Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 15, 2002

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on May 15, 2002


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

-------------------
FORM 10-Q
-------------------

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________

0-26038
Commission file number:

ResMed Inc
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

98-0152841
(IRS Employer Identification No)

14040 Danielson St
Poway CA 92064-6857
United States Of America
(Address of principal executive offices)

(858) 746 2400
(Registrant's telephone number including area code)


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 [_]

As of March 31, 2002, there were 32,273,707 shares of Common Stock ($0.004 par
value) outstanding.




RESMED INC. AND SUBSIDIARIES

INDEX

Part I Financial Information
Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of 3
March 31, 2002 and June 30, 2001

Unaudited Condensed Consolidated Statements of Income for the 4
Three Months Ended March 31, 2002 and 2001 and the Nine Months
ended March 31, 2002 and 2001

Unaudited Condensed Consolidated Statements of Cash Flows for 5
the Nine Months Ended March 31, 2002 and 2001

Notes to Unaudited Condensed Consolidated Financial Statements 6

Item 2 Management's Discussion and Analysis of Financial Condition 17
and Results of Operations

Item 3 Quantitative and Qualitative Disclosures About Market and 24
Business Risks


Part II Other Information

Item 1 Legal Proceedings 35

Item 2 Changes in Securities 35

Item 3 Defaults Upon Senior Securities 35

Item 4 Submission of Matters to a Vote of Security Holders 35

Item 5 Other Information 35

Item 6 Exhibits and Reports on Form 8-K 35

Signatures 36

2



PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)





March 31, June 30,
2002 2001
---------------------------

ASSETS
Current assets:
Cash and cash equivalents $56,228 $40,136
Marketable securities - available-for-sale 56,823 62,616
Accounts receivable, net of allowance for doubtful accounts of $777 at March 31, 2002 and 43,966 32,248
$892 at June 30, 2001
Inventories (Note 4) 33,680 29,994
Deferred income taxes 4,397 4,152
Prepaid expenses and other current assets 15,437 8,736
---------------------------
Total current assets 210,531 177,882
---------------------------

Property, plant and equipment, net of accumulated depreciation of $27,118 at March 31, 2002 65,542 55,092
and $19,930 at June 30, 2001
Patents, net of accumulated amortization of $1,531 at March 31, 2002 and $1,030 at June 30, 2001 2,623 1,390
Goodwill (Note 6) 54,642 47,870
Other assets 7,803 5,856
---------------------------
Total non-current assets 130,610 110,208
---------------------------
TOTAL ASSETS $341,141 $288,090
===========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

Accounts payable $12,371 $7,971
Accrued expenses and other liabilities 26,497 16,751
Income taxes payable 8,825 8,888
---------------------------
Total current liabilities 47,693 33,610
---------------------------

Non current liabilities:
Deferred revenue 5,730 4,114
Convertible subordinated notes (Note 8) 146,000 150,000
---------------------------

Total non current liabilities 151,730 154,114
---------------------------
TOTAL LIABILITIES 199,423 187,724
---------------------------

Stockholders' Equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued - -
Series A Junior Participating preferred stock, $0.01 par value, 250,000 shares
authorized; none issued - -
Common Stock, $0.004 par value, 100,000,000 shares authorized; issued and outstanding 129 126
32,273,707 at March 31, 2002 and 31,478,780 at June 30, 2001
Additional paid-in capital 61,977 52,675
Retained earnings 104,833 77,137
Accumulated other comprehensive loss (Note 5) (25,221) (29,572)
---------------------------
TOTAL STOCKHOLDERS' EQUITY 141,718 100,366
---------------------------
Commitments and contingencies (Note 9) -

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $341,141 $288,090
===========================





See accompanying notes to unaudited condensed consolidated financial statements.



3


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share data)



Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
--------------------------------------------------------

Net revenue $52,776 $42,680 $147,829 $108,128
Cost of sales 19,005 13,757 51,388 35,097
--------------------------------------------------------
Gross profit 33,771 28,923 96,441 73,031
--------------------------------------------------------

Operating expenses:
Selling, general and administrative 16,408 13,727 45,467 34,042
Provision for restructure - 550 - 550
Donation to Research Foundation 1,000 - 1,000 -
Research and development 3,792 3,017 10,770 7,911
In process research and development write-off - 17,677 - 17,677
--------------------------------------------------------
Total operating expenses 21,200 34,971 57,237 60,180
--------------------------------------------------------

Income from operations 12,571 (6,048) 39,204 12,851
--------------------------------------------------------

Other income (expenses), net:

Interest income (expense), net (893) (256) (2,461) (153)
Other, net 433 448 471 1,901
--------------------------------------------------------
Total other income (expense), net (460) 192 (1,990) 1,748
--------------------------------------------------------

Income before income taxes 12,111 (5,856) 37,214 14,599
Income taxes (3,585) (4,338) (11,371) (11,315)
--------------------------------------------------------
Income before extraordinary item 8,526 (10,194) 25,843 3,284
Extraordinary gain on debt extinguishment, net of tax 1,853 - 1,853 -
--------------------------------------------------------
Net income (loss) $10,379 ($10,194) $27,696 $3,284
========================================================
Basic earnings per share:
Before extraordinary item $0.26 ($0.33) $0.81 $0.11
Extraordinary gain on debt extinguishment 0.06 - 0.06 -
--------------------------------------------------------
Basic earnings (loss) per share $0.32 ($0.33) $0.87 $0.11
========================================================
Diluted earnings per share:
Before extraordinary item $0.25 ($0.30) $0.76 $0.10
Extraordinary gain on debt extinguishment 0.06 - 0.05 -
--------------------------------------------------------
Diluted earnings (loss) per share $0.31 ($0.30) $0.81 $0.10
========================================================
Basic share outstanding 32,217 31,246 31,992 31,030
Diluted shares outstanding 33,924 33,691 34,101 33,330


See accompanying notes to unaudited condensed
consolidated financial statements.

4


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)


Nine Months Ended
March 31,
2002 2001
------------------------------

Cash flows from operating activities:
Net income $27,696 $3,284
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 7,007 5,708
Amortization of deferred borrowing costs 954 -
Provision for service warranties (113) 99
Foreign currency options revaluations 340 2,588
Extraordinary gain on debt extinguishment (1,853) -
Restructuring provision - 550
Purchased in process researched and development write off - 17,677
Changes in operating assets and liabilities:
Accounts receivable, net (10,536) (6,501)
Inventories (4,712) (6,569)
Prepaid expenses and other current assets (6,436) (2,674)
Accounts payable, accrued expenses and other liabilities 14,838 5,471
------------------------------
Net cash provided by operating activities 27,185 19,633
------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (15,819) (24,435)
Patent registration costs (975) (386)
Purchase of non-trading investments (2,839) (2,216)
Business acquisitions, net of cash acquired of $369 (Note 7) (6,544) (14,899)
Purchases of marketable securities - available-for-sale (350,743) (17,263)
Proceeds from sale of marketable securities - available-for-sale 356,685 20,976
------------------------------
Net cash used in investing activities (20,235) (38,223)
------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 9,305 5,971
Proceeds from borrowings, net of borrowing costs 28,402 27,500
Repayment of short term debt - (6,213)
Redemption of borrowings (29,935) -
------------------------------
Net cash provided by financing activities 7,772 27,258
------------------------------
Effect of exchange rate changes on cash 1,370 (2,348)
------------------------------
Net (decrease)/increase in cash and cash equivalents 16,092 6,320
Cash and cash equivalents at beginning of period 40,136 18,250
------------------------------
Cash and cash equivalents at end of period $56,228 $24,570
==============================

Supplemental disclosure of cash flow information:
Income taxes paid $13,620 $8,601
Interest paid 3,868 565
==============================

Fair value of assets acquired on acquisition: $2,634 $30,194
Liabilities assumed (1,131) (21,876)
Goodwill on acquisition 5,410 47,119
------------------------------
Consideration for acquisition, including acquisition costs 6,913 55,437
Cash paid for acquisition 6,913 15,266
------------------------------
Balance Payable $ - $40,171
==============================

See accompanying notes to condensed consolidated financial statements.



