Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 14, 2003

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

Published on May 14, 2003



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, 2003

[ ] 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 [ ]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ x ] No [ ]


As of May 5, 2003, there were 33,226,493 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, 2003 and June 30, 2002

Condensed Consolidated Statements of Income (unaudited) for 4
the Three Months Ended March 31, 2003 and 2002 and the
Nine Months ended March 31, 2003 and 2002

Condensed Consolidated Statements of Cash Flows (unaudited) 5
for the Nine Months Ended March 31, 2003 and 2002

Notes to Unaudited Condensed Consolidated Financial 6
Statements

Item 2 Management's Discussion and Analysis of Financial Conditions 24
and Results of Operations

Item 3 Quantitative and Qualitative Disclosures About Market Risk 34

Item 4 Controls and Procedures 44



PART II OTHER INFORMATION

Item 1 Legal Proceedings 45

Item 2 Changes in Securities and Use of Proceeds 45

Item 3 Defaults Upon Senior Securities 45

Item 4 Submission of Matters to a Vote of Security Holders 45

Item 5 Other Information 45

Item 6 Exhibits and Reports on Form 8-K 45

SIGNATURES 46

CERTIFICATIONS 47


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



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

March 31, June 30,
2003 2002

ASSETS
Current assets:
Cash and cash equivalents $ 93,715 $ 72,860
Marketable securities - available-for-sale 9,586 19,979
Accounts receivable, net of allowance for doubtful accounts of $2,436 at March 31, 2003 and
1,938 at June 30, 2002 52,636 46,199
Inventories (note 4) 49,305 41,173
Deferred income taxes 9,357 9,289
Prepaid expenses and other current assets 5,468 4,213
--------- ---------
Total current assets 220,067 193,713
--------- ---------

Property, plant and equipment, net of accumulated depreciation of $41,133 at March 31, 2003
and $31,084 at June 30, 2002 92,199 79,279
Patents, net of accumulated amortization of $2,855 at March 31, 2003 and $1,862 at June 30, 2002 3,137 2,653
Goodwill (note 6) 98,639 92,536
Other assets 6,221 8,010
--------- ---------
Total non-current assets 200,196 182,478
--------- ---------
Total assets $420,263 $376,191
======== =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,027 $ 11,605
Accrued expenses 16,664 15,273
Deferred revenue 5,704 3,636
Income taxes payable 6,111 6,905
Payable for property purchase 6,331 11,552
Current portion of deferred profit on sale-leaseback 2,077 1,933
--------- ---------
Total current liabilities 52,914 50,904
--------- ---------

Non-current liabilities:
Deferred revenue 7,007 5,402
Convertible subordinated notes (note 9) 113,250 123,250
Deferred profit on sale-leaseback 2,424 3,705
--------- ---------
Total non-current liabilities 122,681 132,357
--------- ---------
Total Liabilities 175,595 183,261
--------- ---------

Commitments and contingencies (note 7) - -
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
33,126,910 at March 31, 2003 and 32,818,160 at June 30, 2002 (excluding 415,365 and 133 132
290,047 shares held as Treasury Stock respectively)
Additional paid-in capital 98,715 94,153
Retained earnings 146,848 114,643
Treasury stock (11,415) (7,873)
Accumulated other comprehensive income (loss) (note 5) 10,387 (8,125)
Total stockholders' equity 244,668 192,930
--------- ---------
Total liabilities and stockholders' equity $420,263 $376,191
======== =========

See accompanying notes to unaudited condensed consolidated financial statements.

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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(in US$ thousands, except per share data)

Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
-------- -------- --------- ---------

Net revenue $68,996 $52,776 $192,875 $147,829
Cost of sales 25,809 19,005 70,152 51,388
-------- -------- --------- ---------
Gross profit 43,187 33,771 122,723 96,441
-------- -------- --------- ---------

Operating expenses:
Selling, general and administrative 21,013 16,408 59,735 45,467
Research and development 5,068 3,792 14,299 10,770
Donation to Research Foundation - 1,000 - 1,000
-------- -------- --------- ---------
Total operating expenses 26,081 21,200 74,034 57,237
-------- -------- --------- ---------
-------- -------- --------- ---------
Income from operations 17,106 12,571 48,689 39,204
-------- -------- --------- ---------

Other income (expense), net:
Interest income (expense), net (505) (893) (2,131) (2,461)
Gain on extinguishment of debt - 2,989 529 2,989
Other, net 1,406 433 121 471
-------- -------- --------- ---------
Total other income (expense), net 901 2,529 ( 1,481) 999
-------- -------- --------- ---------

Income before income taxes 18,007 15,100 47,208 40,203
Income taxes (5,757) (4,721) (15,003) (12,507)
-------- -------- --------- ---------
Net income $12,250 $10,379 $ 32,205 $ 27,696
======= ======== ========= =========

Basic earnings per share: $ 0.37 $ 0.32 $ 0.98 $ 0.87
Diluted earnings per share: $ 0.35 $ 0.31 $ 0.94 $ 0.81

Basic share outstanding 33,065 32,217 32,980 31,992
Diluted shares outstanding
34,564 33,924 34,343 34,101


See accompanying notes to unaudited condensed consolidated financial statements.

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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in US$ thousands)

Nine Months Ended
March 31,
2003 2002
--------- ----------

Cash flows from operating activities:
Net income $ 32,205 $ 27,696
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,949 7,007
Amortization of deferred borrowing costs 641 954
Provision for service warranties 128 (113)
Foreign currency options revaluations 191 340
Gain on debt extinguishment (529) (2,989)
Profit on sale and lease-back of building (1,459) -
Changes in operating assets and liabilities:
Accounts receivable, net (4,016) (10,536)
Inventories (5,991) (4,712)
Prepaid expenses and other current assets (1,625) (6,436)
Accounts payable, accrued expenses and other liabilities 8,643 15,974
--------- ----------
Net cash provided by operating activities 37,137 27,185
--------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (16,528) (15,819)
Patent registration costs (1,026) (975)
Purchase of non-trading investments (953) (2,839)
Proceeds from sale of non-trading investments 1,836 -
Business acquisitions, net of cash acquired of nil (2002:$369) (note 8) (300) (6,544)
Purchases of marketable securities-available-for-sale (13,544) (350,743)
Proceeds from sale of marketable securities - available-for-sale 23,770 356,685
--------- ----------
Net cash used in investing activities (6,745) (20,235)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 4,563 9,305
Proceeds from borrowings, net of borrowing costs - 28,402
Instalment payment for property purchase (5,870) -
Redemption of borrowings, convertible note (9,217) (29,935)
Purchase of treasury stock (3,542) -
--------- ----------
Net cash (used) provided by financing activities (14,066) 7,772
--------- ----------
Effect of exchange rate changes on cash 4,529 1,370
--------- ----------
Net increase in cash and cash equivalents 20,855 16,092
Cash and cash equivalents at beginning of period 72,860 40,136
--------- ----------
Cash and cash equivalents at end of period $ 93,715 $ 56,228
========= ==========

Supplemental disclosure of cash flow information:
Income taxes paid $ 15,851 $ 13,620
Interest paid 2,265 3,868
========= ==========

Fair value of assets acquired on acquisition: $ - $ 2,634
Liabilities assumed - (1,131)
Goodwill on acquisition 300 5,410
Cash paid for acquisition $ 300 $ 6,913
========= ==========


See accompanying notes to condensed consolidated financial statements.

