UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________________________________________________________________________



FORM 10-Q

 

______________________________________________________________________________________________

(Mark One)



 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2019

 



 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from              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      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      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

 

  

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   



At  April 29, 2019, there were 143,392,631 shares of Common Stock ($0.004 par value) outstanding.  This number excludes 41,836,234 shares held by the registrant as treasury shares. 

 


 

Table of Contents

 



 

2


 

Table of Contents

 

RESMED INC. AND SUBSIDIARIES



Index





 

 

Part I

Financial Information



 

 

Item 1

Financial Statements



 

 



Condensed Consolidated Balance Sheets (Unaudited)



 

 



Condensed Consolidated Statements of Income (Unaudited)



 

 



Condensed Consolidated Statements of Comprehensive Income (Unaudited)



 

 



Condensed Consolidated Statements of Changes in Equity (Unaudited)



 

 



Condensed Consolidated Statements of Cash Flows (Unaudited)



 

 



Notes to the Condensed Consolidated Financial Statements (Unaudited)



 

 

Item 2

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

22 



 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

31 



 

 

Item 4

Controls and Procedures

33 



 

 

Part II

Other Information

34 



 

 

Item 1

Legal Proceedings

34 



 

 

 

Item 1A

Risk Factors

34 

  



 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

34 



 

 

Item 3

Defaults Upon Senior Securities

35 



 

 

 

Item 4

Mine Safety Disclosures

35 

  



 

 

Item 5

Other Information

35 



 

 

Item 6

Exhibits

36 



 

 



Signatures

37 

 



 

2


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 



Item 1.  Financial Statements

RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In US$ thousands, except share and per share data)





 

 

 

 

 



 

 

 

 

 



March 31,
2019

 

June 30,
2018

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

146,513 

 

$

188,701 

Accounts receivable, net of allowance for doubtful accounts of $25,543 and $19,258 
  at March 31, 2019 and June 30, 2018, respectively

 

511,403 

 

 

483,681 

Inventories (note 2)

 

319,930 

 

 

268,701 

Prepaid expenses and other current assets

 

124,850 

 

 

124,634 

Total current assets

 

1,102,696 

 

 

1,065,717 

Non-current assets:

 

 

 

 

 

Property, plant and equipment, net (note 3)

 

382,496 

 

 

386,550 

Goodwill (note 4)

 

1,939,136 

 

 

1,068,944 

Other intangible assets, net (note 5)

 

516,450 

 

 

215,184 

Deferred income taxes

 

32,015 

 

 

53,818 

Prepaid taxes and other non-current assets

 

125,733 

 

 

273,710 

Total non-current assets

 

2,995,830 

 

 

1,998,206 

Total assets

$

4,098,526 

 

$

3,063,923 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

124,466 

 

$

92,723 

Accrued expenses

 

191,130 

 

 

185,805 

Deferred revenue

 

82,288 

 

 

60,828 

Income taxes payable (note 7)

 

52,739 

 

 

160,427 

Short-term debt, net (note 9)

 

12,346 

 

 

11,466 

Total current liabilities

 

462,969 

 

 

511,249 

Non-current liabilities:

 

 

 

 

 

Deferred revenue

 

76,703 

 

 

71,596 

Deferred income taxes

 

87,312 

 

 

13,084 

Other long-term liabilities

 

865 

 

 

924 

Long-term debt, net (note 9)

 

1,323,349 

 

 

269,988 

Long-term income taxes payable (note 7)

 

125,999 

 

 

138,102 

Total non-current liabilities

 

1,614,228 

 

 

493,694 

Total liabilities

 

2,077,197 

 

 

1,004,943 

Commitments and contingencies (note 12)

 

 

 

 

 

Stockholders’ equity: (note 10)

 

 

 

 

 

Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued

 

 -

 

 

 -

Common stock, $0.004 par value, 350,000,000 shares authorized;
  185,182,206 issued and 143,345,972 outstanding at March 31, 2019 and
  184,315,866 issued and 142,679,632 outstanding at June 30, 2018

 

573 

 

 

571 

Additional paid-in capital

 

1,476,099 

 

 

1,450,821 

Retained earnings

 

2,420,731 

 

 

2,432,328 

Treasury stock, at cost, 41,836,234 shares at March 31, 2019 and 41,636,234 shares at June 30, 2018

 

(1,623,256)

 

 

(1,600,412)

Accumulated other comprehensive loss

 

(252,818)

 

 