5


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(1) Organization and Basis of Presentation
--------------------------------------

ResMed Inc. (the Company), is a Delaware Corporation formed in March 1994
as a holding company for the ResMed Group. The Company designs,
manufactures and markets devices for the evaluation and treatment of sleep
disordered breathing, primarily obstructive sleep apnea. The Company's
principal manufacturing operations are located in Australia. Other major
distribution and sales sites are located in the United States, the United
Kingdom, France, Germany, Sweden and Singapore.

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 2002 and the nine months ended March 31,
2002 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2002.

(2) Summary of Significant Accounting Policies
------------------------------------------

(a) Basis of Consolidation
----------------------

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could
differ from management's estimates.

(b) Revenue Recognition
-------------------

Revenue on product sales is recorded at the time of shipment. Royalty
revenue from license agreements is recorded when earned. Service
revenue received in advance from service contracts is initially
capitalized and recognized as revenue over the life of the service
contract. Revenue from sale of marketing and distribution rights is
initially deferred and recognized as revenue over the life of the
contract.

6


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------

(c) Cash and Cash Equivalents
-------------------------

Cash equivalents include certificates of deposit, commercial paper,
and other highly liquid investments stated at cost, which approximates
market. Investments with original maturities of 90 days or less are
considered to be cash equivalents for purposes of the condensed
consolidated financial statements.

(d) Inventories
-----------

Inventories are stated at the lower of cost, determined principally by
the first-in, first-out method, or net realizable value.

(e) Property, Plant and Equipment
-----------------------------

Property, plant and equipment is recorded at cost. Depreciation
expense is computed using the straight-line method over the estimated
useful lives of the assets, generally two to ten years. Straight-line
and accelerated methods of depreciation are used for tax purposes.
Maintenance and repairs are charged to expense as incurred.

(f) Patents
-------

The registration costs for new patents are capitalized and amortized
over the estimated useful life of the patent, generally five years. In
the event of a patent being superseded, the unamortized costs are
written off immediately.

(g) Foreign Currency
----------------

The consolidated financial statements of the Company's non-US
subsidiaries are translated into US dollars for financial reporting
purposes. Assets and liabilities of non-US subsidiaries whose
functional currencies are other than the US dollar are translated at
period end exchange rates, and revenue and expense transactions are
translated at average exchange rates for the period. Cumulative
translation adjustments are recognized as part of "Comprehensive
Income," as described in Note 5, and are included in accumulated other
comprehensive loss on the condensed consolidated balance sheet until
such time as the subsidiary is sold or substantially or completely
liquidated. Gains and losses on transactions, denominated in other
than the functional currency of the entity, are reflected in
operations.

(h) Research and Development
------------------------

All research and development costs are expensed in the period
incurred.

7


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------

(i) Earnings per Share
------------------

The weighted average shares used to calculate basic earnings per share
was 32,217,000 and 31,246,000 for the quarters ended March 31, 2002
and 2001, respectively, and 31,992,000 and 31,030,000 for the
nine-month periods ended March 31, 2002 and 2001, respectively. The
difference between basic earnings per share and diluted earnings per
share is attributable to the impact of outstanding stock options
during the periods presented. Stock options had the effect of
increasing the number of shares used in the calculation (by
application of the treasury stock method) by 1,707,000 and 2,445,000
for the quarters ended March 31, 2002 and 2001, respectively, and by
2,109,000 and 2,300,000 for the nine-month periods ended March 31,
2002 and 2001, respectively.

(j) Financial Instruments
---------------------

The carrying value of financial instruments, such as cash and cash
equivalents, marketable securities - available-for-sale, accounts
receivable, government grants, foreign currency option contracts,
short term debt, taxes payable and accounts payable approximate their
fair value. The Company does not hold or issue financial instruments
for trading purposes.

(k) Foreign Exchange Risk Management
--------------------------------

The Company enters into foreign currency call options in managing its
foreign exchange risk. The purpose of the Company's foreign currency
hedging activities is to protect the Company from adverse exchange
rate fluctuations with respect to net cash movements resulting from
the sales of products to foreign customers and Australian
manufacturing activities. The Company enters into foreign currency
option contracts to hedge anticipated sales and manufacturing costs
denominated principally in Australian dollars and Euros. The terms of
such foreign currency option contracts generally do not exceed two
years.

Unrealized gains or losses are recognized as incurred in the
consolidated balance sheets as either other assets or other
liabilities and are recorded within other income, net on the Company's
condensed consolidated statements of income. Unrealized gains and
losses on currency derivatives are determined based on dealer quoted
prices.

As of July 1, 2000 the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which standardizes the accounting
for derivative instruments. Under the restrictive definition of hedge
effectiveness contained in SFAS 133, the Company's hedging contracts
do not have hedge effectiveness and are therefore marked to market
with resulting gains or losses being recognized in earnings in the
period of change.

8


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------

(k) Foreign Exchange Risk Management, Continued
-------------------------------------------

The Company is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments. The credit
exposure of foreign exchange options at March 31, 2002 was $2,214,000
which represents the positive fair value of options held by the
Company.

The Company held foreign currency option contracts with notional
amounts totaling $135,068,000 and $223,752,000 at March 31, 2002 and
June 30, 2001, respectively to hedge foreign currency items. These
contracts mature at various dates prior to June 2003.

(l) Income Taxes
------------

The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.

(m) Marketable Securities
---------------------

Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase and
re-evaluates such determination at each balance sheet date. Debt
securities for which the Company does not have the intent or ability
to hold to maturity are classified as available-for-sale. Securities
available-for-sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in accumulated other
comprehensive income (loss).

At March 31, 2002 and June 30, 2001, the Company's investments in debt
securities were classified on the condensed consolidated balance
sheets as marketable securities-available-for-sale. These investments
are diversified among high credit quality securities in accordance
with the Company's investment policy.

The amortized cost of debt securities classified as available-for-sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest
income (expense). Realized gains and losses are included in other
income or expense. The cost of securities sold is based on the
specific identification method.

9


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(2) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------

(n) Warranty
--------

Estimated future warranty costs related to products are accrued to
operations in the period in which the related revenue is recognized.

(o) Impairment of Long-Lived Assets
-------------------------------

The Company periodically evaluates the carrying value of long-lived
assets to be held and used, including certain identifiable intangible
assets, when events and circumstances indicate that the carrying
amount of an asset may not be recovered. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.

(3) Accounting Changes
------------------

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset
retirement costs would capitalized as part of the carrying amount of the
long-lived asset and depreciated over the life of the asset. The liability
is accreted at the end of each period through charges to operating expense.
If the obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement. The
provisions of SFAS No. 143 are effective for fiscal years beginning after
June 15, 2002. The Company has not yet determined the impact, if any, of
adoption of SFAS No. 143.

Effective July 1, 2001, the Company adopted SFAS No. 141, "Business
Combinations". SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. The
Company has evaluated the impact of SFAS 141 and believes that it will not
have a material impact on the results of operations, financial position and
liquidity of the Company.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill
and Other Intangible Assets. As allowed under the Standard, the Company
has adopted SFAS 142 effective July 1, 2001. SFAS 142 requires goodwill
and intangible assets with indefinite useful lives to no longer be
amortized, but instead be tested for impairment at least annually.