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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, through its
subsidiaries, designs, manufactures and markets devices for the evaluation and
treatment of sleep-disordered breathing, primarily obstructive sleep apnea. The
Company's manufacturing operations are located in Australia, Germany, and the
United States of America. Major distribution and sales sites are located in the
United States of America, Germany, France, United Kingdom, Switzerland,
Australia and Sweden.

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 March 31, 2003 and
the nine months ended March 31, 2003 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2003.


(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 generally recorded upon shipment, at which time
title transfers to the customer. Revenue on product sales which require
customer acceptance is not recorded until acceptance is received. Royalty
revenue from license agreements is recorded when earned. Service revenue
received in advance from service contracts is initially deferred and recognized
ratably over the life of the service contract. Revenue received in advance from
rental unit contracts is initially deferred and recognized ratably over the life
of the rental contract. Revenue from sale of marketing and distribution rights
is initially deferred and recognized ratably as revenue over the life of the
contract. Freight charges billed to customers are included in revenue. All
freight-related expenses are charged to cost of sales.

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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED )

(2) Summary of Significant Accounting Policies, Continued

(b) Revenue Recognition (continued)

We do not offer a right of return or other recourse with respect to the sale of
our products or similarly offer variable sale prices for subsequent events or
activities. However, as part of our sales processes we may provide upfront
discounts for large orders, one time special pricing to support new product
introductions, sales rebates for centralized purchasing entities or price-breaks
for regular order volumes. The costs of all such programs are recorded as an
adjustment to revenue. In our domestic sales activities we use a number of
Manufacturer Representatives to sell our products. These representatives are
paid a direct commission on sales and act as an integral component of our
domestic sales force. We do not sell our products to these representatives and
do not recognize revenue on such shipments. Our products are predominantly
therapy based equipment and require no installation. As such, we have no
significant installation obligations.

(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 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. The Company reviews and
provides for any product obsolescence in its manufacturing and distribution
operations with assessments of individual products and components (based on
estimated future usage and sales) being performed throughout the year.

(e) Property, Plant and Equipment

Property, plant and equipment, including rental 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 except for
buildings which are depreciated over an estimated useful life of 40 years.
Straight-line and accelerated methods of depreciation are used for tax purposes.
Maintenance and repairs are charged to expense as incurred.

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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED )

(2) Summary of Significant Accounting Policies, Continued

(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

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible
Assets. As allowed under the Standard, the Company 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.

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.

The Company conducted its annual review for goodwill impairment in July 2002.
In conducting our review of goodwill impairment, the Company identified
reporting units, being components of our operating segment, as each of the
entities acquired and giving rise to the goodwill. The fair value for each
reporting unit was determined based on discounted cash flows and involved a two
step process as follows:

Step 1 - Compare the fair value for each reporting unit to its carrying
value, including goodwill. For each reporting unit where the carrying value,
including goodwill, exceeds the reporting unit's fair value, move on to step 2.
If a reporting unit's fair value exceeds the carrying value, no further work is
performed and no impairment charge is necessary.

Step 2 - Allocate the fair value of the reporting unit to its identifiable
tangible and non-goodwill intangible assets and liabilities. This will derive
an implied fair value for the goodwill. Then, compare the implied fair value of
the reporting unit's goodwill with the carrying amount of the reporting unit's
goodwill. If the carrying amount of the reporting unit's goodwill is greater
than the implied fair value of its goodwill, an impairment loss must be
recognized for the excess.

The results of the review indicated that no impaired goodwill exists.

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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED )

(2) Summary of Significant Accounting Policies, Continued

(h) Foreign Currency

The consolidated financial statements of the Company's non-U.S.
subsidiaries, whose functional currencies are other than U.S. dollars, 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 comprehensive
income, as described in Note 5, and are included in accumulated other
comprehensive loss in the 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.

(i) Research and Development

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

(j) Earnings Per Share

The weighted average shares used to calculate basic earnings per share was
33,065,000 and 32,217,000 for three-month periods ended March 31, 2003 and 2002
respectively, and 32,980,000 and 31,992,000 for the nine month periods ended
March 31, 2003 and 2002 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 1,499,000 and 1,707,000 for the
three-month periods ended March 31, 2003 and 2002 respectively and by 1,363,000
and 2,109,000 for the nine-month periods ended March 31, 2003 and 2002,
respectively.

Stock options of 1,466,000 and 1,282,000 for the three-month periods ended March
31, 2003 and 2002 respectively and 1,500,000 and 427,000 for the nine-month
periods ended March 31, 2003 and 2002, respectively, were not included in the
computation of diluted earnings per share as the effect of exercising these
options would have been anti-dilutive.

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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) 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.

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.

(l) 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 forward exchange contracts and 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, principally
denominated in Australian dollars and Euros. The terms of such foreign currency
option contracts generally do not exceed three years.

The Company's foreign currency derivatives portfolio represents a cashflow
hedge program against the net cash flow of its international manufacturing
operations. The Company has determined its hedge program to be a non-effective
hedge as defined under SFAS 133. As such, the foreign currency derivatives
portfolio is recorded in the consolidated balance sheets at fair value and
included in other assets or other liabilities.

All movements in the fair value of the foreign currency derivatives are recorded
within other income, net on the Company's consolidated statements of income.

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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(m) 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.

(n) 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, 2003 and June 30, 2002, the Company's investments in debt
securities were classified on the accompanying consolidated balance sheet as
marketable securities-available-for-sale. These investments are diversified
among high credit quality securities in accordance with the Company's investment
policy.

As at March 31, 2003, contractual maturities of marketable
securities-available-for-sale were all less than one year.

(o) Warranty

Estimated future warranty costs related to certain products are charged 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 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.

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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(q) Capitalized Software Production Costs

Software development costs have been capitalized and will be amortized to
the cost of product revenues over the estimated economic lives (generally three
to five years) of the products that include such software. Total net
capitalized software production costs were $1,557,000 and $1,132,000 at March
31, 2003 and June 30, 2002 respectively.

(r) Stock-based Employee Compensation

The Company has granted stock options to personnel, including officers and
directors, in accordance with both the 1995 Option Plan and the 1997 Equity
Participation Plan (collectively the "Plans"). These options have expiration
dates of ten years from the date of grant and vest over three or four years.
The Company granted these options with the exercise price equal to the market
value as determined at the date of grant.



The following table summarizes outstanding stock option plan balances as at March 31, 2003

- --------------------- ----------------------- ------------------- -------------------------
Plan Category Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding outstanding option future issuance under
options equity compensation plans
- --------------------- ----------------------- ------------------- -------------------------
Equity compensation
plans approved by
security holders 5,155,826 $28.07 831,548

Equity compensation
plans not approved by
security holders - - -
- --------------------- ----------------------- ------------------- -------------------------
Total 5,155,826 $28.07 831,548
- --------------------- ----------------------- ------------------- -------------------------



The Company applies APB Opinion No. 25 in accounting for its Plans and as all
stock options are issued at market price on date of issue, no compensation cost
has been recognized for its stock options. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value recognition provisions of FASB Statement 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(r) Stock-based Employee Compensation


Three Months Ended Nine Months Ended
March 31, March 31,
(In thousands) 2003 2002 2003 2002
------- ------- ------- -------

Net income, as reported $12,250 $10,379 $32,205 $27,696
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects. 3,670 4,801 10,416 14,084
Pro forma net income 8,580 5,578 21,789 13,612
------- ------- ------- -------
Earnings per share:
Basic - as reported $ 0.37 $ 0.32 $ 0.98 $ 0.87
Basic - pro forma $ 0.26 $ 0.17 $ 0.66 $ 0.43

Diluted - as reported $ 0.35 $ 0.31 $ 0.94 $ 0.81
Diluted - pro forma $ 0.25 $ 0.16 $ 0.63 $ 0.40



The fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rates of 2.9% and 4.8% for the nine months
ended March 31, 2003 and fiscal 2002 respectively; no dividend yield; expected
option lives of 3 years for the nine months ended March 31, 2003 and 5.5 years
for fiscal 2002 and volatility of 63% for the nine months ended March 31, 2003
and 60% for fiscal 2002.