(224,328)

Total stockholders’ equity

 

2,021,329 

 

 

2,058,980 

Total liabilities and stockholders’ equity

$

4,098,526 

 

$

3,063,923 

 



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

3


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 

RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

(In US$ thousands, except per share data)





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,



 

2019

 

2018

 

2019

 

2018

Net revenue

 

$

662,228 

 

$

591,634 

 

$

1,901,608 

 

$

1,716,566 

Cost of sales (excluding amortization of acquired intangible assets)

 

 

270,318 

 

 

247,339 

 

 

782,874 

 

 

716,874 

Gross profit

 

 

391,910 

 

 

344,295 

 

 

1,118,734 

 

 

999,692 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

164,529 

 

 

147,893 

 

 

473,410 

 

 

443,559 

Research and development

 

 

47,610 

 

 

37,434 

 

 

129,513 

 

 

115,492 

Amortization of acquired intangible assets

 

 

22,794 

 

 

11,673 

 

 

51,501 

 

 

34,772 

Restructuring expenses

 

 

 -

 

 

10,922 

 

 

 -

 

 

10,922 

Acquisition related expenses

 

 

 -

 

 

 -

 

 

6,123 

 

 

 -

Total operating expenses

 

 

234,933 

 

 

207,922 

 

 

660,547 

 

 

604,745 

Income from operations

 

 

156,977 

 

 

136,373 

 

 

458,187 

 

 

394,947 

Other income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

415 

 

 

4,228 

 

 

2,014 

 

 

13,677 

Interest expense

 

 

(12,413)

 

 

(7,719)

 

 

(23,608)

 

 

(22,873)

Loss attributable to equity method investments (note 6)

 

 

(5,996)

 

 

 -

 

 

(9,371)

 

 

 -

Other, net

 

 

(1,054)

 

 

(2,739)

 

 

(4,140)

 

 

(5,357)

Total other income (loss), net

 

 

(19,048)

 

 

(6,230)

 

 

(35,105)

 

 

(14,553)

Income before income taxes

 

 

137,929 

 

 

130,143 

 

 

423,082 

 

 

380,394 

Income taxes

 

 

32,513 

 

 

20,018 

 

 

87,291 

 

 

174,617 

Net income

 

$

105,416 

 

$

110,125 

 

$

335,791 

 

$

205,777 

Basic earnings per share (note 11)

 

$

0.74 

 

$

0.77 

 

$

2.35 

 

$

1.44 

Diluted earnings per share (note 11)

 

$

0.73 

 

$

0.76 

 

$

2.33 

 

$

1.43 

Dividend declared per share

 

$

0.37 

 

$

0.35 

 

$

0.74 

 

$

1.05 

Basic shares outstanding (000's)

 

 

143,316 

 

 

142,898 

 

 

142,907 

 

 

142,688 

Diluted shares outstanding (000's)

 

 

144,333 

 

 

143,985 

 

 

144,344 

 

 

143,895 

 



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

4


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 

 

RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In US$ thousands)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,



 

2019

 

2018

 

2019

 

2018

Net income

 

$

105,416 

 

$

110,125 

 

$

335,791 

 

$

205,777 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain adjustments

 

 

(2,501)

 

 

(7,393)

 

 

(28,490)

 

 

33,446 

Comprehensive income

 

$

102,915 

 

$

102,732 

 

$

307,301 

 

$

239,223 

 



 

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

5


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 



RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(In US$ thousands)







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

Additional
Paid-in

Treasury Stock

Retained

Accumulated
Other
Comprehensive

 

 



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 

Common stock issued on exercise of options

12 

 

 -

 

513 

 -

 

 -

 

 -

 

 -

 

513 

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

 

 -

 

(141)

 -

 

 -

 

 -

 

 -

 

(141)

Common stock issued on employee stock purchase plan

 -

 

 -

 

 -

 -

 

 -

 

 -

 

 -

 

 -

Treasury stock purchases

 -

 

(1)

 

 -

(200)

 

(22,844)

 

 -

 

 -

 

(22,845)

Stock-based compensation costs

 -

 

 -

 

12,476 

 -

 

 -

 

 -

 

 -

 

12,476 

Other comprehensive income

 -

 

 -

 

 -

 -

 

 -

 

 -

 

(12,872)

 

(12,872)

Net income

 -

 

 -

 

 -

 -

 

 -

 

105,737 

 

 -

 

105,737 

Cumulative effect of change in accounting standards

 -

 

