Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

February 10, 2000

Documents

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

Published on February 10, 2000



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 DECEMBER 31, 1999

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

Commission file number: 0-26038


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


Delaware 98-0152841
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)



10121 Carroll Canyon Road
San Diego, CA 92131-1109
United States Of America
(Address of principal executive offices)

858 689 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 December 31, 1999, 15,019,132 shares of Common Stock ($0.004 par value)
were outstanding.

RESMED INC. AND SUBSIDIARIES

INDEX




PART I FINANCIAL INFORMATION



Page

Item 1. . . . . . . . . . . . . . . .Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 3
1999 (unaudited) and June 30, 1999

Unaudited Condensed Consolidated Statements of Income for 4
the Three Months Ended December 31, 1999 and 1998 and the
Six Months Ended December 31, 1999 and 1998

Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended December 31, 1999 and 1998

Notes to the Unaudited Condensed Consolidated Financial . 6
Statements

Item 2. . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of Financial 12
Conditions and Results of Operations

Item 3. . . . . . . . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market 16
Risk









PART II OTHER INFORMATION



Item 1 . . Legal Proceedings 17

Item 2 . . Changes in Securities 17

Item 3 . . Defaults Upon Senior Securities 17

Item 4 . . Submission of Matters to a Vote of Security Holders 17

Item 5 . . Other Information 17

Item 6 . . Exhibits and Reports on Form 8-K 17

SIGNATURES 18




- -2-



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



RESMED INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(in US$ thousands, except share and per share data)



December 31, June 30,
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 1999
------------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 11,543 11,108
Marketable securities - available for sale . . . . . . . . . . . 7,710 5,626
Accounts receivable, net of allowance for doubtful accounts of
$595 at December 31, 1999 and $421 at June 30, 1999. . . . . . 20,332 17,898
Inventories (note 3) . . . . . . . . . . . . . . . . . . . . . . 15,902 10,725
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 2,398 2,392
Prepaid expenses and other current assets. . . . . . . . . . . . 3,912 3,022
_____________ . _________
Total current assets . . . . . . . . . . . . . . . . . . . . . . 61,797 50,771
_____________ .._________

Property, plant and equipment, net of accumulated amortization
of $10,880 at December 31, 1999 and $8,511 at June 30, 1999. . 32,066 29,322
Patents, net of accumulated amortization of $687 at December
31, 1999 and $570 at June 30, 1999 . . . . . . . . . . . . . . 979 782
Goodwill, net of accumulated amortization of $1,763 at
December 31, 1999 and $1,459 at June 30, 1999. . . . . . . . . 6,069 6,555
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 2,839 2,459
_____________ . _________
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,750 89,889
============= =========

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 6,814 4,772
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 8,399 7,779
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 4,940 5,691
_____________ . _________
Total current liabilities. . . . . . . . . . . . . . . . . . . . 20,153 18,242
_____________ . _________
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,
150,000 shares authorized; none issued . . . . . . . . . . . . - -
Common stock, $0.004 par value, 50,000,000 shares authorized;
issued and outstanding 15,019,132 at December 31, 1999 and
14,808,000 at June 30, 1999. . . . . . . . . . . . . . . . . . 60 59
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 36,384 33,736
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 53,478 43,281
Accumulated other comprehensive income (loss) (note 4) . . . . . (6,325) (5,429)
_____________ . .________
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 83,597 71,647
_____________ . .________
Commitments and contingencies (note 5) . . . . . . . . . . . . . - -
_____________. . ________
$ 103,750 89,889
============= ========


See accompanying notes to condensed consolidated financial statements.




- -3-

RESMED INC. AND SUBSIDIARIES
----------------------------




Unaudited Condensed Consolidated Statements of Income
(in US$ thousands, except per share data)



Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- ---------------------------
1999 1998 1999 1998
------------- -------------- ------------ -------------


Net revenue . . . . . . . . . . . . $ 28,135 21,480 54,080 40,724
Cost of sales . . . . . . . . . . . 8,604 6,964 16,828 13,048
_____________ . ______________ ____________ _____________
Gross profit. . . . . . . . . . . . 19,531 14,516 37,252 27,676
_____________ . . ______________ ____________ _____________
Operating expenses
Selling, general and administrative 8,996 6,898 17,405 13,253
Research and development. . . . . . 1,971 1,636 3,861 3,069
_____________ . . ______________ ____________ _____________
Total operating expenses. . . . . . 10,967 8,534 21,266 16,322
_____________ . . ______________ ____________ _____________
Income from operations. . . . . . . 8,564 5,982 15,986 11,354
_____________ . . ______________ ____________ _____________
Other income (expense), net:
Interest income, net. . . . . . . . 203 196 337 403
Government grants . . . . . . . . . 139 134 279 264
Other, net. . . . . . . . . . . . . (644) (336) (913) (1,214)
_____________ . . ______________ ____________ ______________
Total other income (expense), net . (302) (6) (297) (547)
_____________ . . ______________ ____________ ______________

