months ended March 31, 2019. Movements in international currencies against the U.S. dollar negatively impacted net revenues by approximately $25.6 million for the nine months ended March 31, 2020. Excluding the impact of currency movements, total Sleep and Respiratory Care net revenue for the nine months ended March 31, 2020 increased by 14% compared to the nine months ended March 31, 2019. The increase in net revenue was primarily attributable to an increase in unit sales of our devices and masks.
Net revenue in U.S., Canada and Latin America for the nine months ended March 31, 2020 increased to $1,171.8 million from $1,035.0 million for the nine months ended March 31, 2019, an increase of $136.8 million or 13%. The increase was primarily due to an increase in unit sales of our devices and masks.
Net revenue in combined Europe, Asia and other markets increased for the nine months ended March 31, 2020 to $751.7 million from $676.0 million for the nine months ended March 31, 2019, an increase of $75.7 million or 11% (a 15% increase on a constant currency basis). The constant currency increase in sales in combined Europe, Asia and other markets was primarily due to an increase in unit sales of our devices and masks including as a result of increased demand for our ventilators due to COVID-19.
Net revenue from devices for the nine months ended March 31, 2020 increased to $1,096.2 million from $1,003.2 million for the nine months ended March 31, 2019, an increase of $92.9 million or 9%, including an increase of 9% in the United States, Canada and Latin America and an increase of 10% in combined Europe, Asia and other markets (a 13% increase on a constant currency basis). Excluding the impact of foreign currency movements, device sales for the nine months ended March 31, 2020 increased by 11%.
Net revenue from masks and other for the nine months ended March 31, 2020 increased to $827.3 million from $707.8 million for the nine months ended March 31, 2019, an increase of $119.6 million or 17%, including an increase of 18% in the United States, Canada and Latin America and an increase of 14% in combined Europe, Asia and other markets (a 17% increase on a constant currency basis). Excluding the impact of foreign currency movements, masks and other sales increased by 18%, compared to the nine months ended March 31, 2019.
Software as a Service
Net revenue from our SaaS business for the nine months ended March 31, 2020 was $263.2 million, an increase of 38% compared to the nine months ended March 31, 2019. The increase was predominantly due to revenue attributable to MatrixCare, which wewas acquired on November 13, 20182018.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and contributed $34.8 million in net revenue for the three months ended September 30, 2019.Analysis of Financial Condition and Results of Operations
Gross Profit and Gross Margin
The amortization of acquired intangible assets relating to developed technology was adjusted within our condensed consolidated statements of income for the three and nine months ended March 31, 2020 and 2019, from operating expenses to cost of sales. As a result, gross profit now includes amortization of acquired intangible assets relating to cost of sales and operating expenses are reduced by this amount. There was no impact on income from operations, income before taxes or net income, as a result of this reclassification. The adjustments to the previously reported amounts are not material.
The table below presents a reconciliation of gross profit as previously reported adjusted for the amortization of acquired intangible assets now included in cost of sales (in thousands):
Three Months Ended | Nine Months Ended | |||||
March 31, 2019 | ||||||
Gross profit as previously reported | $ | 391,910 | $ | 1,118,734 | ||
Amortization of intangible assets related to cost of sales | (10,940) | (27,095) | ||||
Gross profit | $ | 380,970 | $ | 1,091,639 | ||
Gross profit increased for the three months ended September 30, 2019March 31, 2020 to $405.1$449.7 million from $343.1$381.0 million for the three months ended September 30, 2018,March 31, 2019, an increase of $62.0$68.7 million or 18%. Gross margin, which is gross profit as a percentage of net revenue, for the three months ended September 30, 2019March 31, 2020 was 59.5%58.4% compared to 58.3%57.5% for the three months ended September 30, 2018.March 31, 2019.
Gross profit increased for the nine months ended March 31, 2020 to $1,268.4 million from $1,091.6 million for the nine months ended March 31, 2019, an increase of $176.8 million or 16%. Gross margin for the nine months ended March 31, 2020 was 58.0% compared to 57.4% for the nine months ended March 31, 2019.
The increase in gross margin for the three and nine months ended March 31, 2020 compared to three and nine months ended March 31, 2019 was primarily due to a favorable product mix, and manufacturing and procurement efficiencies, partially offset by declines in average selling prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the three months ended March 31, 2020 to $172.4 million from $164.5 million for the three months ended March 31, 2019, an increase of $7.9 million or 5%. Selling, general and administrative expenses were favorably impacted by the movement of international currencies against the U.S. dollar, which decreased our expenses by approximately $3.4 million, as reported in U.S. dollars. Excluding the impact of foreign currency movements, selling, general and administrative expenses for the three months ended March 31, 2020 increased by 7% compared to the three months ended March 31, 2019. As a percentage of net revenue, selling, general and administrative expenses were 22.4% for the three months ended March 31, 2020, compared to 24.8% for the three months ended March 31, 2019.