10


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(3) Accounting Changes, Continued
-----------------------------

With the adoption of SFAS 142, the Company reassessed the useful lives and
residual values of all acquired intangible assets to make any necessary
amortization period adjustments. Based on that assessment, only goodwill
was determined to have an indefinite useful life and no adjustments were
made to the amortization period or residual values of other intangible
assets.

In accordance with SFAS 142 the Company has completed its initial
assessment of goodwill impairment. The results of the review indicated that
no impaired goodwill currently exists.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." For long-lived assets to be
held and used, SFAS No. 144 retains the requirements of SFAS No. 121 to (a)
recognize an impairment loss only if the carrying amount of a long-lived
asset is not recoverable from its undiscounted cash flows and (b) measure
an impairment loss as the difference between the carrying amount and fair
value. Further, SFAS No. 144 eliminates the requirement to allocate
goodwill to long-lived assets to be tested for impairment, describes a
probability-weighted cash flow estimation approach to deal with situations
in which alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration or a range is estimated for the
amount of possible future cash flows, and establishes a "primary-asset"
approach to determine the cash flow estimation period. For long-lived
assets to be disposed of other than by sale (e.g. assets abandoned,
exchanged or distributed to owners in a spin-off), SFAS No. 144 requires
that such assets be considered held and used until disposed of. Further, an
impairment loss should be recognized at the date an asset is exchanged for
a similar productive asset or distributed to owners in a spin-off if the
carrying amount exceeds its fair value.

(4) Inventories
-----------

Inventories were comprised of the following at March 31, 2002 and June 30,
2001:




(in US$ thousands) March 31, June 30,
2002 2001
-----------------------------------


Raw materials $7,329 $7,584
Work in progress 654 98
Finished goods 25,697 22,312
-----------------------------------
$33,680 $29,994
===================================


11


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(5) Comprehensive Income
--------------------

As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which established standards for the reporting and
display of comprehensive income and its components in the financial
statements.

The table below presents other comprehensive (income) loss:




(In US$ thousands) Foreign Unrealized Accumulated Other
Currency Gains on Comprehensive
Items Securities Loss



Beginning balance, July 1, 2001 $29,572 - $29,572
Current period change (4,252) (99) (4,351)
--------------------------------------------------
Ending balance, March 31, 2002 $25,320 (99) $25,221
==================================================



The Company does not provide for US income taxes on foreign currency
translation adjustments since it does not provide for such taxes on
undistributed earnings of foreign subsidiaries. Accumulated other
comprehensive loss at March 31, 2002 and June 30, 2001 consisted of foreign
currency translation adjustments with net debit balances of $25.3 million
and $29.6 million, respectively and unrealized gains on securities of
$99,000 (net of tax of $51,000) and zero, respectively.

12


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(6) Goodwill and Other Intangible Assets
------------------------------------

As described in Note 3, the Company adopted SFAS 142 on July 1, 2001. The
following table reconciles the prior year's reported operating income and
net income to their respective pro-forma balances adjusted to exclude
goodwill amortization expense which is no longer recorded under SFAS 142.




Three months ended Nine months ended
March 31 March 31
(In US$ thousands, except per share amounts) 2002 2001 2002 2001
------------------------------------------------------


Operating Income:
----------------
Reported income from operations $12,571 $(6,048) $39,204 $12,851
Add back: goodwill amortization - 435 - 727
------------------------------------------------------
Adjusted income (loss) from operations $12,571 $(5,613) $39,204 $13,578
======================================================

Net Income:
----------

Reported net income (loss) before extraordinary item $8,526 $(10,194) $25,843 $3,284
Add back: goodwill amortization after tax - 435 - 727
------------------------------------------------------
Adjusted net income (loss) before extraordinary item $8,526 $(9,759) $25,843 $4,011
Extraordinary item 1,853 - 1,853 -
------------------------------------------------------
Adjusted net income (loss) $10,379 $(9,759) $27,696 $4,011
======================================================

Basic Earnings per share:
------------------------

Reported basic earnings (loss) per share before
extraordinary item $0.26 $(0.33) $0.81 $0.11
Goodwill amortization after tax - 0.01 - $0.02
------------------------------------------------------
Adjusted basic earnings (loss) per share before
extraordinary item $0.26 $(0.32) $0.81 $0.13
Extraordinary item $0.06 - $0.06 -
------------------------------------------------------
Adjusted basic earnings (loss) per share $0.32 $(0.32) $0.87 $0.13
======================================================

Diluted Earnings per share:
--------------------------

Reported diluted earnings (loss) per share before
extraordinary item $0.25 $(0.30) $0.76 $0.10
Goodwill amortization after tax - 0.01 - $0.02
------------------------------------------------------
Adjusted diluted earnings (loss) per share before
extraordinary item $0.25 $(0.29) $0.76 $0.12
Extraordinary item $0.06 - $0.05 -
------------------------------------------------------
Adjusted diluted earnings (loss) per share $0.31 $(0.29) $0.81 $0.12
======================================================


Changes in the carrying amount of goodwill for the nine months ended
March 31, 2002, were as follows:




(In US$ thousands)
Balance at June 30, 2001 $47,870
Foreign currency translation adjustments 1,362
Goodwill on acquisition of Labhardt (Note 7) 3,993
Contingent goodwill payment for MAP (Note 7) 1,417
-------------
Balance at March 31, 2002 $54,642
=============



13


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(6) Goodwill and Other Intangible Assets, Continued
-----------------------------------------------

Other intangible assets amounted to $2.6 million (net of accumulated
amortization of $1.5 million) and $1.4 million (net of accumulated
amortization of $1.0 million) at March 31, 2002 and June 30, 2001,
respectively. These intangible assets consist of patents and are amortized
over the estimated useful life of the patent, generally five years. There
are no expected residual values related to these intangible assets.

(7) Business Acquisition
--------------------

On November 15, 2001 the Company acquired all the common stock of Labhardt
AG, its Swiss distributor, for total cash consideration, including
acquisition costs, of $5.5 million.

The acquisition has been accounted for as a purchase and accordingly, the
results of operations of Labhardt AG have been included in the Company's
consolidated financial statements from November 15, 2001. The excess of the
purchase price over the fair value of the net identifiable assets acquired
of $1.5 million has been recorded as goodwill.

During the December quarter, the Company paid an amount of $1.4 million as
final consideration associated with the purchase of MAP Medizin-Technologie
GmbH on February 16, 2001. The amount has been recorded as goodwill.

(8) Convertible Subordinated Notes
------------------------------

On June 20, 2001 the Company issued $150.0 million of 4% convertible
subordinated notes that are due to mature on June 20, 2006. On July 3,
2001, the Company issued an additional $30.0 million in over allotments.
This increased the total amount of convertible subordinated notes issued to
$180.0 million.

The notes are convertible, at the option of the holder, at any time on or
prior to maturity, into shares of common stock of ResMed Inc. The notes are
convertible at a conversion price of $60.60 per share, which is equal to a
conversion rate of 16.5017 shares per $1,000 principal amount of notes,
subject to adjustment.

Interest is to be paid on the notes on June 20 and December 20 of each
year, beginning December 20, 2001.


14


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(8) Convertible Subordinated Notes, Continued
-----------------------------------------

The Company may redeem some or all of the notes at any time before June 20,
2004 at a redemption price of $1,000 per $1,000 principal amount of notes,
plus accrued and unpaid interest, if any, to the redemption date, if the
closing price of the Company's common stock has exceeded 150% of the
conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day before the
date of mailing of the provisional redemption notice. Upon any such
provisional redemption, the Company will make an additional payment in cash
equal to $166.67 per $1,000 principal amount of notes, less the amount of
any interest actually paid on the notes before the provisional redemption
date.