 -

 

 -

 -

 

 -

 

(188,798)

 

 -

 

(188,798)

Dividends declared

 -

 

 -

 

 -

 -

 

 -

 

(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 

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 

 

 

(27,343)

 -

 

 -

 

 -

 

 -

 

(27,341)

Common stock issued on employee stock purchase plan

129 

 

 

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

 

 -

 

(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 





 

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

6


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 

RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(In US$ thousands)











 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

Additional Paid-in

Treasury Stock

Retained

Accumulated Other Comprehensive

 

 



Shares

Amount

Capital

Shares

Amount

Earnings

Income (Loss)

Total

Balance, June 30, 2017

183,261 

$

569 

$

1,379,130  (41,086)

$

(1,546,611)

$

2,316,237 

$

(189,059)

$

1,960,266 

Common stock issued on exercise of options

78 

 

 -

 

4,682 

 -

 

 -

 

 -

 

 -

 

4,682 

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

11 

 

 -

 

(195)

 -

 

 -

 

 -

 

 -

 

(195)

Common stock issued on employee stock purchase plan

 -

 

 -

 

 

 -

 

 -

 

 -

 

 -

 

 -

Treasury stock purchases

 -

 

 -

 

 

 -

 

 -

 

 -

 

 -

 

 -

Stock-based compensation costs

 -

 

 -

 

11,959 

 -

 

 -

 

 -

 

 -

 

11,959 

Other comprehensive income

 -

 

 -

 

 

 -

 

 -

 

 -

 

36,389 

 

36,389 

Net income

 -

 

 -

 

 

 -

 

 -

 

86,125 

 

 -

 

86,125 

Dividends declared

 -

 

 -

 

 

 -

 

 -

 

(49,698)

 

 -

 

(49,698)

Balance, September 30, 2017

183,350 

$

569 

$

1,395,576  (41,086)

$

(1,546,611)

$

2,352,664 

$

(152,670)

$

2,049,528 

Common stock issued on exercise of options

394 

 

 

7,427 

 -

 

 -

 

 -

 

 -

 

7,428 

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

186 

 

 

(13,659)

 -

 

 -

 

 -

 

 -

 

(13,658)

Common stock issued on employee stock purchase plan

148 

 

 

8,652 

 -

 

 -

 

 -

 

 -

 

8,653 

Treasury stock purchases

 -

 

 -

 

 -

(100)

 

(8,541)

 

 -

 

 -

 

(8,541)

Stock-based compensation costs

 -

 

 -

 

11,997 

 

 

 -

 

 -

 

 -

 

11,997 

Other comprehensive income

 -

 

 -

 

 -

 -

 

 -

 

 -

 

4,450 

 

4,450 

Net income

 -

 

 -

 

 -

 -

 

 -

 

9,527 

 

 -

 

9,527 

Dividends declared

 -

 

 -

 

 -

 -

 

 -

 

(49,856)

 

 -

 

(49,856)

Balance, December 31, 2017

184,078 

$

572 

$

1,409,993  (41,186)

$

(1,555,152)

$

2,312,335 

$

(148,220)

$

2,019,528 

Common stock issued on exercise of options

19 

 

 -

 

3,006 

 -

 

 -

 

 -

 

 -

 

3,006 

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

13 

 

 -

 

(862)

 -

 

 -

 

 -

 

 -

 

(862)

Common stock issued on employee stock purchase plan

 -

 

 -

 

 -

 -

 

 -

 

 -

 

 -

 

 -

Treasury stock purchases

 -

 

(1)

 

 -

(200)

 

(19,356)

 

 -

 

 -

 

(19,357)

Stock-based compensation costs

 -

 

 -

 

11,890 

 -

 

 -

 

 -

 

 -

 

11,890 

Other comprehensive income

 -

 

 -

 

 -

 -

 

 -

 

 -

 

(7,393)

 

(7,393)

Net income

 -

 

 -

 

 -

 -

 

 -

 

110,125 

 

 -

 

110,125 

Dividends declared

 -

 

 -

 

 -

 -

 

 -

 

(49,973)

 

 -

 

(49,973)

Balance, March 31, 2018

184,110 

$

571 

$

1,424,027  (41,386)

$

(1,574,508)

$

2,372,487 

$

(155,613)

$

2,066,964 



















7


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

 

RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In US$ thousands)



 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended
March 31,



 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

335,791 

 

$

205,777 

Adjustment to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

108,203 

 