The constant currency increase in selling, general and administrative expenses was primarily due to additional personnel to support our
commercial activities, partially offset by a decrease in legal expenses.
Selling, general and administrative expenses increased for the nine months ended March 31, 2020 to $511.3 million from $473.4 million for the nine months ended March 31, 2019 an increase of $37.9 million or 8%. The selling, general and administrative expenses were unfavorably impacted by the movement of international currencies against the U.S. dollar, which increased our expenses by approximately $31.8 million, as reported in U.S. dollars. Excluding the impact of foreign currency movements, selling, general and administrative expenses for the nine months ended March 31, 2020 increased by 1% compared to the nine months ended March 31, 2019. As a percentage of net revenue, selling, general and administrative expenses were 23.4% for the nine months ended March 31, 2020, compared to 24.9% for the nine months ended March 31, 2019.
The constant currency increase in selling, general and administrative expenses was primarily due to additional expenses associated with the consolidation of recent acquisitions and additional personnel to support our commercial activities, partially offset by a decrease in legal expenses.
Research and Development Expenses
Research and development expenses increased for the three months ended March 31, 2020 to $51.4 million from $47.6 million for the three months ended March 31, 2019, an increase of $3.8 million, or 8%. Research and development expenses were favorably impacted by the movement of international currencies against the U.S. dollar, which decreased our expenses by approximately $1.5 million for the three months ended March 31, 2020, as reported in U.S. dollars. Excluding the impact of foreign currency movements, research and development expenses increased by 11% compared to the three months ended March 31, 2019. As a percentage of net revenue, research and development expenses were 6.7% for the three months ended March 31, 2020, compared to 7.2% for the three months ended March 31, 2019.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The increase in gross margins for the three months ended September 30, 2019research and 2018development expenses in constant currency terms was primarily due to manufacturingan increase in the number of research and procurement efficiencies, a favorable impact from our MatrixCare acquisitiondevelopment personnel to facilitate development of new products and a favorable product mix.solutions.
Selling, GeneralResearch and Administrative Expenses
Selling, general and administrativedevelopment expenses increased for the threenine months ended September 30, 2019March 31, 2020 to $167.4$149.4 million from $147.3$129.5 million for the threenine months ended September 30, 2018,March 31, 2019, an increase of $20.1$19.9 million, or 14%15%. Selling, generalResearch and administrativedevelopment expenses were favorablyunfavorably impacted by the movement of international currencies against the U.S. dollar, which decreasedincreased our expenses by approximately $3.5 million, as reported in U.S. dollars. Excluding the impact of foreign currency movements, selling, general and administrative expenses for the three months ended September 30, 2019 increased by 16% compared to the three months ended September 30, 2018. Selling, general and administrative expenses, as a percentage of net revenue, were 24.6% for the three months ended September 30, 2019, compared to 25.0% for the three months ended September 30, 2018.
The constant currency increase in selling, general and administrative expenses was primarily due to additional expenses associated with the consolidation of recent acquisitions. Excluding the incremental selling, general and administrative expenses attributed to our recent acquisitions, selling, general and administrative expenses for the three months ended September 30, 2019 increased by 6% in constant currency terms.
Research and Development Expenses
Research and development expenses increased for the three months ended September 30, 2019 to $48.0 million from $38.8$19.9 million for the threenine months ended September 30, 2018, an increase of $9.2 million, or 24%. Research and development expenses were favorably impacted by the movement of international currencies against the U.S. dollar, which decreased our expenses by approximately $1.2 million for the three months ended September 30, 2019,March 31, 2020, as reported in U.S. dollars. Excluding the impact of foreign currency movements, research and development expenses increased by 27% compared tofor the threenine months ended September 30, 2018. Research and development expenses, asMarch 31, 2020 was consistent with the nine months ended March 31, 2019. As a percentage of net revenue, research and development expenses were 7.1%6.8% for the threenine months ended September 30, 2019, compared to 6.6% forMarch 31, 2020, consistent with the threenine months ended September 30, 2018.March 31, 2019.
The increase in research and development expenses in constant currency terms was primarily due to additional expenses associated with the consolidation of recent acquisitions. Excludingacquisitions and an increase in the incrementalnumber of research and development expenses attributedpersonnel to our recent acquisitions, researchfacilitate development of new products and development expenses for the three months ended September 30, 2019 increased by 2% in constant currency terms.solutions.