The Company may also redeem some or all of the notes at any time on or
after June 22, 2004, but prior to June 20, 2005, at a redemption price
equal to 101.6% of the principal amount of notes redeemed, and at any time
after June 19, 2005, at a redemption price of 100.8% of the principal
amount of notes, plus in any case accrued and unpaid interest, if any, to
the redemption date, if the closing price of the Company's common stock has
exceeded 130% of the conversion price then in effect for at least 20
trading days within a period of 30 consecutive trading days ending on the
trading day before the date of mailing of the optional redemption notice.

The notes are general unsecured obligations and are subordinated to all of
the Company's existing and future senior indebtedness and will be
effectively subordinated to all of the indebtedness and liabilities of the
Company's subsidiaries. The indenture governing the notes does not limit
the Company or its subsidiaries from incurring senior indebtedness or other
indebtedness.

During the quarter ended March 31, 2002, the Company repurchased $34.0
million face value of its convertible subordinated notes. The total
purchased price of the notes was $30.2 million, including $0.3 million in
accrued interest. The Company recognized an extraordinary gain of $1.9
million, net of tax of $1.1 million, on these transactions. As at March 31,
2002, the Company had convertible subordinated notes outstanding of $146.0
million.

(9) Commitments and Contingencies
-----------------------------

We are currently engaged in litigation relating to the enforcement and
defense of certain of our patents.

In January 1995, we filed a complaint in the United States District Court
for the Southern District of California seeking monetary damages from and
injunctive relief against Respironics for alleged infringement of three
ResMed patents. In February 1995, Respironics filed a complaint in the
United States District Court for the Western District of Pennsylvania
against us seeking a declaratory judgment that Respironics does not
infringe claims of these patents and that our patents are invalid and
unenforceable. The two actions were combined and are proceeding in the
United States District Court for the Western District of Pennsylvania.

15


PART I - FINANCIAL INFORMATION Item 1
..................................................................................

RESMED INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(9) Commitments and Contingencies, Continued
----------------------------------------

In June 1996, we filed an additional complaint against Respironics for
infringement of a fourth ResMed patent, and that complaint was consolidated
with the earlier action. As of this date, Respironics has brought three
partial summary judgment motions for non-infringement of the ResMed
patents; the Court has granted each of the motions.

In December 1999, in response to the Court's ruling on Respironics' third
summary judgment motion, the parties jointly stipulated to a dismissal of
charges of infringement under the fourth ResMed patent, with us reserving
the right to reassert the charges in the event of a favorable ruling on
appeal. We intend to appeal the summary judgment rulings after a final
judgment in the consolidated litigation has been entered in the District
Court proceedings.

In January 2001, our subsidiary MAP Medizin-Technologie GmbH filed a
lawsuit with the Regional Court in Munich against Hofrichter
Medizintechnick GmbH seeking an injunction regarding the sale of certain
flow generators as well as damages for the unauthorized and infringing use
of one of our trademarks and utility patent. On May 4, 2001, MAP obtained a
favorable judgment from the Civil Chamber of Munich Court that enjoined the
defendant from using MAP's patent, which judgment has been appealed.

While we are prosecuting the above actions, there can be no assurance that
we will be successful.

16


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Net Revenue

Net revenue increased for the three months ended March 31, 2002 to $52.8 million
from $42.7 million for the three months ended March 31, 2001, an increase of
$10.1 million or 24%. For the nine-month period ended March 31, 2002 net revenue
increased to $147.8 million from $108.1 million for the nine-month period ended
March 31, 2001, an increase of $39.7 million or 37%. Both the three month and
nine month increases in net revenue were attributable to an increase in unit
sales of the Company's flow generators and accessories in both domestic and
international markets and also to the acquisition on February 16, 2001 of MAP
Medizin-Technologie GmbH "MAP". Domestic revenue for the quarter increased to
$26.7 million from $21.3 million for the previous year quarter, and to $72.5
million from $57.6 million for the nine-month periods ended March 31, 2002 and
2001 respectively. Despite relatively flat sales in our German markets
reflecting the impact of health care policy changes in Germany, net revenue in
international markets increased to $26.1 million from $21.4 million for the
quarter, and to $75.3 million from $50.6 million for the nine month periods
ended March 31, 2002 and 2001, respectively.

Gross Profit

Gross profit increased for the three months ended March 31, 2002 to $33.8
million from $28.9 million for the three months ended March 31, 2001, an
increase of $4.9 million or 17%. Gross profit as a percentage of net revenue
declined for the quarter ended March 31, 2002 to 64.0% from 67.8% for the
quarter ended March 31, 2001. The decline in gross margins reflects a change in
geographical sales mix, with a relatively higher percentage of domestic sales,
which achieve lower margins, compared to international markets.

For the nine-month period ended March 31, 2002 gross profit increased to $96.4
million from $73.0 million in the same period of fiscal 2001, an increase of
$23.4 million or 32%. Gross profit as a percentage of net revenue was 65.2% and
67.5% for the nine-month periods ended March 31, 2002 and 2001 respectively. The
decline in gross margin reflects a change in geographical sales mix, with a
relatively higher percentage of domestic sales, which achieve lower margins,
compared to international markets.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended March 31, 2002 to $16.4 million from $13.7 million for the three months
ended March 31, 2001, an increase of $2.7 million or 20%. As a percentage of net
revenue, selling, general and administrative expenses for the three months ended
March 31, 2002 declined to 31.1% from 32.2% for the three months ended March 31,
2001. The increase in selling, general and administrative expenses was primarily
due to increase in the number of sales and administrative personnel and other
expenses related to the increase in Company sales.

17


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Selling, General and Administrative Expenses, Continued

Selling, general and administrative expenses for the nine months ended March 31,
2002 increased to $45.5 million from $34.0 million for the nine months ended
March 31, 2001, an increase of $11.5 million or 34%. As a percentage of net
revenue selling, general and administration expenses declined to 30.8% for the
nine months ended March 31, 2002 from 31.5% in the nine months ended March 31,
2001.

Provision for Restructure

Subsequent to the purchase of MAP, the Company restructured MAP's French
activities and for the three months ended March 31, 2001, took a charge of
$550,000 associated with the closure of MAP's unprofitable French operations.

Research and Development Expenses

Research and development expenses increased for the three months ended March 31,
2002 to $3.8 million from $3.0 million for the three months ended March 31,
2001, an increase of $0.8 million or 26%. As a percentage of net revenue,
research and development expenses increased to 7.2% for the three months ended
March 31, 2002 compared to 7.1% for the three months ended March 31, 2001. The
increase in research and development expenses was due to increased salaries
associated with an increase in personnel and increased charges for consulting
fees, clinical trials and technical assessments incurred to facilitate
development of new products and also included research and development
expenditure undertaken by MAP.

For the nine-month period ended March 31, 2002 research and development expenses
increased to $10.8 million from $7.9 million for the same period in fiscal 2001,
an increase of $2.9 million. As a percentage of net revenue, research and
development expenses was 7.3% for the nine months ended March 31, 2002 and 2001.
The increase in research and development expenses was due to increased salaries
associated with an increase in personnel and increased charges for consulting
fees, clinical trials and technical assessments incurred to facilitate
development of new products.

18


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

In Process Research and Development Write-Off

During the quarter ended March 31, 2001, purchased in process research and
development of $17,677,000 was expensed upon acquisition of MAP because
technological feasibility of the products under development had not been
established and no further alternative uses existed. The value of in process
technology was calculated by identifying research projects in areas for which
technological feasibility had not been established, estimating the costs to
develop the purchased in process technology into commercially viable products,
estimating the resulting net cash flows from such products, discounting the net
cash flows to present value, and applying the reduced percentage completion of
the projects thereto. The discount rates used in the analysis were between 27%
and 33% and were based on the risk profile of the acquired assets.