 

88,256 

Stock-based compensation costs

 

 

37,856 

 

 

35,933 

Loss attributable to equity method investments (note 6)

 

 

9,371 

 

 

 -

Impairment of equity investments (note 6)

 

 

8,801 

 

 

3,620 

Gain on previously held equity interest

 

 

(1,909)

 

 

 -

Changes in fair value of business combination contingent consideration

 

 

(272)

 

 

383 

Changes in operating assets and liabilities, net of effect of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

(1,482)

 

 

(39,421)

Inventories

 

 

(55,002)

 

 

(11,146)

Prepaid expenses, net deferred income taxes and other current assets

 

 

(17,453)

 

 

(72,332)

Accounts payable, accrued expenses and other

 

 

(106,671)

 

 

164,540 

Net cash provided by operating activities

 

 

317,233 

 

 

375,610 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(46,507)

 

 

(44,961)

Patent registration costs

 

 

(6,556)

 

 

(6,743)

Business acquisitions, net of cash acquired

 

 

(951,565)

 

 

(482)

Purchases of investments (note 6)

 

 

(31,092)

 

 

(6,445)

Proceeds (payments) on maturity of foreign currency contracts

 

 

3,902 

 

 

(4,667)

Net cash used in investing activities

 

 

(1,031,818)

 

 

(63,298)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

15,346 

 

 

24,074 

Taxes paid related to net share settlement of equity awards

 

 

(27,880)

 

 

(14,471)

Purchases of treasury stock

 

 

(22,844)

 

 

(27,897)

Payments of business combination contingent consideration

 

 

(648)

 

 

(205)

Proceeds from borrowings, net of borrowing costs

 

 

1,414,230 

 

 

120,000 

Repayment of borrowings

 

 

(541,394)

 

 

(390,000)

Dividends paid

 

 

(158,592)

 

 

(149,527)

Net cash provided by (used in) financing activities

 

 

678,218 

 

 

(438,026)

Effect of exchange rate changes on cash

 

 

(5,821)

 

 

8,060 

Net increase (decrease) in cash and cash equivalents

 

 

(42,188)

 

 

(117,654)

Cash and cash equivalents at beginning of period

 

 

188,701 

 

 

821,935 

Cash and cash equivalents at end of period

 

$

146,513 

 

$

704,281 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid, net of refunds

 

$

211,816 

 

$

75,119 

Interest paid

 

$

23,608 

 

$

22,873 

Fair value of assets acquired, excluding cash

 

$

400,804 

 

$

290 

Liabilities assumed

 

 

(320,923)

 

 

 -

Goodwill on acquisition

 

 

879,419 

 

 

247 

Deferred payments

 

 

(7,568)

 

 

(55)

Fair value of contingent consideration

 

 

(167)

 

 

 -

Cash paid for acquisition

 

$

951,565 

 

$

482 









 



 

8


 

Table of Contents

 

 

 

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, 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, 2019.



The condensed consolidated financial statements for the three and nine months ended March 31, 2019 and March 31, 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, 2018.



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

The following table summarizes our net revenue disaggregated by segment, product and region for the three and nine months ended March 31, 2019 compared to March 31, 2018 (in millions):









 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
March 31,

 

Nine Months Ended
March 31,



 

2019

 

2018

 

2019

 

2018

U.S., Canada and Latin America

 

 

 

 

 

 

 

 

 

 

 

 

Devices

 

$

181.3 

 

$

168.1 

 

$

540.2 

 

$

499.7 

Masks and other

 

 

168.7 

 

 

149.4 

 

 

494.8 

 

 

443.7 

Total Sleep and Respiratory Care

 

$

350.0 

 

$

317.5 

 

$

1,035.0 

 

$

943.4 

Software as a Service

 

 

79.9 

 

 

39.9 

 

 

190.6 

 

 

116.6 

Total

 

$

429.9 

 

$

357.4 

 

$

1,225.6 

 

$

1,060.0 

 

 

 

  

 

 

 

 

 

  

 

 

 

Combined Europe, Asia and other markets

 

 

 

 

 

 

 

 

 

 

 

 

Devices

 

$

155.2 

 

$

160.1 

 

$

463.0 

 

$

451.8 

Masks and other

 

 

77.1 

 

 

74.1 

 

 

213.0 

 

 

204.8 

Total Sleep and Respiratory Care

 

$

232.3 

 

$

234.2 

 

$

676.0 

 