Amortization of Acquired Intangible Assets
Amortization of acquired intangible assets for the three months ended September 30, 2019March 31, 2020 totaled $18.5$20.4 million compared to $12.9$22.8 million for the three months ended September 30, 2018.March 31, 2019. The decrease in amortization expense was primarily due to historical intangible assets becoming fully amortized during the three months ended March 31, 2020. Amortization of acquired intangible assets for the nine months ended March 31, 2020 totaled $59.5 million compared to $51.5 million for the nine months ended March 31, 2019. The increase in amortization expense was attributable to our recent acquisitions, in particular MatrixCare and Propeller Health.
The table below presents a reconciliation of amortization of acquired intangible assets by income statement caption summing to total amortization of acquired intangible assets as previously reported (in thousands):
Three Months Ended | Nine Months Ended | |||||
March 31, 2019 | ||||||
Amortization of intangible assets related to cost of sales | $ | 10,940 | $ | 27,095 | ||
Amortization of intangible assets related to operating expenses | 11,854 | 24,406 | ||||
Total | $ | 22,794 | $ | 51,501 | ||
Total Other Income (Loss), Net
Total other income (loss), net for the three months ended September 30, 2019March 31, 2020 was a loss of $20.5$25.8 million compared to a loss of $5.3$19.0 million for the three months ended September 30, 2018.March 31, 2019. The increase in loss was due to an increaseimpairment charge of $9.1 million relating to our equity investments during the three months ended March 31, 2020, partially offset by decrease in interest expense to $11.0$10.0 million for the three months ended September 30, 2019March 31, 2020 compared to $3.7$12.4 million for the three months ended September 30, 2018.
March 31, 2019. We also recorded losses attributable to equity method investments for the three months ended September 30, 2019March 31, 2020 of $6.9$5.2 million compared to $0.0$6.0 million for the three months ended September 30, 2018.March 31, 2019. The losses attributable to equity method investments relate to our joint venture with Verily, which is accounted for using the equity method, whereby we recognize our share of the joint venture’s losses.
Total other income (loss), net for the nine months ended March 31, 2020 was a loss of $65.4 million compared to a loss of $35.1 million for the nine months ended March 31, 2019. The increase was due to an impairment charge of $9.1 million relating to our equity investments during the nine months ended March 31, 2020 and an increase in interest expense to $31.2 million for the nine months ended March 31, 2020 compared to $23.6 million for the nine months ended March 31, 2019. We also recorded losses attributable to equity method investments for the nine months ended March 31, 2020 of $19.1 million compared to $9.4 million for the nine months ended March 31, 2019. The losses attributable to equity method investments relate to our joint venture with Verily, which is accounted for using the equity method, whereby we recognize our share of the joint venture’s losses.
Income Taxes
Our effective income tax rate for the three and nine months ended September 30, 2019March 31, 2020 was 20.2%14.9% and 14.8%, respectively, as compared to 23.9%23.6% and 20.6% for the three and nine months ended September 30, 2018. The decrease in ourMarch 31, 2019, respectively. Our effective tax rate for the three and nine months ended March 31, 2020 was primarily related to changes in theimpacted by a favorable geographic mix of earnings. In addition, our earnings.effective tax rate for the nine months ended March 31, 2020 was impacted by tax benefits related to the vesting or settlement of employee share-based awards, which reduced our income tax expenses by $24.5 million, for the nine months ended March 31, 2020, as compared to $13.9 million for the nine months ended March 31, 2019.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Singapore operations operate under certain tax holidays and tax incentive programs that will expire in whole or in part at various dates throughon June 30, 2030. As a result of recent changes in U.S. Taxtax laws, we treated all non-U.S. historical earnings as taxable during the year ended June 30, 2018. Therefore, future repatriations of cash held by our non-U.S. subsidiaries will generally not be subject to U.S. federal income tax.
Finally, in connection with the audit by the ATOAustralian Tax Office (the “ATO”) for the tax years 2009 to 2013, we received Notices of Amended Assessments in March 2018. Based on these assessments, the ATO asserted that we owe $151.7 million in additional income tax and $38.4 million in accrued interest, of which $75.9 million was paid in April 2018 under a payment arrangement with the ATO. At September 30, 2018, we have
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
recorded a receivable in prepaid taxes and other non-current assets for the amount paid as we ultimately expect this will be refunded by the ATO. In June 2018, we received a notice from the ATO claiming penalties of 50% of the additional income tax that was assessed or $75.9 million. We do not agree with the ATO’s assessments and continue to believe we are more likely than not to be successful in defending our position. The ATO is currently auditing tax years 2014 to 2017, and we have also been notified by the ATO that they intend to audit tax year 2018.
Net Income and Earnings per Share
As a result of the factors above, our net income for the three months ended September 30, 2019March 31, 2020 was $120.1$163.1 million compared to net income of $105.7$105.4 million for the three months ended September 30, 2018,March 31, 2019, an increase of 14%55% over the three months ended September 30, 2018.March 31, 2019. Our net income for the nine months ended March 31, 2020 was $443.8 million compared to net income of $335.8 million for the nine months ended March 31, 2019, an increase of 32% over the nine months ended March 31, 2019.