The Company believes that the assumptions used to value the acquired intangible
assets were reasonable at the time of acquisition. No assurance can be given,
however, that the underlying assumptions used to estimate expected project
revenues, development costs or profitability, or events associated with such
projects, will transpire as estimated. For these reasons, among others, actual
results may vary from the projected results.

Donation to Research Foundation

The Company donated $1.0 million for the establishment of the ResMed Sleep
Disordered Breathing Foundation. The Foundation's mission is to promote
awareness of and research into the serious medical consequences of untreated
sleep disordered breathing (SDB).

Extraordinary Gain on Debt Extinguishment

During the quarter ended March 31, 2002, the Company repurchased $34.0 million
face value of its convertible subordinated notes. The total purchase price of
the notes was $30.2 million, including $0.3 million in accrued interest. The
Company recognized an extraordinary gain of $1.9 million, net of tax of $1.1
million, on these transactions.

19


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Other Income (Expense), Net

Other income (expense), net, decreased for the three months ended March 31, 2002
to net expense of $460,000 from net income of $192,000 for the three months
ended March 31, 2001. The decrease in other income primarily reflects increased
interest expense associated with the convertible debt issue in June 2001,
partially offset by interest income from cash and marketable securities.

Other income (expense), net decreased for the nine months ended March 31, 2002
to net expense of $2.0 million from net income of $1.7 million for the nine
months ended March 31, 2001. The increase in other expense was attributable to
increased interest expense associated with the convertible debt issue in June
2001 and significant reduction in net foreign currency exchange gains.

Income Taxes

The Company's effective income tax rate declined to approximately 29.6% for the
three months ended March 31, 2002 from approximately 35.1% (excluding a
non-recurring in process research and development write-down of $17.7 million
and restructuring charge of $0.6 million) for the three months ended March 31,
2001. For the nine-month period ended March 31, 2002 the Company's effective
income tax rate declined to 30.6% from 34.5% for the nine-month period ended
March 31, 2001. The lower tax rate was primarily due to the lowering of the
corporate tax rate in Australia from 34% to 30% effective July 1, 2001. The
Company also benefits from a 125% tax deduction on R&D expenditure undertaken in
Australia, which further reduces the effective tax rate on Australian sourced
income.

Liquidity and Capital Resources

As of March 31, 2002 and June 30, 2001, the Company had cash and cash
equivalents and marketable securities available-for-sale of approximately $113.1
million and $102.8 million, respectively. The Company's working capital
approximated $162.8 million and $144.3 million at March 31, 2002 and June 30,
2001 respectively.

During the nine months ended March 31, 2002, the Company generated cash of $27.2
million from operations, primarily as a result of increased profit from
operations offset by increases in inventory and accounts receivable balances.
During the nine months ended March 31, 2001 approximately $19.6 million of cash
was generated by operations.

20


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Liquidity and Capital Resources, Continued

The Company's capital expenditures for the nine-month periods ended March 31,
2002 and 2001 aggregated $15.8 million and $24.4 million respectively. The
majority of the expenditures in the nine-month period ended March 31, 2002
related to a deposit for the purchase of land in Sydney described below, a
computer system upgrade and acquisition of production tooling and equipment. The
capital expenditures in the nine months ended March 31, 2001 primarily reflected
the capital expenditure of $17.2 million on the company's US headquarters in
Poway, California in July 2000. As a result of these capital expenditures, the
Company's balance sheet reflects net property plant and equipment of
approximately $65.5 million at March 31, 2002 compared to $55.1 million at June
30, 2001.

On July 3, 2001, the Company issued $30.0 million in over allotments for its 4%
convertible subordinated notes issue. At this date, the total amount of
convertible subordinated notes issued was $180.0 million. During the quarter,
the Company repurchased $34.0 million face value of its convertible subordinated
notes. The total purchase price of the notes was $30.2 million, including $0.3
million in accrued interest. The Company recognized an extraordinary gain of
$1.9 million, net of tax of $1.1 million, on these transactions. As at March 31,
2002, the Company had convertible subordinated notes outstanding of $146.0
million.

The Company may from time to time seek to retire its convertible subordinated
notes through cash purchases and/or exchanges for equity securities in open
market purchases, privately negotiated transactions, or otherwise. Such
repurchases or exchanges, if any, will depend on prevailing market conditions,
the Company's liquidity requirements, and current or future contractual
obligations of the Company, if any, that may directly or indirectly apply to
such transactions.

On November 15, 2001, the Company acquired all the common stock of Labhardt AG,
its Swiss distributor, for total consideration, including acquisition costs, of
$5.5 million. The acquisition has been accounted for as a purchase and
accordingly, the results of operations of Labhardt AG have been included in the
Company's consolidated financial statements from November 15, 2001. The excess
of the purchase price over the fair value of the net identifiable assets
acquired of $1.5 million has been recorded as goodwill.

During the December quarter, the Company paid an amount of $1.4 million as final
consideration associated with the purchase of MAP on February 16, 2001. The
amount has been recorded as goodwill.

During the December quarter, the Company paid an initial deposit of $2.4 million
associated with the purchase of a 30-acre site at Norwest Business Park, located
northwest of Sydney, Australia. On April 26, 2002, the purchase was settled with
an initial payment of $11.3 million, with deferred payments (inclusive of
interest) of $5.7 million due in October 2002 and $5.7 million due in April
2003. The Company expects the first building, a manufacturing facility, to be
operational on this site in 2003. New research and development and office
facilities are expected to be completed in 2004. It is estimated that the
building costs will be approximately $30.0 million.

21


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Liquidity and Capital Resources, Continued

On May 8, 2002, the Company completed a sale and leaseback transaction for its
Australian facility located at North Ryde in Sydney, Australia. The property was
sold for $18.3 million with a three-year leaseback and a further one-year
option. The profit before tax on sale of the property of $5.5 million will be
amortized over the lease period. The cash made available from the sale will be
utilized for the construction of the Company's new facilities at Norwest
Business Park.

The results of the Company's international operations are affected by changes in
exchange rates between currencies. Changes in exchange rates may negatively
affect the Company's consolidated net revenue and gross profit margins from
international operations. The Company is exposed to the risk that the dollar
value equivalent of anticipated cash flows will be adversely affected by changes
in foreign currency exchange rates. The Company manages this risk through
foreign currency option contracts.

The Company expects to satisfy all of its short term liquidity requirements
through a combination of cash on hand and cash generated from operations.

Critical Accounting Principles and Estimates

In response to the SEC's Release numbers 33-8040 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies" and 33-8056, "Commission
Statement about Management's Discussion and Analysis of Financial Condition and
Results of Operations," we have identified the following critical accounting
policies that affect the more significant judgments and estimates used in the
preparation of our financial statements. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America 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, impaired assets, intangible assets, income
taxes, revenue recognition and contingencies and litigation. We state these
accounting policies in the notes to the financial statements and at relevant
sections in this discussion and analysis. The estimates are based on the
information that is currently available to us and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results could
vary from those estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our financial
statements:

22


PART I - FINANCIAL INFORMATION Item 2
..................................................................................

RESMED INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operation

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments, which results in bad debt expense. We determine the adequacy
of this allowance by continually evaluating individual customer receivables,
considering customer's financial condition, credit history and current economic
conditions. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Inventory Adjustments. Inventories are stated at lower of cost or market. We
review the components of inventory on a regular basis for excess, obsolete and
impaired inventory based on estimated future usage and sales. The likelihood of
any material inventory write-downs is dependent on changes in competitive
conditions, new product introductions by us or our competitors, or rapid changes
in customer demand.