Income before income taxes. . . . . 8,262 5,976 15,689 10,807
Income taxes. . . . . . . . . . . . (2,900) (2,063) (5,492) (3,710)
_____________ . . ______________ ____________ ______________
Net income. . . . . . . . . . . . . $ 5,362 3,913 10,197 7,097
============= ============== ============ ==============



Basic earnings per share. . . . . . $ 0.36 0.27 0.68 0.48
Diluted earnings per share. . . . . $ 0.34 0.25 0.65 0.46


See accompanying notes to condensed consolidated financial statements.




- -4-
------
RESMED INC. AND SUBSIDIARIES
----------------------------




Unaudited Condensed Consolidated Statements of Cash Flows
(in US$ thousands)


Six Months Ended
December 31,
----------------------------

1999 1998
------------------ --------

Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,197 7,097
________. .________
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 2,938 2,148
Provision for service warranties . . . . . . . . . . . . . . . . 103 92
Foreign currency options revaluations. . . . . . . . . . . . . . 641 709
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . (2,497) (384)
Government grants. . . . . . . . . . . . . . . . . . . . . . . . - 127
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (5,388) (2,628)
Prepaid expenses and other current assets. . . . . . . . . . . . (930) 439
Accounts payable, accrued expenses and other liabilities . . . . 1,939 1,599
________. .________
Net cash provided by operating activities. . . . . . . . . . . . 7,003 9,199
________. .________
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . (5,608) (10,718)
Patents costs. . . . . . . . . . . . . . . . . . . . . . . . . . (332) (151)
Purchase of trading investments. . . . . . . . . . . . . . . . . (1,049) (205)
Deferred payments - business acquisition . . . . . . . . . . . . - (1,033)
Purchases of marketable securities - available for sale. . . . . (12,370) (7,589)
Proceeds from sale of marketable securities - available for sale 10,286 7,257
________. .________
Net cash used in investing activities. . . . . . . . . . . . . . (9,073) (12,439)
________. .________
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . . . . . 2,649 1,399
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . - (115)
________. .________
Net cash provided by financing activities. . . . . . . . . . . . 2,649 1,284
________. .________
Effect of exchange rate changes on cash. . . . . . . . . . . . . (144) 25
________. .________
Net increase (decrease) in cash and cash equivalents . . . . . . 435 (1,931)
________. .________
Cash and cash equivalents at beginning of period . . . . . . . . 11,108 15,526
________. .________
Cash and cash equivalents at end of period . . . . . . . . . . . $ 11,543 13,595
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . 6,039 1,373
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . - 4


See accompanying notes to condensed consolidated financial statements.




- -5-
- ------


RESMED INC. AND SUBSIDIARIES
----------------------------

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------

(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 principal distribution
and sales sites are located in the United States, the United Kingdom, Asia and
Europe.

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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 by generally accepted accounting principles 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 December 31, 1999
and the six months ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2000.

(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 on consolidation.

(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 deferred and recognized
as revenue over the life of the service contract. Revenue from sale of
marketing and distribution rights is initially deferred and progressively
recognized as revenue over the period of expected benefits but not exceeding
three years.

(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 consolidated statements of cash flows.

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

Inventories are stated at the lower of cost, determined principally by the
first-in, first-out method, or net realizable value.
- -6-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(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. Assets held under capital leases are
recorded at the lower of the net present value of the minimum lease payments or
the fair value of the leased asset at the inception of the lease. Amortization
expense is computed using the straight-line method over the shorter of the
estimated useful lives of the assets or the period of the related lease.
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) Goodwill:
---------

Goodwill arising from business acquisitions is amortized on a straight-line
basis over periods ranging from three to 15 years. The Company carries goodwill
at cost net of amortization. The Company reviews its goodwill carrying value
when events indicate that an impairment may have occurred in goodwill. If,
based on the undiscounted cash flows, management determines goodwill is not
recoverable, goodwill is written down to its discounted cash flow value and the
amortization period is re-assessed.