Fair value of compensation costs by period of grant are noted below (in
thousands except per share data):



- --------------------------------------------------------------------
Nine Months Ended Average
Fiscal Year of Grant March 31, Exercise Fair Value at
2003 2002 Price Date of Grant
- --------------------------------------------------------------------

2003 $ 6,518 $ - $26.39 $ 12.16
2002 7,456 15,578 50.18 26.10
2001 1,998 5,357 27.71 13.41
2000 53 728 14.14 6.56
1999 - 5 11.93 5.27
- --------------------------------------------------------------------
Compensation Cost $16,025 $21,668
====================================================================
Tax Effected $10,416 $14,084
====================================================================



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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(3) Accounting Changes

In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities, which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS 133. SFAS 149 is effective for contracts entered into or modified
after June 30, 2003. The Company is currently evaluating the impact of this
statement.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, which amends SFAS 123, Accounting for
Stock-Based Compensation. SFAS 148 amends the disclosure requirements in SFAS
123 for stock-based compensation for annual periods ending after December 15,
2002 and for interim periods beginning after December 15, 2002. SFAS 148 amends
SFAS 123 to provide alternative methods of transition for an entity that
voluntarily changes to fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS 123 to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, SFAS 148 amends Accounting Principles Board ("APB")
Opinion No. 28, Interim Financial Reporting, to require disclosure about those
effects in interim financial information. The Company has adopted the amended
disclosure provisions of SFAS 148.

In July 2002, the FASB issued SFAS 146, Accounting for Restructuring Costs.
SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts, and relocating plant facilities or personnel. Under SFAS 146, a
company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value.

SFAS 146 requires a company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed.

SFAS 146 is effective prospectively for exit or disposal activities initiated
after December 31, 2002. Under SFAS 146, a company may not restate its
previously issued financial statements and SFAS 146 grandfathers the accounting
for liabilities that a company had previously recorded under Emerging Issues
Task Force Issue 94-3. The Company believes that the adoption of SFAS 146 will
not have a material impact on the results of operations, financial position or
liquidity of the Company.

- 14 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(3) Accounting Changes, Continued

The FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002.
SFAS 145 rescinds SFAS 4 and SFAS 64, which required that all gains and losses
from extinguishment of debt be aggregated, and if material, classified as an
extraordinary item. As a result, gains and losses from debt extinguishment are
to be classified as extraordinary only if they meet the criteria set forth in
APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS 145 also requires that
sale-leaseback accounting be used for capital lease modifications with economic
effects similar to sale-leaseback transactions. The Company has classified
gains from the extinguishment of debt as other income in its Consolidated
Statements of Income.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." For long-lived assets to be held and used, SFAS
144 retains the requirements of SFAS 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 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 144 requires that such
assets be considered held and used until disposed.

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. The Company adopted SFAS 144 on
July 1, 2002. Adoption of the standard did not have a material impact on the
results of operations, financial position or liquidity of the Company.

In July 2001, the FASB issued SFAS 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.

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 completed its annual assessment of goodwill
impairment in July 2002. The results of the review indicated that no impaired
goodwill currently exists.

- 15 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(3) Accounting Changes, Continued

In June 2001, the FASB issued SFAS 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 be 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 143 are
effective for fiscal years beginning after June 15, 2002. The initial adoption
of SFAS 143 did not have a material impact on the results of operations,
financial position or liquidity of the Company.

(4) Inventories



Inventories were comprised of the following at March 31, 2003 and June 30,2002:
- -----------------------------------------
(in US$ thousands) March 31, June 30,
2003 2002
- -----------------------------------------

Raw materials $11,642 $ 8,130
Work in progress 2,301 2,057
Finished goods 35,362 30,986
- -----------------------------------------
$49,305 $41,173
=========================================



(5) Comprehensive Income



The table below presents other comprehensive income (loss):
- ----------------------------------------------------------------------------------------------------------------

Foreign Unrealized Accumulated Other Retained Accumulated
Currency Gains (Losses) Comprehensive Earnings Comprehensive
(in US$000's) Items on Securities Income (Loss) Income (Loss)
- ----------------------------------------------------------------------------------------------------------------
Beginning balance, July 1, 2002 ($8,230) $ 105 ($8,125) $ 114,643 $ 106,518
Current period change 18,620 (108) 18,512 32,205 50,717
- ----------------------------------------------------------------------------------------------------------------
Ending balance, March 31, 2002 $ 10,390 ($3) $10,387 $ 146,848 $ 157,235
================================================================================================================


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, 2003
and June 30, 2002 consisted of foreign currency translation adjustments with net
credit balances of $10.4 million and net debit balances of $8.2 million,
respectively and unrealized losses on securities with net debit balance of
$3,000 and net credit balance of $105,000 (net of tax of $57,000), respectively.

- 16 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(6) Goodwill and Other Intangible Assets




Changes in the carrying amount of goodwill for the nine months ended March 31,
2003, were as follows:


(In US$thousands)
Balance at June 30, 2002 $92,536
Goodwill on acquisition of John Stark and Associates 300
Foreign currency translation adjustments 5,803
-------
Balance at March 31, 2003 $98,639
=======


Other intangible assets amounted to $3.1 million (net of accumulated
amortization of $2.9 million) and $2.7 million (net of accumulated amortization
of $1.9 million) at March 31, 2003 and June 30, 2002, 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) Commitments and Contingencies

The Company is currently engaged in litigation relating to the enforcement and
defense of certain of its patents.

1995 LITIGATION WITH RESPIRONICS. In January 1995 ResMed Limited filed a
complaint in the United States District Court for the Southern District of
California seeking monetary damages from and injunctive relief against
Respironics, Inc. for alleged infringement of three of its patents. In February
1995, Respironics filed a complaint in the U.S. District Court for the Western
District of Pennsylvania, in Pittsburgh, against ResMed Limited seeking a
declaratory judgment that Respironics, Inc. does not infringe claims of these
patents and that ResMed Limited's patents are invalid and unenforceable. The
Respironics complaint also made the University of Sydney a party as the
University of Sydney is the assignee of one of the patents in suit; ResMed
Limited is the exclusive licensee of that patent. The two actions were combined
and are proceeding in the Western District of Pennsylvania. In June 1996,
ResMed Limited filed an additional complaint against Respironics for
infringement of a fourth ResMed patent, and that complaint was consolidated with
the earlier action.

The Court has granted three partial summary judgment motions, finding that
Respironics does not infringe three of the four patents at issue. In December
1999, in response to the Court's ruling on Respironics, Inc.'s 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 of the third
partial summary judgment. ResMed currently intends to appeal the partial
summary judgment rulings after a final judgment in the consolidated litigation
has been entered in the District Court proceedings.

- 17 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(7) Commitments and Contingencies, Continued

Respironics has filed a motion seeking a summary judgment that one of the four
patents is invalid. ResMed has opposed the motion. The court has not yet ruled
on it.