Valuation of Goodwill, Intangible and Other Long-Lived Assets. We use
assumptions in establishing the carrying value, fair value and estimated lives
of our long-lived assets and goodwill. The criteria used for these evaluations
include management's estimate of the asset's continuing ability to generate
positive income from operations and positive cash flow in future periods
compared to the carrying value of the asset, as well as the strategic
significance of any identifiable intangible asset in our business objectives. If
assets are considered to be impaired, the impairment recognized is the amount by
which the carrying value of the assets exceeds the fair value of the assets.
Useful lives and related amortization or depreciation expense are based on our
estimate of the period that the assets will generate revenues or otherwise be
used by the Company. Factors that would influence the likelihood of a material
change in our reported results include significant changes in the asset's
ability to generate positive cash flow, loss of legal ownership or title to the
asset, a significant decline in the economic and competitive environment on
which the asset depends, significant changes in our strategic business
objectives, utilization of the asset, and a significant change in the economic
and/or political conditions in certain countries.

Valuation of Deferred Income Taxes. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The likelihood of a material change in our expected realization of these assets
is dependent on future taxable income, our ability to deduct tax loss
carryforwards against future taxable income, the effectiveness of our tax
planning and strategies among the various tax jurisdictions that we operate in,
and any significant changes in the tax treatment received on our business
combinations.

Provision for Warranty. We provide for the estimated cost of product warranties
at the time the related revenue is recognized. The amount of this provision is
determined by using a financial model which takes into consideration actual
historical expenses and potential risks associated with the Company's different
products. This financial model is then used 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, revisions to our
estimated warranty provision would be required.

23


PART I - FINANCIAL INFORMATION Item 3
..................................................................................

RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Market Risk

The Company's functional currency is the US dollar although the Company
transacts business in various foreign currencies including a number of major
European currencies as well as the Australian dollar. The Company has
significant foreign currency exposure through both its Australian manufacturing
activities and international sales operations.

The Company has established a foreign currency hedging program using purchased
currency options to hedge foreign-currency-denominated financial assets,
liabilities and manufacturing expenditure. The goal of this hedging program is
to economically guarantee or lock in the exchange rates on the Company's foreign
currency exposures denominated in Euros and Australian dollars. Under this
program, increases or decreases in the Company's foreign-currency-denominated
financial assets, liabilities, and firm commitments are partially offset by
gains and losses on the hedging instruments.

The Company does not use foreign currency forward exchange contracts or
purchased currency options for trading purposes.

The table below provides information about the Company's foreign currency
derivative financial instruments and presents such information in US dollar
equivalents. The table summarizes information on instruments and transactions
that are sensitive to foreign currency exchange rates, including foreign
currency call options held at March 31, 2002. The table presents the notional
amounts and weighted average exchange rates by contractual maturity dates for
the Company's foreign currency derivative financial instruments. These notional
amounts generally are used to calculate payments to be exchanged under the
options contracts.




- ------------------------------------------------------------------------------------------------------------------
Fiscal Year Fair Value
(In US$ thousands) 2002 2003 Total Assets/(Liabilities)
---- ----
March 31 June 30
2002 2001
- ------------------------------------------------------------------------------------------------------------------

Foreign Exchange Call
Options

(Receive AUS$/Pay US$)
Option amount $36,000 $54,000 $90,000 $717 $577
Average contractual AUS $1 = USD 0.581 AUS $1 = USD 0.549 AUS $1 = USD 0.561
exchange rate

(Receive AUS$/Pay Euro)
Option amount $6,680 $38,388 $45,068 $1,497 $20
Average contractual AUS $1 = Euro 0.599 AUS $1 = Euro 0.591 AUS $1 = Euro 0.592
exchange rate
- ------------------------------------------------------------------------------------------------------------------


24


PART I - FINANCIAL INFORMATION Item 3
..................................................................................

RESMED INC. AND SUBSIDIARIES
Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to risk associated with changes in interest rates affecting the
return on investments.

At March 31, 2002, the Company maintained a portion of its cash and cash
equivalent in financial instruments with original maturities of three months or
less. We maintain a short-term investment portfolio containing financial
instruments in which the majority of funds invested have original maturities of
greater than three months but less than twelve months. The financial
instruments, principally comprised of corporate obligations, are subject to
interest rate risk and will decline in value if interest rates increase.

A hypothetical 100 basis point change in interest rates during the three months
ended March 31, 2002, would have resulted in approximately $0.3 million change
in pre-tax income. In addition, the value of our marketable securities would
change by approximately $0.5 million following a hypothetical 100 basis point
change in interest rates. We do not use derivative financial instruments in our
investment portfolio.

Forward-Looking Statements

This report on Form 10Q 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. The words "believe," "expect," "anticipate," "estimate,"
"plan," "future" and other similar expressions generally identify
forward-looking statements, including, in particular, statements regarding the
development and approval of new products and product applications, pending
litigation, and the development of new markets for the Company's products, such
as the CHF and stroke markets. These forward-looking statements are made
pursuant to 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. Such forward-looking statements reflect the views of
our management at the time such 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 below and elsewhere in this report. In addition,
important factors to consider in evaluating such forward-looking statements
include changes or developments in social, economic, market, legal or regulatory
circumstances, 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. Should any one or more of these risks or
uncertainties materialize, or the underlying estimates or assumptions prove
incorrect, actual results may vary significantly from those expressed in such
forward-looking statements, and there can be no assurance that the
forward-looking statements contained in this report will in fact occur.

25


PART I - FINANCIAL INFORMATION Item 3
..................................................................................

RESMED INC. AND SUBSIDIARIES
RISK FACTORS

The risks and uncertainties that may affect our business, financial condition or
results of operations include the following:

Our inability to compete successfully in our markets may harm our business.

The markets for our SDB products are highly competitive and are characterized by
frequent product improvements and evolving technology. Our ability to compete
successfully depends, in part, on our ability to develop innovative new products
and to be the first to market with those products. The development of innovative
new products by our competitors or the discovery of alternative treatments or
potential cures for the conditions that our products treat could result in our
products becoming noncompetitive or obsolete.

Additionally, some of our competitors have greater financial, research and
development, manufacturing and marketing resources than we do. The past several
years have seen a trend towards consolidation in the health care industry and in
the markets for our products. Industry consolidation could result in greater
competition if our competitors combine their resources or if our competitors are
acquired by other companies with greater resources than ours. This competition
could increase pressure on us to reduce the selling prices of our products or
could cause us to increase our spending on research and development and sales
and marketing. If we are unable to develop innovative new products, maintain
competitive pricing, and offer products that consumers perceive to be as
reliable as those of our competitors, our sales or gross margins could decrease
which would harm our business.

Our business depends on our ability to market effectively to dealers of home
health care products and sleep clinics.

We market our products primarily to home health care dealers and to sleep
clinics that diagnose OSA and other sleep disorders. We believe that home health
care dealers and sleep clinics play a significant role in determining which
brand of CPAP product a patient will use. For example, in the United States,
when a physician at a sleep clinic prescribes the use of a CPAP product, the
patient typically purchases the product from a home health care dealer. The
physician may or may not prescribe a specific brand of CPAP product. If a
specific brand is prescribed, we believe the brand prescribed depends upon the
brand of CPAP product that is used in the sleep clinic. If a specific brand is
not prescribed, the home health care dealer may recommend a specific brand.
Occasionally, even if the physician prescribes a specific brand, a home health
care dealer may substitute a competitive CPAP product for the patient. We have
limited resources to market to the more than 2,000 U.S. sleep clinics and the
more than 4,000 home health care dealer branch locations, most of which use,
sell or recommend several brands of CPAP products.

26


PART I - FINANCIAL INFORMATION Item 3
..................................................................................