Our diluted earnings per share for the three months ended September 30, 2019March 31, 2020 were $0.83$1.12 per diluted share compared to $0.73 for the three months ended September 30, 2018, an increase of 14% overMarch 31, 2019. Our diluted earnings per share for the threenine months ended September 30, 2018.March 31, 2020 were $3.05 per diluted share compared to $2.33 for the nine months ended March 31, 2019.
Liquidity and Capital Resources
As of September 30, 2019March 31, 2020 and June 30, 2019, we had cash and cash equivalents of $172.2$352.9 million and $147.1 million, respectively. Working capital was $610.6$918.2 million and $589.4 million at September 30, 2019March 31, 2020 and June 30, 2019, respectively. As of September 30, 2019,March 31, 2020, we had $1.2$1.4 billion of borrowings compared to $1.3 billion of borrowings at June 30, 2019. In response to the uncertainty associated with the COVID-19 pandemic, we increased our cash and cash equivalents position during the quarter by drawing down from our Revolving Credit Agreement. As of March 31, 2020, we had $895.0 million available for draw down under the revolver credit facility and a combined total of $1.2 billion in cash and available liquidity under the revolving credit facility.
As of September 30, 2019March 31, 2020 and June 30, 2019, our cash and cash equivalent balances held within the United States amounted to $57.1$105.9 million and $33.6 million, respectively. Our remaining cash and cash equivalent balances at September 30, 2019March 31, 2020 and June 30, 2019, were $115.1$247.0 million and $113.5 million, respectively. Our cash and cash equivalent balances are held at highly rated financial institutions.
During the year ended June 30, 2018, as a result of recent changes in U.S. tax laws, we treated all non-U.S. historical earnings as taxable, which resulted in additional tax expense of $126.9 million which was payable over the proceeding eight years. Therefore, future repatriations of cash held by our non-U.S. subsidiaries will generally not be subject to U.S. federal income tax. On June 14, 2019, the U.S. Treasury Department issued final and temporary regulations relating to the repatriation of non-U.S. earnings, which would subject certain amounts of non-U.S. earnings to U.S. taxation upon repatriation.
Our non-U.S. earnings are indefinitely reinvested, and therefore, we do not provide for U.S. income tax on these earnings. In the event we were to provide for such taxes, we would recognize deferred taxes of approximately $201.6$188.8 million in U.S. federal deferred taxincome taxes and $5.2$5.0 million in U.S. state deferred income taxes in the consolidated financial statements.
Inventories at September 30, 2019March 31, 2020 were $357.0$358.8 million, an increase of $7.4$9.1 million or 2%3% from the June 30, 2019 balance of $349.6 million. The increase in inventories was required to support our revenue growth.
Accounts receivable at September 30, 2019March 31, 2020 were $493.8$554.9 million, a decreasean increase of $34.7$26.4 million or 7%5% compared to the June 30, 2019, balance of $528.5 million. Accounts receivable days outstanding of 67 days at September 30, 2019,March 31, 2020, were the same as the days outstanding of 67 days at June 30, 2019. Our allowance for doubtful accounts as a percentage of total accounts receivable at September 30, 2019,March 31, 2020, was 4.7%4.9%, compared to 4.5% at June 30, 2019.
Effective July 1, 2019, we adopted the Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842). As of September 30, 2019March 31, 2020, and in accordance with the new guidance, we have recognized a right-of-use asset (“ROU”) of $81.7$126.3 million and a lease liability of $85.4$130.0 million on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease. During the three months ended March 31, 2020, the lease for a new manufacturing facility in Singapore commenced, which increased our lease balances by approximately $31.9 million.
During the threenine months ended September 30, 2019,March 31, 2020, we generated cash of $162.4$472.0 million from operations compared to $48.1$317.2 million for the threenine months ended September 30, 2018.March 31, 2019. The increase in cash generated from operations during the threenine months ended September 30, 2019,March 31, 2020, as compared to the threenine months ended September 30, 2018March 31, 2019 was primarily due to the increase in operating profit and the timing of income tax payments, which decreased to $30.9 million during the three months ended September 30, 2019 from $125.0 million during the three months ended September 30, 2018.profit. Movements in foreign currency exchange rates during the three months ended September 30, 2019, had the effect of decreasing our cash and cash equivalents by $4.0 million, as reported in U.S. dollars.