2002 LITIGATION WITH FISHER & PAYKEL HEALTHCARE. On August 26, 2002, ResMed
Inc., ResMed Corp. and ResMed Limited filed a lawsuit in U.S. District Court for
the Southern District of California, in San Diego against Fisher & Paykel
Healthcare Inc and Fisher & Paykel Healthcare Limited ("Fisher & Paykel
Healthcare"). ResMed's amended complaint seeks a judgment that selected Fisher
& Paykel Healthcare mask products infringe patents held by ResMed. The
complaint further charges the defendants with the copying of ResMed proprietary
mask technology and alleges violations of the Lanham Act, trademark and trade
dress infringement and common law violations relating to the appearance of
ResMed mask products.

On May 6, 2003, ResMed and Fisher & Paykel Healthcare agreed to settle this
patent infringement lawsuit. Under the settlement, Fisher & Paykel will
introduce a new design of its mask by August 1, 2003 and ResMed will not assert
intellectual property claims against the new mask. In addition, Fisher & Paykel
will continue to sell its existing masks under a license from ResMed until it
introduces the new version. ResMed will dismiss the lawsuit with prejudice.

2002 LITIGATION WITH RESPIRONICS. On October 11, 2002, ResMed Inc, ResMed Corp,
and ResMed Limited filed a lawsuit in U.S. District Court for the Southern
District of California, in San Diego against Respironics, Inc. ResMed's suit
seeks a judgment that certain of Respironics' mask products (Contour Deluxe,
Comfort Classic, Comfort Select, and Image3 masks) infringe patents held by
ResMed. The complaint further charges Respironics with copying ResMed's
proprietary mask technology, and alleges violation of the Lanham Act, trademark
and trade dress infringement, and common law violations relating to the
appearance of ResMed's mask products. ResMed seeks an injunction and damages.
On March 4, 2003, the Court denied Respironics' motion to transfer the case to
the U.S. District Court for the Western District of Pennsylvania.

On October 16, 2002 Respironics, Inc. filed a lawsuit in U.S. District Court for
the Western District of Pennsylvania, in Pittsburgh, against ResMed Limited
seeking a declaratory judgment that Respironics, Inc. does not infringe those
patents that are the subject of ResMed's October 11, 2002 complaint filed in San
Diego, that such patents are invalid and unenforceable and that Respironics has
not committed any other trademark, trade dress or common law violations. ResMed
Limited has filed a motion to dismiss the case against it for lack of
jurisdiction or, in the alternative, to transfer it to the U.S. District Court
for the Southern District of California, in San Diego. Respironics has not yet
opposed the motion, and the court has not ruled on it.

Other pre-trial proceedings continue in each of the cases described above. No
trial dates have been set. While we are prosecuting and defending, as
applicable, the above actions, there can be no assurance that we will be
successful.

- 18 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(7) Commitments and Contingencies, Continued

OTHER LITIGATION. In addition to the matters described above, in the normal
course of business, the Company is subject to routine litigation incidental to
the business. While the results of this litigation cannot be predicted with
certainty, the Company believes that their final outcome will not have a
material adverse effect on its consolidated financial statements taken as a
whole.

(8) Business Acquisitions

NINE MONTHS ENDED MARCH 31, 2003

On July 24, 2002 the Company acquired the business of John Stark and Associates,
its Texas representative, for total consideration of $300,000 in cash. The
acquisition has been accounted for as a purchase and accordingly, the results of
operations of John Stark & Associates were included within the Company's
consolidated financial statements from July 24, 2002. An amount of $300,000
representing the excess of the purchase price over the fair value of net
identifiable assets acquired of $nil, has been recorded as goodwill.

FISCAL YEAR ENDED JUNE 30, 2002

SERVO MAGNETICS, INC. (SMI). On May 14, 2002, the Company acquired all of the
common stock of Servo Magnetics Incorporated through a merger with our
wholly-owned subsidiary, Servo Magnetics Acquisition Inc., for total
consideration, including acquisition costs, of $32.6 million. Consideration
included the issue of 853,448 shares for fair value of $24.8 million with the
balance of the acquisition cost paid in cash. Upon consummation of the merger,
the surviving corporation, Servo Magnetics Acquisition Inc., changed its name to
Servo Magnetics, Inc.

The acquisition has been accounted for as a purchase and accordingly, the
results of operations of SMI have been included in the Company's consolidated
financial statements from May 14, 2002. An amount of $30.7 million,
representing the excess of the purchase price over the fair value of the net
identifiable assets acquired of $1.9 million, has been recorded as goodwill.

Purchased in-process research and development of $350,000 was expensed upon
acquisition of SMI 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 19% and were based on the risk profile of the acquired
assets.
- 19 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(8) Business Acquisitions, Continued

Purchased research and development projects related to electrical motor systems
used in the company's flow generator devices and other medical and data storage
equipment. Key assumptions used in the analysis included gross margins of 34%.
As of the date of acquisition, new motor systems for use in medical and health
applications are expected to be completed and commercially available by 2004.
These projects have estimated costs to complete totaling approximately $0.5
million.

The Company believes that the assumptions used to value acquired intangible
assets noted above were reasonable at the time of acquisition and as at March
31, 2003. 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.

LABHARDT AG. On November 15, 2001, the Company's wholly owned subsidiary ResMed
International Inc. 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. An amount of $4.2
million, representing the excess of the purchase price over the fair value of
the net identifiable assets acquired of $1.3 million, has been recorded as
goodwill.

Pro-forma financial information related to SMI and Labhardt AG are not included
as the effects would not be significant to the consolidated financial
statements.


(9) Long-Term Debt

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 received an additional $30.0 million in over allotments. This
increased the total amount of convertible subordinated notes issued to $180.0
million.

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.

- 20 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(9) Long-Term Debt, Continued

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 nine months ended March 31, 2003 the Company repurchased $10.0
million face value of its convertible subordinated notes. The total purchase
price of the notes was $9.4 million, including $0.2 million in accrued interest.
The Company recognized a gain of $0.3 million, net of tax of $0.2 million, on
these transactions.

During fiscal 2002, the Company repurchased $56.8 million face value of its
convertible subordinated notes. The total purchase price of the notes was $49.1
million, including $0.6 million in accrued interest. The Company recognized a
gain of $4.0 million, net of tax of $2.5 million, on these transactions.

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.


(10) In-Process Research and Development Charge

MAP

On acquisition of MAP in February 2001, the Company recognized as an expense a
charge of $17.7 million with respect to five in-process research and development
programs under active development by MAP at date of acquisition. The five
projects were:
- 21 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(10) In-Process Research and Development Charge, Continued

(i) A single-walled nasal cushion mask system.
(ii) A new Headgear System
(iii) Standalone active humidifier
(iv) An Autotitration CPAP device for treatment of Obstructive Sleep Apnea
(v) A new Obstructive Sleep Apnea diagnostic device.

The status of each project is as noted below:

(i) Single-walled nasal cushion

The nasal cushion under development by MAP on acquisition was originally due for
release in October 2001. Delays in the design and manufacturing process delayed
the release for seven months, until April 2002. The delay in release of the
product was not significant over its expected life cycle, and has made no
significant impact on the net return assumptions used in the initial IPR&D
model. Since release, the product (now referred to as the Papillon) has met or
exceeded all sales forecasts.