(h) Government Grants:
------------------

Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to support
continued development and export of the Company's proprietary positive airway
pressure technology and to assist development of export markets. Grants of
$139,000 and $134,000 have been recognized for the three-month periods ended
December 31, 1999 and 1998, respectively and $279,000 and $264,000 for the
six-month periods ended December 31, 1999 and 1998, respectively.

(i) Foreign Currency:
-----------------

The consolidated financial statements of the Company's non-U.S.
subsidiaries are translated into U.S. dollars for financial reporting purposes.
Assets and liabilities of non-U.S. subsidiaries whose functional currencies are
other than the U.S. 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 "Other
Comprehensive Income (loss)", as described in Note 4, and are included in
"Accumulated Other Comprehensive Income (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.
- -7-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(j) Research and Development:
--------------------------

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

(k) Earnings per Share:
--------------------

The weighted average shares used to calculate basic earnings per share was
14,948,000 and 14,693,000 for the quarters ended December 31, 1999 and 1998,
respectively, and 14,897,000 and 14,654,000 for the six month periods ended
December 31, 1999 and 1998, 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 925,000 and 893,000 for the
quarters ended December 31, 1999 and 1998, respectively, and by 866,000 and
766,000 for the six month periods ended December 31, 1999 and 1998,
respectively.

(l) 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 and accounts payable
approximate their fair value. The Company does not hold or issue financial
instruments for trading purposes.

The fair value of financial instruments is defined as the amount at which
the instrument could be exchanged in a current transaction between willing
parties.

(m) Foreign Exchange Risk Management:
------------------------------------

The Company enters into various types of foreign exchange contracts in
managing its foreign exchange risk, including derivative financial instruments
encompassing foreign currency options.

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
in principally Australian Dollars and Euros. The term of such foreign exchange
contracts generally do not exceed three years.


- -8-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(m) Foreign Exchange Risk Management, Continued:
------------------------------------------------

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

The Company is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments, but it does not
expect any counterparties to fail to meet their obligations given their high
credit ratings. The credit exposure of foreign exchange options is represented
by the positive fair value of options at the reporting date.

The Company held foreign currency option contracts with notional amounts
totaling $119,025,000 and $62,460,000 at December 31, 1999 and June 30, 1999,
respectively to hedge foreign currency items. These contracts mature at various
dates prior to December 31, 2001.

(n) Income Taxes:
-------------

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109).
Statement 109 requires an asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, 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. Under Statement 109, 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.

(o) Warranty:
---------

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

(p) 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.

- -9-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(3) Inventories
-----------



Inventories were comprised of the following at December 31, 1999 and June
30, 1999:


(In $US thousands) December 31, June 30,
1999 1999
------------- --------


Raw materials. . . $ 5,247 4,153
Work in progress . 1,202 74
Finished goods . . 9,453 6,498
_______. _______
$ 15,902 10,725
=======. =======




(4) Comprehensive Income
---------------------

As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No 130, "Reporting Comprehensive Income", which established standards
for the reporting and display of comprehensive income and its components in the
financial statements. The only component of comprehensive income that impacts
the Company is foreign currency translation adjustments. The net loss
associated with the foreign currency translation adjustments for the three
months ended December 31, 1999 was $281,000 compared to a net gain of $1.0
million for the three months ended December 31, 1998. The net loss associated
with the foreign currency translation adjustments for the six months ended
December 31, 1999 was $896,000 compared to a net gain of $472,000 for the six
months ended December 31, 1998. 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 income (loss) at December 31, 1999 and June 30, 1999 consisted
solely of foreign currency translation adjustments with debit balances of $6.3
million and $5.4 million, respectively.

(5) Commitments and Contingencies,
--------------------------------

In January 1995, the Company 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 the Company
seeking a declaratory judgment that Respironics does not infringe claims of
these patents and that the Company's 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. In June 1996, the Company 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 ResMed reserving
the right to reassert the charges in the event of a favorable ruling on appeal.
It is ResMed's intention to appeal the summary judgment rulings after a final
judgment in the consolidated litigation has been entered in the District Court
proceedings.

In May 1995, Respironics and its Australian distributor filed a Statement
of Claim against the Company and Dr. Farrell in the Federal Court of Australia,
alleging that the Company engaged in unfair trade practices. The Statement of
Claim asserts damage claims for lost profits on sales in the aggregate amount of
approximately $1,000,000. While the Company is defending this action, there can
be no assurance that the Company will be successful or that the Company will not
be required to make significant payments to the claimants. Furthermore, the
Company is incurring ongoing legal costs in defending this action, as well as in
the continuing litigation of its patent cases.