We have temporarily suspended our share repurchase program due to recent acquisitions. Accordingly, we did not repurchase any shares during the three months ended September 30, 2019. During the three months ended September 30, 2018 we repurchased 200,000 shares of our common stock at an aggregate purchase price of $22.8 million under our share repurchase program.In addition, during the three months ended September 30, 2019 and 2018, we paid dividends to holders of our common stock totaling $56.1 million and $52.8 million, respectively.
Capital expenditures for the three months ended September 30, 2019 and 2018, amounted to $22.7 million and $13.0 million, respectively. The capital expenditures for the three months ended September 30, 2019, primarily reflected investment in production tooling, buildings, equipment and machinery, and computer hardware and software. At September 30, 2019, our balance sheet reflects net property, plant and equipment of $383.0 million compared to $387.5 million at June 30, 2019.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
exchange rates during the nine months ended March 31, 2020, had the effect of decreasing our cash and cash equivalents by $8.9 million, as reported in U.S. dollars.
We have temporarily suspended our share repurchase program due to recent acquisitions. Accordingly, we did not repurchase any shares during the three and nine months ended March 31, 2020. During the nine months ended March 31, 2019, we repurchased 200,000 shares of our common stock at an aggregate purchase price of $22.8 million under our share repurchase program.In addition, during the nine months ended March 31, 2020 and 2019, we paid dividends to holders of our common stock totaling $168.6 million and $158.6 million, respectively.
Capital expenditures for the nine months ended March 31, 2020 and 2019, amounted to $77.4 million and $46.5 million, respectively. The capital expenditures for the nine months ended March 31, 2020, primarily reflected investment in production tooling, leasehold improvements, equipment and machinery, and computer hardware and software. At March 31, 2020, our balance sheet reflects net property, plant and equipment of $397.2 million compared to $387.5 million at June 30, 2019.
Contractual Obligations
Details of contractual obligations at September 30, 2019,March 31, 2020, are as follows (in thousands):
Payments Due by September 30, | Payments Due by March 31, | |||||||||||||||||||||||||||||||||||||||||
In $000’s | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||
Debt | $ | 1,225,009 | $ | 12,009 | $ | 12,000 | $ | 12,000 | $ | 689,000 | $ | - | $ | 500,000 | $ | 1,381,000 | $ | 12,000 | $ | 12,000 | $ | 12,000 | $ | 845,000 | $ | - | $ | 500,000 | ||||||||||||||
Interest on debt | 222,532 | 40,332 | 39,929 | 39,539 | 26,682 | 16,725 | 59,325 | 200,097 | 36,078 | 36,078 | 36,078 | 18,338 | 16,725 | 56,800 | ||||||||||||||||||||||||||||
Operating leases | 125,515 | 22,208 | 19,425 | 18,261 | 11,451 | 10,248 | 43,922 | 140,109 | 27,061 | 21,025 | 16,981 | 13,776 | 11,461 | 49,805 | ||||||||||||||||||||||||||||
Purchase obligations | 251,871 | 251,210 | 631 | 27 | 2 | 1 | - | 443,392 | 440,749 | 2,372 | 271 | - | - | - | ||||||||||||||||||||||||||||
Total | $ | 1,824,927 | $ | 325,759 | $ | 71,985 | $ | 69,827 | $ | 727,135 | $ | 26,974 | $ | 603,247 | $ | 2,164,598 | $ | 515,888 | $ | 71,475 | $ | 65,330 | $ | 877,114 | $ | 28,186 | $ | 606,605 | ||||||||||||||
Details of other commercial commitments at September 30, 2019,March 31, 2020, are as follows (in thousands):
Amount of Commitment Expiration Per Period | Amount of Commitment Expiration Per Period | |||||||||||||||||||||||||||||||||||||||||
In $000’s | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||
Standby letter of credit | $ | 10,164 | $ | 3,661 | $ | 11 | $ | - | $ | 46 | $ | - | $ | 6,446 | $ | 11,909 | $ | 3,680 | $ | 23 | $ | 45 | $ | 289 | $ | - | $ | 7,872 | ||||||||||||||
Guarantees* | 6,556 | 184 | 23 | 14 | 23 | 21 | 6,291 | 6,480 | 172 | 17 | 18 | 14 | 37 | 6,222 | ||||||||||||||||||||||||||||
Total | $ | 16,720 | $ | 3,845 | $ | 34 | $ | 14 | $ | 69 | $ | 21 | $ | 12,737 | $ | 18,389 | $ | 3,852 | $ | 40 | $ | 63 | $ | 303 | $ | 37 | $ | 14,094 | ||||||||||||||
* The above guarantees mainly relate to requirements under contractual obligations with insurance companies transacting with our German subsidiaries and guarantees provided under our facility leasing obligations.