(ii) New headgear

The new headgear product line was withheld to coincide with the release of the
Papillion mask system in April 2002 and so was also seven months behind schedule
in projected release dates. Since release, the new headgear system has exceeded
original sales projections and continues to meet or exceed initial expectations.

(iii) Standalone Humidifier

Due to other priorities and to the introduction of integrated humidification
flow generator devices by a number of competitors during fiscal 2002, we have
delayed the standalone humidifier project.

Given the relatively small revenue forecast of the product line in the IPR&D
model, the financial impact of this project is not material to ResMed or the net
return of the MAP acquisition.

- 22 -

PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(10) In-Process Research and Development Charge, Continued

(iv) AutoTitration Device

The main product development effort of MAP since acquisition has been on the
completion of the Autotitration CPAP flow generator specified in the initial
in-process research and development charge. This project experienced some delays
due to the complexity of the software algorithm development process and
associated electronics resulting in the product being released in November 2002.

(v) Obstructive Sleep Apnea Diagnostic Device

MAP's new diagnostic device remains on target for initial market release in
Calendar 2003 although the forecasted release date of March 2003 was not
achieved. We remain confident in the capacity of the device to enhance the
diagnostic process, and remain confident in the potential of the product to
significantly impact the treatment and diagnosis of Obstructive Sleep Apnea in
the German market.

As at March 31, 2003, three of the five programs have been completed with the
release of the Papillon Mask system, upgraded headgear and the Magellan
Automated flow generator CPAP device. All three products are generating sales
revenue consistent with our original expectations and assumptions used in
calculating the in-process research and development charge. We expect to
release products with respect to both remaining in-process research and
development programs over the next twelve-month period, which is generally
consistent with our original expectations.

Given the successful completion of the above research programs and performance
of the associated product lines, we remain confident in the assumptions used to
determine the in-process research and development charge and as a result the net
return of the MAP acquisition.

- 23 -

PART I - FINANCIAL INFORMATION Item 2
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

NET REVENUE

Net revenue increased for the three months ended March 31, 2003 to $69.0 million
from $52.8 million for the three months ended March 31, 2002, an increase of
$16.2 million or 31%. For the nine-month period ended March 31, 2003 net
revenue increased to $192.9 million from $147.8 million for the nine-month
period ended March 31, 2002, an increase of $45.1 million or 30%.

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.
Sales for the quarter also benefited from an appreciation of international
currencies against the US dollar (increasing sales by approximately $5.5
million) and inclusion of sales of $1.6 million from Servo Magnetics Inc (SMI),
the subsidiary we acquired in May 2002. Sales for the nine months ended March
31, 2003 also benefited from an appreciation of international currencies against
the US dollar (increasing sales by approximately $10.8 million) and inclusion of
sales of $5.0 million from Servo Magnetics. Net revenue in North and Latin
America increased to $33.8 million from $26.7 million for the quarter, and to
$94.4 million from $72.5 million for the nine-month periods ended March 31, 2003
and 2002 respectively. This growth reflects increased public and physician
awareness of sleep-disordered breathing. Net revenue in international markets
increased to $35.2 million from $26.1 million for the quarter, and to $98.4
million from $75.3 million for the nine-month periods ended March 31, 2003 and
2002 respectively. International sales growth for the quarter and nine months
ended March 31, 2003 reflects organic growth in the overall sleep disordered
breathing market and appreciation of international currencies against the U.S.
dollar. Growth was partially constrained by lower growth in the Asia Pacific
region, primarily due to the Japanese market, where we have experienced delays
in regulatory approval for the Autoset Spirit. Formal regulatory approval was
received in May 2003.

Sales of flow generators for the three months ended March 31, 2003 increased by
24% compared to the quarter ended March 31, 2002; including increases of 23% in
North and Latin America and 24% elsewhere. Sales of mask systems, motors and
other accessories increased by 39%; including increases of 30% in North and
Latin America and 51% elsewhere, for the nine months ended March 31, 2003
compared to the nine months ended March 31, 2002. These increases reflect
growth in the overall sleep-disordered breathing market, appreciation of
international currencies against the U.S. dollar and our acquisition of SMI.

For the nine months ended March 31, 2003, sales of flow generators increased by
24% compared to the nine months ended March 31, 2002; including increases of 24%
in North and Latin America and 23% elsewhere. Sales of mask systems, motors and
other accessories increased by 39%; 35% in North and Latin America and 42%
elsewhere, for the nine months ended March 31, 2003 compared to the nine months
ended March 31, 2002. The increases reflect growth in the overall
sleep-disordered breathing market, appreciation of international currencies
against the U.S. dollar and our acquisition of SMI.

- 24 -

PART I - FINANCIAL INFORMATION Item 2
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

GROSS PROFIT

Gross profit increased for the three months ended March 31, 2003 to $43.2
million from $33.8 million for the three months ended March 31, 2002, an
increase of $9.4 million or 28%. Gross profit as a percentage of net revenue
decreased marginally for the quarter ended March 31, 2003 to 63% from 64% for
the quarter ended March 31, 2002 reflecting the impact of slightly higher
manufacturing costs resulting from a stronger Australian dollar against the US
dollar (as the majority of manufacturing labor and overhead costs are incurred
in Australia) and, to a lesser extent, the inclusion of SMI's operations, which,
as motor sales, achieve lower margins compared to the Company's overall gross
margin.

For the nine months ended March 31, 2003 gross profit increased to $122.7
million from $96.4 million in the same period of fiscal 2002, an increase of
$26.3 million or 27%. Gross profit as a percentage of net revenue decreased for
the nine months ended March 31, 2003 to 64% from 65% for the nine months ended
March 31, 2002. The decline reflects the impact of slightly higher
manufacturing costs resulting from a stronger Australian dollar against the US
dollar (as the majority of manufacturing labor and overhead costs are incurred
in Australia) and, to a lesser extent, the inclusion of SMI operations, which,
as motor sales, achieve lower margins compared to the Company's overall gross
margin.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased for the three months
ended March 31, 2003 to $21.0 million from $16.4 million for the three months
ended March 31, 2002, an increase of $4.6 million or 28%. As a percentage of
net revenue, selling, general and administrative expenses for the three months
ended March 31, 2003 decreased to 30% compared to 31% for the three months ended
March 31, 2002. The increase in selling, general and administrative expenses
was primarily due to an increase in the number of sales and administrative
personnel and other expenses related to the increase in Company sales. The
increase in selling, general and administrative expenses was also attributable
to appreciation of international currencies against the US dollar (adding
approximately $1.8 million), the inclusion of $0.7 million from SMI's
operations, and $0.5 million in litigation costs associated with outstanding
patent infringement lawsuits against competitors.

Selling, general and administrative expenses for the nine months ended March 31,
2003 increased to $59.7 million from $45.5 million for the nine months ended
March 31, 2002, an increase of $14.2 million or 31%. As a percentage of net
revenue, selling, general and administration expenses were 31% for the nine
months ended March 31, 2003 consistent with the nine months ended March 31,
2002. The increase in selling, general and administrative expenses was
primarily due to an increase in the number of sales and administrative personnel
and other expenses related to the increase in Company sales. The increase in
selling, general and administrative expenses was also attributable to
appreciation of international currencies against the US dollar (adding
approximately $3.5 million), the inclusion of $2.0 million from SMI's
operations, and $1.2 million in litigation costs associated with outstanding
patent infringement lawsuits against competitors.