- -10


RESMED INC. AND SUBSIDIARIES

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS

Net Revenue

Net revenue increased for the three months ended December 31, 1999 to $28.1
million from $21.5 million for the three months ended December 31, 1998, an
increase of $6.6 million or 31%. For the six month period ended December 31,
1999 net revenue increased to $54.1 million from $40.7 million in the six month
period ended December 31, 1998, an increase of $13.4 million or 33%. Both the
three month and six month increases in net revenue were attributable to an
increase in unit sales of the Company's flow generators and accessories in
America, Europe and Asia Pacific markets. Domestic net revenue increased to
$14.9 million from $12.2 million for the quarter, and to $29.7 million from
$24.1 million for the six month periods ended December 31, 1999 and 1998
respectively. Net revenue in international markets increased to $13.2 million
from $9.3 million for the quarter, and to $24.4 million from $16.6 million for
the six month periods ended December 31, 1999 and 1998, respectively.

Gross Profit

Gross profit increased for the three months ended December 31, 1999 to $19.5
million from $14.5 million for the three months ended December 31, 1998, an
increase of $5.0 million or 35%. Gross profit as a percentage of net revenue
increased from 68% for the quarter ended December 31, 1998 to 69% for the
quarter ended December 31, 1999 reflecting a modest shift in the geographical
sales mix as well as improved manufacturing capacity utilization.

For the six month period ended December 31, 1999 gross profit increased to $37.3
million from $27.7 million in the same period of fiscal 1999, an increase of
$9.6 million or 35%. Gross profit as a percentage of net revenue increased for
the six month period ended December 31, 1999 to 69% from 68% for the six months
ended December 31, 1998. This increase also resulted from a modest shift in the
geographical sales mix as well as improved manufacturing capacity utilization.


Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended December 31, 1999 to $9.0 million from $6.9 million for the three months
ended December 31, 1998, an increase of $2.1 million or 30%. As a percentage of
net revenue, selling, general and administrative expenses were 32% for the
quarters ended December 31, 1999 and December 31, 1998. The increase in
selling, general and administrative expenses was primarily due to an increase
from 185 to 239 in the number of sales and administrative personnel as well as
increased IT costs associated with the ongoing investment in information
technology.

Selling, general and administrative expenses for the six months ended December
31, 1999 increased to $17.4 million from $13.3 million for the six months ended
December 31, 1998, an increase of $4.1 million or 31%. As a percentage of net
revenue selling, general and administration expenses declined to 32% for the six
months ended December 31, 1999 from 33% in the six months ended December 31,
1998.

- -11-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Research and Development Expenses

Research and development expenses increased for the three months ended December
31, 1999 to $2.0 million from $1.6 million for the three months ended December
31, 1998, an increase of $335,000 or 20%. As a percentage of net revenue,
research and development expenses declined to 7% for the three months ended
December 31, 1999 compared to 8% for the three months ended December 31, 1998.
The increase in gross 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 a number of new products

For the six month period ended December 31, 1999 research and development
expenses increased to $3.9 million from $3.1 million for the same period in
fiscal 1999, an increase of $0.8 million or 26%. As a percentage of net
revenue, research and development expenses was 7% for the six months ended
December 31, 1999 compared to 8% for the six months ended December 31, 1998.
The increase in gross research and development expenditure for the six months
reflects additional costs relating to development and evaluation of new
products.

Other Income (Expense), Net

Other Income (Expense), Net, declined for the three months ended December 31,
1999 to a loss of $302,000 from a loss of $6,000 for the three months ended
December 31, 1998, an increased loss of $296,000. The increased loss was due
primarily to higher net foreign exchange losses.

Other Income (Expense), Net improved for the six months ended December 31, 1999
to a loss of $297,000, from a loss of $547,000 for the six months ended December
31, 1998.

Income Taxes

The Company's effective income tax rate increased to approximately 35.1% for the
three months ended December 31, 1999 from approximately 34.5% for the three
months ended December 31, 1998 and for the six month period ended December 31,
1999 increased to 35.0% from 34.3% for the six month period ended December 31,
1998. The higher tax rate was primarily due to high relative taxes incurred in
Germany and France.

- -12-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Liquidity and Capital Resources

As of December 31, 1999 and June 30, 1999, the Company had cash and cash
equivalents and marketable securities available for sale of approximately $19.3
million and $16.7 million, respectively. The Company's working capital
approximated $41.6 million and $32.5 million, at December 31, 1999 and June 30,
1999, respectively. The increase in working capital primarily reflects cash
generated from operations and proceeds from the exercise of stock options offset
by capital expenditures on plant and equipment and information technology.