$

656.6 

 

 

 

   

 

 

 

 

 

   

 

 

 

Global revenue

 

 

 

 

 

 

 

 

 

 

 

 

Devices

 

$

336.5 

 

$

328.2 

 

$

1,003.2 

 

$

951.5 

Masks and other

 

 

245.8 

 

 

223.5 

 

 

707.8 

 

 

648.5 

Total Sleep and Respiratory Care

 

$

582.3 

 

$

551.7 

 

$

1,711.0 

 

$

1,600.0 

Software as a Service

 

 

79.9 

 

 

39.9 

 

 

190.6 

 

 

116.6 

Total

 

$

662.2 

 

$

591.6 

 

$

1,901.6 

 

$

1,716.6 









9


 

Table of Contents

 

 

 

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 to five years. The following table summarizes our contract balances at March 31, 2019 and June 30, 2018 (in thousands):













 

 

 

 

 

 

 

 



 

March 31,
2019

 

June 30,
2018

 

Balance sheet caption

Contract assets

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

511,403 

 

$

483,681 

 

Accounts receivable, net

Unbilled revenue, current

 

 

10,443 

 

 

13,342 

 

Prepaid expenses and other current assets

Unbilled revenue, non-current

 

 

3,825 

 

 

2,973 

 

Prepaid taxes and other non-current assets

 

 

 

  

 

 

 

 

 

Contract liabilities

 

 

 

 

 

 

 

 

Deferred revenue, current

 

 

(82,288)

 

 

(60,828)

 

Deferred revenue (current liabilities)

Deferred revenue, non-current

 

 

(76,703)

 

 

(71,596)

 

Deferred revenue (non-current liabilities)



Transaction price determination

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. In our Sleep and Respiratory Care segment, the amount of consideration received and revenue recognized varies with changes in marketing incentives (e.g., rebates, discounts, free goods) and returns offered to 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.



10


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

RESMED INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

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.



New Accounting Pronouncements



(a)  Recently issued accounting standards not yet adopted



ASU No. 2016-02, “Leases”

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842). Under the new guidance, lessees are required to recognize a right-of-use asset 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 will be classified as either operating or finance under the new guidance. Operating leases will result in straight-line expense in the income statement, similar to current operating leases, and finance leases will result in more expense being recognized in the earlier years of the lease term, similar to current capital leases.  For lessors, the update will more closely align lease accounting to comparable guidance in the new revenue standards described.



The new standard is effective for us beginning in the first quarter of the year ending June 30, 2020 and early application is permitted. ASU 2016-02 will be adopted on a modified retrospective transition basis. There is a practical expedient available that would permit any leases that existed at the date of adoption to continue to be accounted for in accordance with the previous GAAP, ASC 840. We are still evaluating whether we will adopt this practical expedient.



We formed an implementation team during the year ended June 30, 2018 to oversee adoption of the new standard. The implementation team has established a project plan, collected copies of our lease agreements, implemented procedures to identify embedded leases and commenced a global education program regarding the new standard. There are a number of steps in the team’s project plan that remain to be completed including: reviewing system outputs from lease data entry and balance calculations, evaluating the impact, and working through required changes to systems, business processes and controls to support the adoption of the new leases standard. While the formal impact assessment is ongoing, we expect this amendment will affect the way we account for operating leases where we are the lessee (as described above), require reassessment of how we account for revenue where we are the lessor and will result in increased disclosures for all lease arrangements. We are still evaluating the impact the standard will have on our financial statements.



(b)  Recently adopted accounting pronouncements



ASU No. 2014-09, “Revenue from Contracts with Customers”

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Since its initial release, the FASB has issued several amendments to the standard, which include clarification of accounting guidance related to identification of performance obligations, intellectual property licenses, and principal vs. agent considerations. ASU 2014-09 and all subsequent amendments (collectively, the “new revenue recognition standards”) replaced most existing revenue recognition guidance in U.S. GAAP during the current quarter when it became effective. The guidance also requires improved disclosures on the nature, amount, timing, and uncertainty of revenue that is recognized.



Effective July 1, 2018, we adopted the new revenue recognition standards and applied its provisions to all contracts using the modified retrospective method. Application of the new provisions did not have a material impact on our financial statements and no cumulative-effect adjustment was calculated or recognized. The comparative information has not been restated; however, if it were there would be no change in the accounting treatment. Refer to the “Revenue Recognition” section above for further details about our revenue recognition following adoption of the new revenue recognition standards.