- 25 -

PART I - FINANCIAL INFORMATION Item 2
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses increased for the three-months ended March 31,
2003 to $5.1 million from $3.8 million for the three months ended March 31,
2002, an increase of $1.3 million or 34%. As a percentage of net revenue,
research and development expenses were 7.3% for the three months ended March 31,
2003 compared to 7.2% for the three months ended March 31, 2002. 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. The increase also reflects an appreciation of the Australian
dollar against the US dollar, as the majority of research and development costs
are incurred in Australian dollars. In constant currency terms, research and
development expenses for the three months ended March 31, 2003 increased by $0.7
million or 17%, compared to the three months ended March 31, 2002.

For the nine-month period ended March 31, 2003 research and development expenses
increased to $14.3 million from $10.8 million for the same period in fiscal
2002, an increase of $3.5 million or 33%. As a percentage of net revenue,
research and development expenses were 7.4% for the nine months ended March 31,
2003 compared to 7.3% for the nine months ended March 31, 2002. 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. To a lesser extent, the increase also reflects an appreciation of the
Australian dollar against the US dollar, as the majority of research and
development costs are incurred in Australian dollars. In constant currency
terms, research and development expenses for the nine months ended March 31,
2003 increased by $2.3 million or 22%, compared to the nine months ended March
31, 2002.

OTHER INCOME (EXPENSE), NET

Other income, net for the three months ended March 31, 2003 of $0.9 million was
lower than the three months ended March 31, 2002 of $2.5 million. The reduction
in other income, net is attributable to no gains on debt extinguishment this
quarter, partially offset by increased net foreign currency gains. Interest
expense was also lower due to the reduction in convertible note debt and
increased cash holdings. For the three months ended March 31, 2003, we recorded
foreign exchange gains of $1.4 million arising from gains on our foreign
currency hedging instruments.

Other income (expenses), net decreased for the nine months ended March 31, 2003
to net expense of $1.5 million from net income of $1.0 million for the nine
months ended March 31, 2002. The decrease in other income was attributable to
lower gains on extinguishment of debt and lower net foreign currency exchange
gains, partially offset by lower interest expense due to the reduction in
convertible note debt.
- 26 -


PART I - FINANCIAL INFORMATION Item 2
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RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

INCOME TAXES

The Company's effective income tax rate increased to approximately 32% for the
three months ended March 31, 2003 from approximately 31.3% for the three months
ended March 31, 2002. For the nine- month period ended March 31, 2003, it
increased to 31.8% from 31.1% for the nine-month period ended March 31, 2002.
The marginally higher tax rate was primarily due to the geographical mix of
taxable income. The Company continues to benefit from the Australian corporate
tax rate of 30%, because the Company generates a majority of its taxable income
in Australia.


IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE

On acquisition of MAP in February 2001, the Company recognized as an expense a
charge of $17.7 million with respect to five in-process research and development
programs under active development by MAP at date of acquisition. The five
projects were:

(i) A single-walled nasal cushion mask system
(ii) New Headgear gear system
(iii) Standalone active humidifier
(iv) An Autotitration CPAP device for treatment of Obstructive Sleep Apnea
(v) A new Obstructive Sleep Apnea diagnostic device

The status of each project is as noted below:

(i) Single-walled nasal cushion

The nasal cushion under development by MAP on acquisition was originally due for
release in October 2001. Delays in the design and manufacturing process delayed
the release for seven months, until April 2002. The delay in release of the
product was not significant over its expected life cycle, and has made no
significant impact on the net return assumptions used in the initial IPR&D
model. Since release, the product (now referred to as the Papillon) has met or
exceeded all sales forecasts.

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PART I - FINANCIAL INFORMATION Item 2
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RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE, CONTINUED

(ii) New headgear

The new headgear product line was withheld to coincide with the release of the
Papillion mask system in April 2002 and so was also seven months behind schedule
in projected release dates. Since release, the new headgear system has exceeded
original sales projections and continues to meet or exceed initial expectations.

(iii) Standalone Humidifier

Due other priorities and to the introduction of integrated humidification flow
generator devices by a number of competitors during fiscal 2002, we have delayed
the standalone humidifier project.

Given the relatively small revenue forecast of the product line in the IPR&D
model, the financial impact of this project is not material to ResMed or the net
return of the MAP acquisition.

(iv) AutoTitration Device

The main product development effort of MAP since acquisition has been on the
completion of the Autotitration CPAP flow generator specified in the initial
in-process research and development charge. This project experienced some delays
due to the complexity of the software algorithm development process and
associated electronics. MAP released the product in November 2002.

(v) Obstructive Sleep Apnea Diagnostic Device

MAP's new diagnostic device remains on target for initial market release in
Calendar 2003, although the forecasted release date of March 2003 was not
achieved. We remain confident in the capacity of the diagnostic algorithm to
significantly enhance the diagnostic process, and remain confident in the
potential of the product to significantly impact the treatment and diagnosis of
obstructive sleep apnea in the German market.

As at March 31, 2003, three of the five programs have been completed with the
release of the Papillon Mask system, upgraded headgear and the Magellan
Automated flow generator device. All three products are generating sales
revenue consistent with our original expectations and assumptions used in
calculating the in-process research and development charge. We expect to
release products with respect to both remaining in-process research and
development programs over the next twelve-month period, which is generally
consistent with our original expectations.

Given the successful completion of the above research programs and performance
of the associated product lines, we remain confident in the assumptions used to
determine the in-process research and development charge and as a result the net
return of the MAP acquisition.

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PART I - FINANCIAL INFORMATION Item 2
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RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2003 and June 30, 2002, the Company had cash and cash
equivalents and marketable securities available-for-sale of approximately $103.3
million and $92.8 million, respectively. The Company's working capital
approximated $167.2 million and $142.8 million, at March 31, 2003 and June 30,
2002, respectively.

Inventory as at March 31, 2003 increased by $8.1 million or 20% to $49.3 million
compared to June 30, 2002 inventories of $41.2 million. This increase in
inventory was broadly in line with a 23% incremental increase in revenues in the
three months ended March 31, 2003 compared to the three months ended June 30,
2002. Accounts receivable as at March 31, 2003 were $52.6 million, an increase
of $6.4 million or 14% over the June 30, 2002 accounts receivables balance of
$46.2 million. This was lower than the 23% incremental increase in revenues for
the three months ended March 31, 2003 compared to the three months ended June
30, 2002, reflecting improved collections. Accounts receivable days outstanding
improved to 68 days for the March 31, 2003 quarter, compared to 72 days for the
June 30, 2002 quarter.

During the nine months ended March 31, 2003, the Company generated cash of $37.1
million from operations, primarily as a result of increased profit from
operations, and increased accounts payable and accrued expenses offset by
increases in inventory and accounts receivable balances. During the nine months
ended March 31, 2002 our operations generated approximately $27.2 million of
cash.

The Company's capital expenditures for the nine-month periods ended March 31,
2003 and 2002 aggregated $16.5 million and $15.8 million respectively. The
majority of the expenditures in the nine-month period ended March 31, 2003
related to the construction of the Company's new manufacturing facility in
Sydney, Australia, acquisition of computer hardware and software including a
disaster recovery system and purchase of production tooling and equipment. As a
result of these capital expenditures, the Company's March 31, 2003 balance sheet
reflects net property plant and equipment of approximately $92.2 million at
March 31, 2003 compared to $79.3 million at June 30, 2002.