RESMED INC. AND SUBSIDIARIES
RISK FACTORS

Our business depends on our ability to market effectively to dealers of home
health care products and sleep clinics, Continued

In addition, home health care dealers have experienced price pressures as
government and third-party reimbursement have declined for home care products,
and home health care dealers are requiring price discounts and longer periods of
time to pay for products purchased from us. We cannot assure you that sleep
clinic physicians will continue to prescribe our products, or that home health
care dealers or patients will not substitute competing products when a
prescription specifying our products has been written. The success of our
business depends on our ability to market effectively to home health care
dealers and sleep clinics and to ensure that our products are properly marketed
and sold by these third parties.

We intend to expand our marketing activities to target the population with a
predisposition to SDB as well as primary care physicians and specialists. We
cannot assure you that these marketing efforts will be successful in increasing
awareness of our products.

If we are unable to support our continued growth, our business could suffer.

We have experienced rapid and substantial growth. As we continue to grow, the
complexity of our operations increases, placing greater demands on our
management. Our ability to manage our growth effectively depends upon our
ability to implement and improve our financial and management information
systems on a timely basis and to effect other changes in our business.
Unexpected difficulties during expansion, the failure to attract and retain
qualified employees, the failure to successfully replace or upgrade our
management information systems, the failure to manage costs or our inability to
respond effectively to growth or plan for future expansion could cause our
growth to stop. If we fail to manage our growth, our business could suffer.

We manufacture substantially all of our products outside the United States and
sell a significant portion of our products in non-U.S. markets, subjecting us to
various risks relating to international activities that could adversely affect
our overall profitability.

Sales outside North and Latin America accounted for approximately 48%, 46%, and
43% of our net revenues in fiscal years 2001, 2000 and 1999, respectively. As a
result of the MAP acquisition, we expect that sales within these areas will
account for approximately 50% of our net revenues in the foreseeable future. Our
sales outside of North America and our operations in Europe, Australia and Asia
are subject to several difficulties and risks that are separate and distinct
from those we face in our domestic operations, including:

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We manufacture substantially all of our products outside the United States and
sell a significant portion of our products in non-U.S. markets, subjecting us to
various risks relating to international activities that could adversely affect
our overall profitability, Continued

... fluctuations in currency exchange rates;
... tariffs and other trade barriers;
... compliance with foreign medical device manufacturing regulations;
... reduction in third party payer reimbursement for our products;
... inability to obtain import licenses;
... changes in trade policies and in domestic and foreign tax policies;
... possible changes in export or import restrictions; and
... the modification or introduction of other governmental policies with
potentially adverse effects.

Fluctuations in foreign currency exchange rates could result in declines in our
reported sales and earnings.

Since our international sales and a significant portion of our manufacturing
costs are denominated in local currencies and not in U.S. dollars, our reported
sales and earnings are subject to fluctuations in foreign exchange rates. We had
foreign currency transaction losses in recent periods and may have further
losses in the future. We expect that international sales will continue to be a
significant portion of our business and that a significant portion of our
manufacturing costs will continue to be denominated in Australian dollars.

Government and private insurance plans may not reimburse patients for our
products, which could result in reductions in sales or selling prices for our
products.

Our ability to sell our products depends in large part on the extent to which
reimbursement for the cost of our products will be available from government
health administration authorities, private health insurers and other
organizations. These third party payors are increasingly challenging the prices
charged for medical products and services. Therefore, even if a product is
approved for marketing, we cannot assure you that reimbursement will be allowed
for such product or that the reimbursement amount will be adequate or, if
adequate, will not subsequently be reduced. For example, in some markets, such
as Spain, France and Germany, government reimbursement is currently available
for purchase or rental of our products but is subject to constraints such as
price controls or unit sales limitations. In other markets, such as Australia
and the United Kingdom, there is currently limited or no reimbursement for
devices that treat sleep disordered breathing related respiratory conditions.
Additionally, future legislation or regulation concerning the health care
industry or third party or governmental coverage and reimbursement,
particularly, legislation or regulation limiting consumers' reimbursement rights
may harm our business.

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Government and private insurance plans may not reimburse patients for our
products, which could result in reductions in sales or selling prices for our
products, Continued

As we continue to develop new products, those products will generally not
qualify for reimbursement, if at all, until they are approved for marketing. In
the United States, we sell our products primarily to home health care dealers
and to sleep clinics. We do not file claims and bill governmental programs and
other third party payors directly for reimbursement for our products. However,
we are still subject to laws and regulations relating to governmental
reimbursement programs, particularly Medicaid and Medicare.

In particular, the federal Anti-Kickback Law prohibits persons from knowingly
and willfully soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce either the referral of an individual, or the
furnishing, recommending or arranging for a good or service, for which payment
may be made under a federal healthcare program such as the Medicare and Medicaid
programs. The government has interpreted this law broadly to apply to the
marketing and sales activities of manufacturers and distributors like us. Many
states have adopted laws similar to the federal Anti-Kickback Law. We are also
subject to other federal and state fraud laws applicable to payment from any
third party payer. These laws prohibit persons from knowingly and willfully
filing false claims or executing a scheme to defraud any healthcare benefit
program, including private third party payors. These laws may apply to
manufacturers and distributors who provide information on coverage, coding, and
reimbursement of their products to persons who do bill third party payors. Any
violation of these laws and regulations could result in civil and criminal
penalties, including fines.

Complying with FDA and other regulations is an expensive and time-consuming
process, and any failure to comply could result in substantial penalties.

We are subject to various federal, state, local and international regulations
regarding the testing, manufacture, distribution, marketing, promotion, record
keeping and reporting of our products. In particular, our failure to comply with
FDA regulations could result in, among other things, recalls of our products,
substantial fines and/or criminal charges against us and our employees.

Product sales, introductions or modifications may be delayed or canceled as a
result of the FDA or similar foreign regulations, which could cause our sales to
decline.

Before we can market or sell a new medical device in the United States, we must
obtain FDA clearance, which can be a lengthy and time-consuming process. We
generally receive clearance from the FDA to market our products in the United
States under Section 510(k) of the Federal Food, Drug, and Cosmetic Act or our
products are exempt from the 510(k) clearance process. We have modified some of
our 510(k) approved products without submitting new 510(k) notices, which we do
not believe were required.

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Product sales, introductions or modifications may be delayed or canceled as a
result of the FDA or similar foreign regulations, which could cause our sales to
decline, Continued

However, if the FDA disagrees with us and requires us to submit new 510(k)
notifications for modifications to our existing products, we may be required to
stop marketing the products while the FDA reviews the 510(k) notification. Any
new product introduction or existing product modification could be subjected to
a lengthier, more rigorous FDA examination process. For example, in certain
cases we may need to conduct clinical trials of a new product prior to
submitting a 510(k) notice. Additionally, we may be required to obtain premarket
approvals for our products. The requirements of these more rigorous processes
could delay product introductions and increase the costs associated with FDA
compliance. Marketing and sale of our products outside the United States are
also subject to regulatory clearances and approvals, and if we fail to obtain
these regulatory approvals, our sales could suffer. We cannot assure you that
any new products we develop will receive required regulatory approvals from U.S.
or foreign regulatory agencies.

Off label marketing of our products could result in substantial penalties.

Clearance under Section 510(k) only permits us to market our products for the
uses indicated on the labeling cleared by the FDA. We may request additional
label indications for our current products, and the FDA may deny those requests
outright, require additional expensive clinical data to support any additional
indications or impose limitations on the intended use of any cleared products as
a condition of clearance. If the FDA determines that we have marketed our
products for off label use, we could be subject to fines, injunctions or other
penalties.

Disruptions in the supply of components from our single source suppliers could
result in a significant reduction in sales and profitability.