Credit Facility
On April 17, 2018, we entered into an amended and restated credit agreement (as amended from time to time, the “Revolving Credit Agreement”), as borrower, with lenders MUFG Union Bank, N.A., as administrative agent, joint lead arranger, joint book runner, swing line lender and letter of credit issuer, and Westpac Banking Corporation, as syndication agent, joint lead arranger and joint book runner. 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.
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
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
$6.0 million principal payment required on each such semi-annual amortization date. The outstanding principal amounts will bear interest at a rate equal to LIBOR plus 0.75% to 1.50% (depending on the then-applicable leverage ratio) or the Base Rate (as defined in the Revolving Credit Agreement and the Term Credit Agreement, as applicable) plus 0.0% to 0.50% (depending on the then-applicable leverage ratio). On September 30, 2019,March 31, 2020, the interest rate that was being charged on the outstanding principal amounts was 3.2%1.9%. An applicable commitment fee of 0.100% to 0.175% (depending on the then-applicable leverage ratio) applies on the unused portion of the revolving credit facility.As of March 31, 2020, we had $895.0 million available for draw down under the revolving credit facility.
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RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 (“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 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.
On September 30, 2019,March 31, 2020, we were in compliance with our debt covenants and there was a total of $1,225.0$1,381.0 million outstanding under the Revolving Credit Agreement, Term Credit Agreement and Senior Notes. We expect to satisfy all of our liquidity and long-term debt requirements through a combination of cash on hand, cash generated from operations and debt facilities.
Common Stock
Since the inception of our share repurchase programs and through September 30, 2019,March 31, 2020, we have repurchased a total of 41.8 million shares for an aggregate of $1.6 billion. We have temporarily suspended our share repurchase program due to recent acquisitions. Accordingly, we did not repurchase any shares during the three and nine months ended September 30, 2019.March 31, 2020. During the threenine months ended September 30, 2018,March 31, 2019 we repurchased 200,000 shares at an aggregate purchase price of $22.8 million under our share repurchase program. 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. There is no expiration date for this program, and the program may be accelerated, suspended, delayed or discontinued at any time at the discretion of our board of directors. At September 30, 2019,March 31, 2020, 12.9 million additional shares can be repurchased under the approved share repurchase program.
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.
Refer to the note 9 – Leases where we have outlined our new policy following the adoption of Accounting Standard Codification Topic 842 – Leases during the current year. All other critical accounting policies have remained unchanged. For a full discussion of our critical accounting policies, see our Annual Report on Form 10-K for the year ended June 30, 2019.
Recently Issued Accounting Pronouncements
See note 1 to the unaudited condensed consolidated financial statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.
PART I – FINANCIAL INFORMATION | Item 2 |
RESMED INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Off-Balance Sheet Arrangements
As of September 30, 2019,March 31, 2020, we are not involved in any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
PART I – FINANCIAL INFORMATION | Item 3 |
RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk
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 and Singapore dollar. We have significant foreign currency exposure through our Australian and Singapore manufacturing activities and our 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 condensed consolidated balance sheets at fair value and included in other assets or other liabilities. All movements in the fair value of the foreign currency derivatives are recorded within other income, net, on our condensed consolidated statements of income.
The table below provides information (in U.S. dollars) on our foreign currency denominated operating assets and liabilities and after considering our foreign currency hedging activities as of September 30, 2019March 31, 2020 (in thousands):
U.S. | Canadian | Chinese | U.S. | Great Britain | Canadian | Chinese | ||||||||||||
Dollar | Euro | Dollar | Yuan | Dollar | Euro | Pound | Dollar | Yuan | ||||||||||
(USD) | (EUR) | (CAD) | (CNY) | (USD) | (EUR) | (GBP) | (CAD) | (CNY) | ||||||||||
AUD Functional: | ||||||||||||||||||
Assets | 445,067 | 129,129 | - | 43,124 | 559,004 | 104,681 | - | - | 31,554 | |||||||||
Liability | (254,069) | (98,306) | - | (2,539) | (221,749) | (102,618) | (8,679) | - | (1,060) | |||||||||
Foreign Currency Hedges | (190,000) | (27,267) | - | (22,381) | (325,000) | (16,535) | - | - | (22,599) | |||||||||
Net Total | 998 | 3,556 | - | 18,204 | 12,255 | (14,472) | (8,679) | - | 7,895 | |||||||||
USD Functional: | ||||||||||||||||||
Assets | - | - | 17,812 | - | - | - | - | 20,147 | - | |||||||||
Liability | - | - | - | - | - | - | - | - | - | |||||||||
Foreign Currency Hedges | - | - | (15,104) | - | - | - | - | (14,167) | - | |||||||||
Net Total | - | - | 2,708 | - | - | - | - | 5,980 | - | |||||||||
SGD Functional: | ||||||||||||||||||
Assets | 485,367 | 194,928 | - | (12) | 641,900 | 248,460 | - | - | 12 | |||||||||
Liability | (260,488) | (54,038) | - | - | (383,025) | (51,928) | - | - | - | |||||||||
Foreign Currency Hedges | (228,000) | (130,882) | - | - | (273,000) | (176,377) | - | - | - | |||||||||
Net Total | (3,121) | 10,008 | - | (12) | (14,125) | 20,155 | - | - | 12 |
PART I – FINANCIAL INFORMATION | Item 3 |
RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk
The table below provides information about our material 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 September 30, 2019.March 31, 2020. The table presents the notional amounts and weighted average exchange rates by contractual maturity dates for our foreign currency derivative financial instruments, including the forward contracts used to hedge our foreign currency denominated assets and liabilities. These notional amounts generally are used to calculate payments to be exchanged under the contracts (in thousands, except exchange rates).