During the nine months ended March 31, 2003 and the fiscal year ended June 30,
2002, we repurchased $10.0 million and $56.8 million face value of our
convertible subordinated notes respectively. The total purchase price of the
notes repurchased during the nine months ended March 31, 2003 was $9.4 million,
including $0.2 million in accrued interest. We recognized a gain, net of tax,
of $0.3 million on these transactions. As of March 31, 2003 and June 30, 2002,
we had convertible subordinated notes outstanding of $113.3 million and $123.3
million respectively.

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

On October 2, 2001, we paid $1.4 million as final consideration associated with
the purchase of MAP on February 16, 2001. The amount has been recorded as
goodwill.

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PART I - FINANCIAL INFORMATION Item 2
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RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

LIQUIDITY AND CAPITAL RESOURCES, CONTINUED

On November 15, 2001, we acquired all of the common stock of Labhardt AG, our
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 our
consolidated financial statements from November 15, 2001. The excess of the
purchase price over the fair value of the net identifiable assets acquired of
$1.3 million has been recorded as goodwill.

On April 26, 2002, we settled our purchase of a 30-acre site at Norwest Business
Park, located northwest of Sydney, Australia. The acquisition cost was $23.6
million, with the final payment of $6.3 million due in April 2003. We expect
the first building, a manufacturing and warehouse facility, to be completed on
this site in February 2004. We expect to complete new research and development
and office facilities in calendar 2005. We estimate that the total building
costs to be incurred on the first building will be approximately $32.0 million
and we expect to fund this expenditure through existing cash reserves and cash
generated from operations.

On May 8, 2002, we completed a sale and leaseback transaction of our Australian
facility located at North Ryde in Sydney, Australia. The property was sold for
$18.5 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. We will utilize the cash available from the sale to construct
our new facilities at Norwest Business Park, which is also located in Sydney,
Australia.

On May 14, 2002 we acquired all of the common stock of Servo Magnetics Inc.
("SMI") for total consideration, including acquisition costs, of $32.6 million.
Consideration included the issue of 853,448 shares for fair value of $24.8
million, with the balance of the acquisition cost paid in cash. Subsequent to
the acquisition, we repaid all SMI's existing bank loans totaling $3.0 million.

The acquisition has been accounted for as a purchase and accordingly, the
results of operations of SMI have been included in the our consolidated
financial statements from May 14, 2002. An amount of $30.7 million,
representing the excess of the purchase price over the fair value of the net
identifiable assets acquired of $1.9 million, has been recorded as goodwill.

On June 6, 2002, the Board of Directors authorized us to repurchase up to 4
million shares of our outstanding common stock. For fiscal year 2002, we
repurchased 290,047 shares at a cost of $7.9 million and during the nine months
ended March 31, 2003 we repurchased 125,318 shares at a cost of $3.5 million.
We may continue to repurchase shares of our common stock for cash in the open
market, or in negotiated or block transactions, from time to time as market and
business conditions warrant.

- 30 -

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

Details of contractual obligations at March 31, 2003 were as follows:


- ------------------------------------------------------------------------------------------------
In $ 000's Payments Due by Period
- ------------------------------------------------------------------------------------------------
Less than 1 year 1-3 years 4-5 years After 5 years

- ------------------------------------------------------------------------------------------------
Long-Term Debt $ - $ 113,250 $ - $ -
Operating Leases 6,215 9,413 3,973 720
Unconditional Purchase Obligations(1) 31,742 3,771 - -
- ------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations 37,957 126,434 3,973 720
- ------------------------------------------------------------------------------------------------


(1) The figure includes unconditional purchase obligations of $29.2 million
relating to the construction of our manufacturing and warehouse facility at
Norwest in Sydney, Australia.

Details of other commercial commitments at March 31, 2003 were as follows:



Amount of Commitment Expiration Per Period
- -----------------------------------------------------------------------------------------------------
In $000's Total Amounts Committed Less than 1 year 1-3 years 4-5 years Over 5 years

- -----------------------------------------------------------------------------------------------------
Lines of Credit $ 112 $ 112 $ - $ - $ -
Standby Letters of Credit - - - - -
Guarantees(1) 8,371 6,351 707 - 1,313
Standby Repurchase Obligations - - - -
Other Commercial Commitments - - - - -
- -----------------------------------------------------------------------------------------------------
Total Commercial Commitments 8,483 6,463 707 - 1,313
- -----------------------------------------------------------------------------------------------------


(1) The above guarantees relate to guarantees provided by banks. Guarantees
of $6.3 million relate to deferred payments due on our land purchase at Norwest
and have been recorded as a liability in our financial accounts. The guarantees
are secured by cash deposits held with the bank. The balance of the guarantees
relate to guarantees required by statutory authorities as a pre-requisite to
developing our site at Norwest and requirements under contractual obligations
with insurance companies transacting with our German subsidiaries.

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

We expect to satisfy all of our short-term and long-term liquidity requirements
through a combination of cash on hand and cash generated from operations.

- 31 -

PART I - FINANCIAL INFORMATION Item 2
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RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES

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, goodwill, impaired assets, intangible assets, income taxes and
contingencies.

We state these accounting policies in the notes to the financial statements and
at relevant sections in this discussion and analysis. The estimates are based
on the information that is currently available to us and on various other
assumptions that we believe to be reasonable under the circumstances. Actual
results could vary from those estimates under different assumptions or
conditions.

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

(1) 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.

(2) Inventory Adjustments. Inventories are stated at lower of cost or market
and are determined by the first-in, first-out method. 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.

(3) 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 us.

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PART I - FINANCIAL INFORMATION Item 2
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES, CONTINUED

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.

(4) 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.

(5) 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 our
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.

(6) Revenue Recognition. Revenue on product sales is recorded at the time of
shipment, at which time title transfers to the customer. Revenue on product
sales which require customer acceptance is not recorded until acceptance is
received. Royalty revenue from license agreements is recorded when earned.
Service revenue received in advance from service contracts is initially deferred
and recognized ratably over the life of the service contract. Revenue received
in advance from rental unit contracts is initially deferred and recognized
ratably over the life of the rental contract. Revenue from sale of marketing
and distribution rights is initially deferred and recognized ratably as revenue
over the life of the contract. Freight charges billed to customers are included
in revenue. All freight-related expenses are charged to cost of sales.

We do not offer a right of return or other recourse with respect to the sale of
our products or similarly offer variable sale prices for subsequent events or
activities. However, as part of our sales processes we may provide upfront
discounts for large orders, one time special pricing to support new product
introductions, sales rebates for centralized purchasing entities or price-breaks
for regular order volumes. The costs of all such programs are recorded as
an adjustment to revenue. In our domestic sales activities we use a number of
Manufacturer Representatives to sell our products. These representatives
are paid a direct commission on sales and act as an integral component of our
domestic sales force. We do not sell our products to these representatives, and
do not recognize revenue on such shipments. Our products are predominantly
therapy based equipment and require no installation. As such, we have no
significant installation obligations.

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PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY MARKET RISK

Our functional currency is the U.S. dollar, although we transact business in
various foreign currencies including a number of major European currencies, as
well as the Australian dollar. We have significant foreign currency exposure
through both our Australian manufacturing activities and international sales
operations.

We have 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 our foreign currency exposures
denominated in Euros and the Australian dollar. Under this program, increases
or decreases in our foreign-currency-denominated financial assets, liabilities,
and firm commitments are partially offset by gains and losses on the hedging
instruments.