During the six months ended December 31, 1999, the Company generated cash of
$7.0 million from operations, primarily as a result of increased profit from
operations offset by increases in inventory and receivables balances. During
the six months ended December 31, 1998 approximately $9.2 million of cash was
generated by operations primarily due to increased profit from operations.

The Company's capital expenditures for the six month period ended December 31,
1999 and 1998 aggregated $5.6 million and $10.7 million respectively. The
majority of the expenditures in the six month period ended December 31, 1999
related to purchase of computer software and hardware, production tooling and
equipment and, to a lesser extent, office furniture and research and development
equipment. The reduction in expenditures in the six month period ended December
31, 1999 compared to the six months ended December 31, 1998 reflects the
cessation of capital expenditure on the company's new manufacturing facility
following its completion in March 1999. As a result of these capital
expenditures, the Company's December 31, 1999 balance sheet reflects net
property plant and equipment of approximately $32.1 million at December 31, 1999
compared to $29.3 million at June 30, 1999.

During the six month period ended December 31, 1998 the Company paid $1.0
million in business acquisition payments in relation to the 1996 acquisition of
Priess.

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.


- -13
RESMED INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS


Recent Accounting Developments

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), was issued by the Financial Accounting Standards Board in June 1998
and is effective for the Company's quarter ending September 30, 2000. SFAS 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments in the consolidated
balance sheet at fair value. The accounting for changes in the fair value (ie,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on the
reason for holding it. If certain conditions are met, entities may elect to
designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure
is a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. Accounting for foreign
currency hedges is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change.

The Company has not determined the impact that Statement 133 will have on its
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
- -14-


RESMED INC. AND SUBSIDIARIES

Item 3. 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 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 the Deutschmark and Australian dollar. 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 table below provides information about the Company's foreign currency
derivative financial instruments, by functional currency 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 December 31, 1999. The
table presents the notional amounts and weighted average exchange rates by
expected (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 contract or options.





Fiscal Year
----------------------------------------------------------------
(In US$thousands) 2000 2001 2002 Total
(Liabilities)
------------------ ------------------ ------------------ -------------------


FOREIGN EXCHANGE CALL OPTIONS

(Receive AUS$/Pay US$)
Option amount. . . . . . . . . . . $ 30,000 $ 48,000 $ 24,000 $ 102,000
Average contractual exchange rate AUS $1 = USD 0.682 AUS $1 = USD 0.688 AUS $1 = USD 0.690 AUS $1 = USD 0.687

Receive AUS$/Pay Euro)
Option amount. . . . . . . . . . . $ 4,181 $ 8,512 $ 4,332 $ 17,025
Average contractual exchange rate AUS$1 = Euro 0.622 AUS$1 = Euro 0.634 AUS$1 = Euro 0.647 AUS$1 = Euro 0.637






(In US$thousands) Fair Value
Assets/(Liabilities)
--------------------


Foreign Exchange Call Options

(Receive AUS$/Pay US$)
Option amount. . . . . . . . . . . $ 1,080


(Receive AUS$/Pay Euro)
Option amount. . . . . . . . . . . $ 683




- -15

RESMED INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Refer Note 5 to the Condensed Consolidated Financial Statements

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

The Company's Annual Meeting of Shareholders was held on November 8, 1999.
The holders of 12,384,298 shares of the Company's stock (approximately 83% of
the outstanding shares) were present at the meeting in person or by proxy. The
only matters voted upon at the meeting were (1) to elect two directors, to serve
for a three year term; (2) to ratify the selection of auditors to examine the
consolidated financial statements of the Company for the fiscal year ending June
30, 2000; and (3) to transact such other business as may properly come before
the meeting.

(1) Dr Christopher G Roberts and Mr Donagh McCarthy, nominated by the
Company's Board of Directors, were elected to serve until 2001. There were no
other nominees.



Shares were voted as follows:


Name For Withholding Vote For
- --------------------- ---------- --------------------

Christopher G Roberts 12,147,307 236,991
Donagh McCarthy . . . 12,147,307 236,991



(2) the selection of KPMG LLP as independent public accountants for the 2000
fiscal year was ratified: affirmative votes, 12,368,658 shares; negative votes,
3,040 shares (12,600 shares abstained).

(3) There was no other business transacted at the meeting.

Item 5. Other Information

None

Item 6. Exhibits and Report on Form 8K

Exhibits. The following exhibits are filed as a part of this report:
27.1 Financial Data Schedule
- -16-

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