Fair Value Assets / (Liabilities) | Fair Value Assets / (Liabilities) | |||||||||||||||||||
Foreign Exchange Contracts | Year 1 | Year 2 | Total | September 30, | June 30, | Year 1 | Year 2 | Total | March 31, | June 30, | ||||||||||
AUD/USD | ||||||||||||||||||||
Contract amount | 190,000 | - | 190,000 | (1,461) | 202 | 325,000 | - | 325,000 | (10,910) | 202 | ||||||||||
Ave. contractual exchange rate | AUD 1 = | AUD 1 = | AUD 1 = | AUD 1 = | ||||||||||||||||
AUD/Euro | ||||||||||||||||||||
Contract amount | 70,894 | 10,907 | 81,801 | 164 | (124) | 60,630 | 22,047 | 82,677 | (1,580) | (124) | ||||||||||
Ave. contractual exchange rate | AUD 1 = | AUD 1 = | AUD 1 = | AUD 1 = | AUD 1 = | AUD 1 = | ||||||||||||||
SGD/Euro | ||||||||||||||||||||
Contract amount | 130,882 | - | 130,882 | 1,054 | 40 | 192,913 | 5,512 | 198,425 | (4,181) | 40 | ||||||||||
Ave. contractual exchange rate | SGD 1 = | SGD 1 = | SGD 1 = | SGD 1 = | SGD 1 = | |||||||||||||||
SGD/USD | ||||||||||||||||||||
Contract amount | 228,000 | - | 228,000 | 390 | 71 | 273,000 | - | 273,000 | (5,300) | 71 | ||||||||||
Ave. contractual exchange rate | SGD 1 = | SGD 1 = | SGD 1 = | SGD 1 = | ||||||||||||||||
AUD/CNY | ||||||||||||||||||||
Contract amount | 22,381 | - | 22,381 | (91) | (15) | 22,599 | - | 22,599 | (2,456) | (15) | ||||||||||
Ave. contractual exchange rate | AUD 1 = | AUD 1 = | AUD 1 = | AUD 1 = | ||||||||||||||||
USD/CAD | ||||||||||||||||||||
Contract amount | 15,104 | - | 15,104 | 193 | (66) | 14,167 | - | 14,167 | 1,130 | (66) | ||||||||||
Ave. contractual exchange rate | USD 1 = | USD 1 = | USD 1 = | USD 1 = | ||||||||||||||||
Interest Rate Risk
We are exposed to risk associated with changes in interest rates affecting the return on our cash and cash equivalents and debt. At September 30, 2019,March 31, 2020, we held cash and cash equivalents of $172.2$352.9 million principally comprised of bank term deposits and at-call accounts and are invested at both short-term fixed interest rates and variable interest rates. At September 30, 2019,March 31, 2020, there was $725.0$881.0 million outstanding under the Revolving Credit Agreement and Term Credit Agreement, which are subject to variable interest rates. At September 30, 2019, there was $500.0 million outstanding under the Senior Notes, of which $250.0 million was subject to a fixed interest rate of 3.24% and $250.0 million was subject to a fixed interest rate of 3.45%. A hypothetical 10% change in interest rates during the three and nine months ended September 30, 2019,March 31, 2020, would not have had a material impact on pretax income. We have no interest rate hedging agreements.
Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports made pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019.March 31, 2020.
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.
Item 1 Legal Proceedings
We are involved in various legal proceedings, claims, investigations and litigation that arise in the ordinary course of our business. We investigate these matters as they arise, and accrue estimates for resolution of legal and other contingencies in accordance with Statement of Financial Accounting Standard No. 5.Codification Topic 450, “Contingencies”. See note 12 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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.