The table below provides information in US dollar equivalents on our
foreign-currency denominated financial assets by legal entity functional
currency as of March 31, 2003 (in thousands):


Foreign Currency Financial Assets
- ---------------------------------------------------------------------------------------------------------------------
Australian US Euro Great Britain Singapore NZ Swedish Swiss
dollar dollar Pound dollar dollar Kroner Franc

- ---------------------------------------------------------------------------------------------------------------------
AUD Functional Currency Entities:
Assets $ - 30,832 10,015 1,670 1,502 833 739 409
Liability $ - (7,060) (117) (3,933) (96) (4) (19) -
- ---------------------------------------------------------------------------------------------------------------------
Net Total $ - 23,772 9,898 (2,263) 1,406 829 720 409
- ---------------------------------------------------------------------------------------------------------------------

USD Functional Currency Entities:
Assets $19,243 - - - - - - -
Liability $ - - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Net Total $19,243 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------

Euro Functional Currency Entities:
Assets 8,619 69 - - - - - 1,608
Liability - (220) - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
Net Total $ 8,619 (151) - - - - - 1,608
- ---------------------------------------------------------------------------------------------------------------------


The table below provides information about our foreign currency derivative
financial instruments and presents such information in U.S. dollar equivalents.
The table summarizes information on instruments and transactions that are
sensitive to foreign currency exchange rates, including foreign currency call
options held at March 31, 2003. The table presents the notional amounts and
weighted average exchange rates by contractual maturity dates for our foreign
currency derivative financial instruments. These notional amounts generally are
used to calculate payments to be exchanged under the options contracts.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY MARKET RISK, CONTINUED




Total Fair
Value Assets/
(Liabilities)
(In thousands except exchange rates) FY 2003 FY 2004 FY2005 TOTAL March 31, June 30,
2003 2002

- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Exchange Call Options
(Receive AUS$/Pay U.S.$)
Option amount $12,000 $66,000 $24,000 $102,000 $1,356 $2,341
Average contractual exchange rate AUS$1=USD0.64 AUS$1=USD0.607 AUS$1 = USD0.647 AUS$1= USD0.620

(Receive AUS$/Pay Euro)
Option amount $6,105 $18,302 $- $24,407 $134 $423
Average contractual exchange rate AUS$1=Euro0.595 AUS$1=Euro0.595 AUS$1= Euro0.595
- ---------------------------------------------------------------------------------------------------------------------------------
Total 1,490 2,764
- ---------------------------------------------------------------------------------------------------------------------------------


INTEREST RATE RISK

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

At March 31, 2003, we maintained a portion of our cash and cash equivalents 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, 2003, would have resulted in approximately $0.2 million change
in pre-tax income. In addition, the value of our marketable securities would
change by approximately $0.1 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 10-Q 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, market
expansion, pending litigation and the development of new markets for our
products, such as cardiovascular 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.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FORWARD-LOOKING STATEMENTS, CONTINUED

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.

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 sleep-disordered breathing 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 obstructive sleep
apnea and other sleep disorders. We believe that home health care dealers and
sleep clinics play a significant role in determining which brand of product a
patient will use. The success of our business depends on our ability to market
effectively to home health care dealers and sleep clinics to ensure that our
products are properly marketed and sold by these third parties.

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PART I - FINANCIAL INFORMATION Item 3
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RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

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 products. 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.

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

ANY INABILITY TO EFFECTIVELY MARKET OUR PRODUCTS OUTSIDE THE U.S. COULD IMPACT
OUR PROFITABILITY. Approximately half our revenues are generated outside the
U.S., in approximately 60 different countries. Many of these countries have
unique regulatory, medical, and business environments. If we are unable to
market our products effectively outside the U.S., our overall financial
performance could decline.

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 on our ability
to implement and improve our financial and management information systems on a
timely basis and to effect other changes in our business. 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.

IF WE FAIL TO INTEGRATE OUR RECENT ACQUISITIONS WITH OUR OPERATIONS, OUR
BUSINESS COULD SUFFER. The integration of our acquired operations requires
significant efforts from our company and the acquired entity, for several years
after each acquisition. Although we acquired our MAP subsidiary in February
2001, our Labhardt subsidiary in November 2001, and our Servo Magnetics
subsidiary in May 2002, we continue to adjust our business strategies,
equipment, and personnel to achieve maximum efficiencies and success. If we are
not able to successfully integrate the operations of our acquired entities, we
may not fully realize the anticipated benefits of the acquisitions.

- 37 -

PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

WE MANUFACTURE SUBSTANTIALLY ALL OF OUR PRODUCTS OUTSIDE THE U.S. 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 51%, 48%, and 46% of our net revenues in fiscal years 2002, 2001
and 2000, respectively. 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:

- - 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 payers 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 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.

- 38 -


PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, 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 payers 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 and other governments 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 payers.
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 payers. Any violation of these laws and regulations could result in
civil and criminal penalties, including fines.

COMPLYING WITH FOOD AND DRUG ADMINISTRATION 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 our business activities. Failure to comply
with these 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. 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.

- 39 -

PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

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 various suppliers, including
some in which we use 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.

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.

- 40 -

PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

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 a number 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.

WE ARE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS THAT MAY EXCEED THE SCOPE
AND AMOUNT OF OUR INSURANCE COVERAGE, WHICH WOULD EXPOSE US TO LIABILITY FOR
UNINSURED CLAIMS. We are subject to potential product liability claims as a
result of the design, manufacture and marketing of medical devices. Any product
liability claim brought against us, with or without merit, could result in the
increase of our product liability insurance rates. In addition, we would have to
pay any amount awarded by a court in excess of our policy limits. Our insurance
policies have various exclusions, and thus we may be subject to a product
liability claim for which we have no insurance coverage, in which case, we may
have to pay the entire amount of any award. We cannot assure you that our
insurance coverage will be adequate or that all claims brought against us will
be covered by our insurance. 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 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:

- 41 -

PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

- - 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;
the effect of foreign currency transaction gains or losses; and
other activities of our competitors.

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. Our facilities and the manufacturing equipment we use to
produce our products would be costly to replace and could require substantial
lead time to repair or replace. The facilities may be affected by natural or man
made disasters 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 IT DIFFICULT FOR ANOTHER COMPANY TO ACQUIRE US. Provisions of our
certificate of incorporation may have the effect of delaying or preventing
changes in control or management which might be beneficial to us or our security
holders. In particular, our board of directors 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.
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 stockholder 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.

- 42 -


PART I - FINANCIAL INFORMATION Item 3
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK FACTORS, CONTINUED

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 seven 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.

- 43 -


PART I - FINANCIAL INFORMATION Item 4
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. Based on
the foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective.

There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.

- 44 -


PART II - FINANCIAL INFORMATION Items 1-6
- --------------------------------------------------------------------------------
RESMED INC. AND SUBSIDIARIES

Item 1 Legal Proceedings
Refer Note 7 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
On February 17, 2003, we appointed David Pendarvis as our Corporate
Secretary. He will also continue as Vice President, Global General
Counsel.

Item 6 Exhibits and Report on Form 8-K
a) Exhibits
None during the quarter ended March 31, 2003.

b) Reports on Form 8-K
None during the quarter ended March 31, 2003.

- 45 -


PART II - FINANCIAL 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

- 46 -

PART II - FINANCIAL INFORMATION Certifications
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
Certifications

I, Peter C. Farrell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ResMed Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

May 13, 2003

/S/ PETER C. FARRELL
- -----------------------
Peter C. Farrell
Chairman and Chief Executive Officer

- 47 -


PART II - FINANCIAL INFORMATION Certifications
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
Certifications

I, Adrian M. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ResMed Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

May 13, 2003

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