We purchase uniquely configured components for our devices from single-source
suppliers. We cannot assure you that a replacement supplier would be able to
configure its components for our devices on a timely basis or, in the
alternative, that we would be able to reconfigure our devices to integrate the
replacement part. A reduction or stoppage in supply while a replacement supplier
reconfigures its components, or while we reconfigure our components for the
replacement part, would limit our ability to manufacture our devices, which
could result in a significant reduction in sales and profitability. We cannot
assure you that our inventories would be adequate to meet our production needs
during any prolonged interruption of supply.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC. AND SUBSIDIARIES
RISK FACTORS

Our intellectual property may not protect our products, and our products may
infringe on the intellectual property rights of third parties.

We rely on a combination of patents, trade secrets and non-disclosure agreements
to protect our intellectual property. Our success depends, in part, on our
ability to obtain and maintain United States and foreign patent protection for
our products, their uses and our processes to preserve our trade secrets and to
operate without infringing on the proprietary rights of third parties. We have a
number of pending patent applications, and we do not know whether any patents
will issue from any of these applications. We do not know whether any of the
claims in our issued patents or pending applications will provide us with any
significant protection against competitive products or otherwise be commercially
valuable. Legal standards regarding the validity of patents and the proper scope
of their claims are still evolving, and there is no consistent law or policy
regarding the valid breadth of claims. Additionally, there may be third party
patents, patent applications and other intellectual property relevant to our
products and technology which are not known to us and that block or compete with
our products.

We face the risks that:

... third parties will infringe our intellectual property rights;

... our non-disclosure agreements will be breached;

... we will not have adequate remedies for infringement;

... our trade secrets will become known to or independently developed by our
competitors; or

... any third parties will be issued patents that may prevent the sale of our
products or require us to license and pay fees or royalties in order for us
to be able to market some of our products.

We are currently engaged in litigation relating to the enforcement and defense
of five of our patents. Additional litigation may be necessary to enforce
patents issued to us, to protect our proprietary rights, or to defend third
party claims that we have infringed upon proprietary rights of others. The
defense and prosecution of patent claims, including these pending claims, as
well as participation in other inter-party proceedings, can be expensive and
time consuming, even in those instances in which the outcome is favorable to us.
If the outcome of any litigation or proceeding brought against us were adverse,
we could be subject to significant liabilities to third parties, could be
required to obtain licenses from third parties or could be required to cease
sales of the affected products. Additionally, the laws regarding the
enforceability of patents vary from country to country, and we cannot assure you
that any patent issues we face will be uniformly resolved, or that local laws
will provide us with consistent rights and benefits.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC. AND SUBSIDIARIES
RISK FACTORS

We are subject to product liability claims that may exceed the scope and amount
of our insurance coverage, which would expose us to liability for uninsured
claims.

We are subject to potential product liability claims as a result of the design,
manufacture and marketing of medical devices. Any product liability claim
brought against us, with or without merit, could result in the increase of our
product liability insurance rates. In addition, we would have to pay any amount
awarded by a court in excess of our policy limits. Our insurance policies have
various exclusions, and thus we may be subject to a product liability claim for
which we have no insurance coverage, in which case, we may have to pay the
entire amount of any award. We cannot assure you that our insurance coverage
will be adequate or that all claims brought against us will be covered by our
insurance. Insurance varies in cost and can be difficult to obtain, and we
cannot assure you that we will be able to obtain insurance in the future on
terms acceptable to us or at all. A successful product liability claim brought
against us in excess of our insurance coverage, if any, may require us to pay
substantial amounts, which could harm our business.

Our business could suffer if we lose the services of key members of our
management.

We are dependent upon the continued services of key members of our senior
management and a limited number of key employees and consultants. The loss of
the services of any one of these individuals could significantly disrupt our
operations. Additionally, our future success will depend, among other factors,
on our ability to continue to hire and retain the necessary qualified
scientific, technical and managerial personnel. We compete for such personnel
with numerous other companies, academic institutions and organizations.

Our quarterly operating results are subject to fluctuation for a variety of
reasons.

Our operating results have, from time to time, fluctuated on a quarterly basis
and may be subject to similar fluctuations in the future. These fluctuations may
result from a number of factors, including:

... the introduction of new products by us or our competitors;

... the geographic mix of product sales;

... the success of our marketing efforts in new regions;

... changes in third party reimbursement;

... timing of regulatory clearances and approvals;

... timing of orders by distributors;

... expenditures incurred for research and development;

... competitive pricing in different regions;

... seasonality;

... the cost and effect of promotional and marketing programs; and

... the effect of foreign currency transaction gains or losses.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC. AND SUBSIDIARIES
RISK FACTORS

If a natural or man-made disaster strikes our manufacturing facilities, we will
be unable to manufacture our products for a substantial amount of time and our
sales will decline.

We manufacture a significant portion of our products in our facilities in
Australia. These facilities and the manufacturing equipment we use to produce
our products would be costly to replace and could require substantial lead time
to repair or replace. The facilities may be affected by natural or man made
disasters and in the event it was affected by a disaster, we would be forced to
rely on third party manufacturers. Although we believe we possess adequate
insurance for damage to our property and the disruption of our business from
casualties, such insurance may not be sufficient to cover all of our potential
losses and may not continue to be available to us on acceptable terms, or at
all.

Delaware law, provisions in our charter and our shareholder rights plan could
make the acquisition of our company by another company more difficult.

Provisions of our certificate of incorporation may have the effect of delaying
or preventing changes in control or management which might be beneficial to us
or our security holders. In particular, our board of directors is divided into
three classes, serving for staggered three-year terms. Because of this
classification it will require at least two annual meetings to elect directors
constituting a majority of our board of directors.

Delaware law, provisions in our charter and our shareholder rights plan could
make the acquisition of our company by another company more difficult, Continued

Additionally, our board of directors has the authority to issue up to 2,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
further vote or action by the stockholders. Under our stockholders rights plan,
we have also issued purchase rights to the holders of our common stock that
entitle those holders to purchase our Series A Junior Participating Preferred
Stock at a discount, under certain circumstances. The rights of the holders of
our common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued in the future.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control, may discourage bids for our common stock at a
premium over the market price of our common stock and may adversely affect the
market price of our common stock and the voting and other rights of the holders
of our common stock.

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RESMED INC. AND SUBSIDIARIES
RISK FACTORS

You may not be able to enforce the judgments of U.S. courts against some of our
assets or officers and directors.

A substantial portion of our assets are located outside the United States.
Additionally, two of our six directors and three of our eight officers reside
outside the United States, along with all or a substantial portion of the assets
of these persons. As a result, it may not be possible for investors to enforce
judgments of U.S. courts relating to any liabilities under U.S. securities laws
against our assets, those persons or their assets. In addition, we have been
advised by our Australian counsel that some doubt exists as to the ability of
investors to pursue claims based on U.S. securities laws against these assets or
these persons in Australian courts.

The information contained in this section is not intended to be an exhaustive
description of the risks and uncertainties inherent in our business or in our
strategic plans.

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PART II - OTHER INFORMATION Items 1-6
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RESMED INC AND SUBSIDIARIES

Item 1 Legal Proceedings
See Note 9 to the Condensed Consolidated Financial Statements

Item 2 Changes in Securities and Use of Proceeds
None

Item 3 Defaults Upon Senior Securities
None

Item 4 Submission of Matters to a Vote of Security Holders
None

Item 5 Other Information
None

Item 6 Exhibits and Report on Form 8K
(a) Exhibits
None

(b) Reports on Form 8-K
None

35


PART II - OTHER INFORMATION Signatures
..................................................................................

RESMED INC AND SUBSIDIARIES
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


ResMed Inc


/s/ PETER C FARRELL
- --------------------------------------------------
Peter C Farrell
President and Chief Executive Officer


/s/ ADRIAN M SMITH
- --------------------------------------------------
Adrian M Smith
Vice President Finance and Chief Financial Officer

36