11


 

Table of Contents

 

 

 

PART I – FINANCIAL INFORMATION

Item 1

RESMED INC. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

ASU No. 2016-01, "Financial Instruments - Overall"

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall" (Topic 825-10). The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments, and require equity investments, other than equity-method investments, to be measured at fair value with changes in fair value recognized through net income. The amendments also simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment for impairment quarterly at each reporting period. We adopted ASU 2016-01 during the quarter ended September 30, 2018 and elected to apply the practical expedient for measuring equity investments that do not have readily determinable fair market.  Based on our elections, our strategic equity investments that do not have readily determinable fair values are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identifiable or similar investments of the same issuer. The measurement alternative was applied prospectively and the adoption of ASU 2016-01 did not result in an adjustment to retained earnings.



ASU No. 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory”

In October 2016, the FASB issued Accounting Standard Update ASU No. 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory” (Topic 740). Under the new guidance, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 became effective during the three months ended September 30, 2018 and is required to be adopted on a modified retrospective basis, with a cumulative-effect adjustment recorded directly to retained earnings for intra-entity transfers that occur before the adoption date. Accordingly, we recognized the following reclassifications upon adoption (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Balance Sheet Caption

 

As reported balance
June 30, 2018

 

Adoption of
ASU 2016-16 Increase/(Decrease)

 

Revised balance
July 1, 2018

Assets

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

124,634 

 

$

(28,947)

 

$

95,687 

Prepaid taxes and other non-current assets

 

 

273,710 

 

 

(156,406)

 

 

117,304 

Deferred income taxes

 

 

53,818 

 

 

(3,445)

 

 

50,373 

Equity

 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

2,432,328 

 

 

(188,798)

 

 

2,243,530 



 



(2)      Inventories



Inventories were comprised of the following at March 31, 2019 and June 30, 2018 (in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,
2019

 

June 30,
2018

Raw materials

 

$

79,944 

 

$

75,415 

Work in progress

 

 

2,479 

 

 

2,453 

Finished goods

 

 

237,507 

 

 

190,833 

Total inventories

 

$

319,930 

 

$

268,701 

 

(3)      Property, Plant and Equipment



Property, plant and equipment were comprised of the following as of March 31, 2019 and June 30, 2018 (in thousands): 



 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,
2019

 

June 30,
2018

Machinery and equipment

 

$

256,797 

 

$

239,671 

Computer equipment

 

 

170,620 

 

 

155,069 

Furniture and fixtures

 

 

51,510 

 

 

51,045 

Vehicles

 

 

7,390 

 

 

7,399 

Clinical, demonstration and rental equipment

 

 

91,133 

 

 

92,229 

Leasehold improvements

 

 

33,677 

 

 

32,169 

Land

 

 

52,735 

 

 

54,089 

Buildings

 

 

224,482 

 

 

229,193 



 

 

888,344 

 

 

860,864 

Accumulated depreciation and amortization

 

 

(505,848)

 

 

(474,314)

Property, plant and equipment, net

 

$

382,496 

 

$

386,550 

 

12


 

Table of Contents

 

 

 

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):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Nine Months Ended March 31, 2019



 

Sleep and
Respiratory Care

 

SaaS

 

Total

Balance at the beginning of the period

 

$

464,157 

 

$

604,787 

 

$

1,068,944 

Business acquisition

 

 

182,159 

 

 

697,260 

 

 

879,419 

Foreign currency translation adjustments

 

 

(9,227)

 

 

 -

 

 

(9,227)

Balance at the end of the period

 

$

637,089 

 

$

1,302,047 

 

$

1,939,136 

 

(5)      Other Intangible Assets 

Other intangible assets were comprised of the following as of March 31, 2019 and June 30, 2018 (in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,
2019

 

June 30,
2018

Developed/core product technology

 

$

334,366 

 

$

205,149 

Accumulated amortization

 

 

(141,780)

 

 

(115,237)

Developed/core product technology, net

 

 

192,586 

 

 

89,912 

Trade names

 

 

77,596 

 

 

48,832 

Accumulated amortization

 

 

(23,512)

 

 

(16,868)

Trade names, net

 

 

54,084 

 

 

31,964 

Non-compete agreements

 

 

4,232 

 

 

3,288 

Accumulated amortization

 

 

(2,632)

 

 

(2,283)

Non-compete agreements, net

 

 

1,600 

 

 

1,005 

Customer relationships