Administrative subpoenas. In 2016, we received federal administrative subpoenas from the Office of Inspector General of the U.S. Department of Health and Human Services. The subpoenas requested documents and other materials related primarily to industry offerings of patient resupply software to home medical equipment providers, discounted sales and leasing to sleep labs, samples, and other promotional programs. In addition, the Department of Justice has informally requested information about our leasing arrangements with customers. In August 2018, we received a third subpoena, requesting documents and other materials relating to diagnostic devices and masks provided to medical providers, and diagnostic auto-scoring functions. In February 2019, the Department of Justice provided us with a Civil Investigative Demand seeking further information concerning the industry offerings described above. We are cooperating with the government’s requests for documents and information, including additional subpoenas on these same issues. Responding to these investigations can consume substantial time and resources and can divert management’s attention from the business. Additionally, as a result of these investigations, we 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 violate federal law or regulations, or if we settle these investigations, we may be subject to civil and criminal penalties, damages, fines, disgorgement, exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which could materially adversely affect our financial results and our ability to operate our business.
We have tentatively agreed with the government to civilly resolve these matters for a payment of $39.5 million and we expect to also incur additional fees and administrative costs that typically accompany such a resolution. As a result, in the year ended June 30, 2019 we reserved $41.2 million for the expenses we expect to incur in connection with this settlement. A resolution may also include ongoing obligations, such as any imposed under a corporate integrity agreement. However, we have not yet completed negotiations, and there can be no assurance as to whether or when the parties will finalize any such negotiated resolution or what the final terms of such a resolution will be.
Item 1A Risk Factors
The discussion of our business and operations should be read together with the risk factors and contained in our annual report on Form 10-K for the fiscal year ended June 30, 2019, which was filed with the SEC and describe the various material risks and uncertainties to which we are or may become subject. As of September 30, 2019,March 31, 2020, there have been no further material changes to such risk factors.factors, except as follows:
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 may have an adverse impact on certain aspects of our business. Specifically, diagnostic pathways for sleep apnea treatment, including home medical equipment suppliers and sleep clinics, have been impacted and, in some instances, been required, or in the future may be required, to temporarily close due to governments’ “shelter-in-place” orders, quarantines or similar orders or restrictions enacted to control the spread of COVID-19. 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 may result in a decrease in demand from new patients for our products designed to treat SDB.
While we have experienced increased demand for our respiratory care products due to the nature of COVID-19, we cannot guarantee that demand will continue or that we will be able to identify and obtain adequate raw materials or otherwise maintain operations, supply chains and distribution systems to satisfy demand for our products on a cost-effective manner or at all. Additionally, if the increase in demand currently being experienced for our respiratory care products declines more abruptly than expected this could adversely impact our inventory levels and 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 may also be affected by COVID-19 and measures taken to control the spread of COVID-19. Some of our existing and potential SaaS customers are home medical equipment distributors and, therefore, have been impacted, or may be impacted, by the same temporary business closures noted above. We also have existing and potential SaaS customers that operate care facilities and are either receiving and treating patients infected with COVID-19 or are implementing significant measures to safeguard their facilities against a potential COVID-19 outbreak. Given these challenging business conditions and the uncertain economic environment, we expect businesses will 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.
Additionally, the types of restrictions enacted to control the spread of COVID-19 have resulted in most of our employees working from home, and have resulted or may result in the employees of our key suppliers and customers working from home or, as noted above, not working at all. Neither we nor our suppliers have significant experience operating with the majority of our work forces working from home and this may disrupt our standard operations or significantly hamper our products from moving through our supply chain. If we are unable to move products efficiently through the supply chain we may be unable 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.
In addition to existing travel restrictions, countries may continue to close borders, impose prolonged quarantines, and further restrict travel, which may also disrupt our ability to move our product by air and sea. The continued spread of COVID-19 has also led to extreme disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty. 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, particularly if these impacts persist or worsen over an extended period of time.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
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.
We temporarily suspended our share repurchase program due to recent acquisitions. As a result, we did not repurchase any shares during the three months ended September 30, 2019.March 31, 2020. 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 March 31, 2020, 12.9 million additional shares can be repurchased under the approved share repurchase program.
Item 3 Defaults Upon Senior Securities
None
Item 4 Mine Safety Disclosures
None
Item 5 Other Information
None
Item 6 Exhibits
Exhibits (numbered in accordance with Item 601 of Regulation S-K)
3.1 | |||
3.2 | |||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32 | |||
101 | The following financial statements from ResMed Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
Signatures
We have authorized the persons whose signatures appear below to sign this report on our behalf, in accordance with the Securities Exchange Act of 1934.
October 24, 2019April 30, 2020
ResMed Inc.
/s/ MICHAEL J. FARRELL | |
Michael J. Farrell | |
Chief executive officer | |
(Principal Executive Officer) |
/s/ BRETT A. SANDERCOCK | |
Brett A. Sandercock | |
Chief financial officer | |
(Principal Financial Officer) |