Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

February 19, 1997

Documents

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

Published on February 19, 1997




SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549



FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996

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

Commission file number: 0-26038


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


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



5744 Pacific Center Boulevard
Suite 311
San Diego CA 92121
United States Of America
(Address of principal executive offices)

619 622 2040
(Registrant's telephone number including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X___ No ______

As of December 31, 1996, 7,191,844 shares of Common Stock ($0.004 par value)
were outstanding.


INDEX




PART I FINANCIAL INFORMATION




Page

Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 3
1996 (unaudited) and June 30, 1996

Unaudited Condensed Consolidated Statements of Income for 4
the Three Months Ended December 31, 1996 and 1995 and the
Six Months ended December 31, 1996 and 1995

Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended December 31, 1996 and 1995

Notes to the unaudited Condensed Consolidated Financial 6
Statements

Item 2 Management's Discussion and Analysis of Financial Condition 11
and Results of Operations







PART II OTHER INFORMATION




Item 1 Legal Proceedings 14

Item 2 Changes in Securities 14

Item 3 Defaults Upon Senior Securities 14

Item 4 Submission of Matters to a Vote of Security Holders 14

Item 5 Other Information 14

Item 6 Exhibits and Reports on Form 8-K 14

SIGNATURES 15



- -2-

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements
RESMED INC. AND SUBSIDIARIES

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




December 31, June 30,
------------- ------------
1996 1996
------------- ------------
Assets (unaudited)
Current assets:
Cash and cash equivalents 8,612 5,510
Marketable securities - available for sale 17,629 18,021
Accounts receivable, net of allowance of $175 at December 31,
1996 and June 30, 1996 6,895 6,252
Government grants 888 915
Inventories 5,685 6,134
Prepaid expenses and other current assets 1,913 1,014
____________ ____________
Total current assets 41,622 37,846

Property, plant and equipment, net 3,903 3,284
Patents, net of accumulated amortization of $302 at December
31,1996 and $260 at June 30, 1996 258 217
Deferred income taxes 25 27
Goodwill, net 5,052 4,309
Other assets 1,410 1,263
____________ ____________
Total assets 52,270 46,946
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,428 2,421
Accrued expenses 4,184 2,815
Income taxes payable 2,371 1,857
Current portion of long-term debt 291 289
____________ ____________
Total current liabilities 9,274 7,382

Long-term debt, less current portion 437 578
____________ ____________
Total liabilities 9,711 7,960
____________ ____________
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized;
none issued - -
Common Stock $0.004 par value; 15,000,000 shares
authorized; issued and outstanding 7,191,844 at December 31,
1996 and 7,172,408 at June 30, 1996 29 29
Additional paid-in capital 29,530 29,407
Retained earnings 12,625 9,103
Foreign currency translation adjustment 375 447
____________ ____________
42,559 38,986
Commitments and contingencies ____________ ____________
52,270 46,946
============ ============

See accompanying notes to condensed consolidated financial statements.



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RESMED INC. AND SUBSIDIARIES



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



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

1996 1995 1996 1995
------------ ------------ ------------ ------------

Net revenue 11,587 7,896 22,728 14,599
Cost of sales 4,715 4,004 9,565 7,216
____________ ____________ ____________ ____________
Gross profit 6,872 3,892 13,163 7,383
____________ ____________ ____________ ____________

Operating expenses
Selling, general and administrative
expenses 4,134 2,469 8,056 4,599
Research and development expenses 891 691 1,682 1,371
____________ ____________ ____________ ____________
Total operating expenses 5,025 3,160 9,738 5,970
____________ ____________ ____________ ____________
Income from operations 1,847 732 3,425 1,413
____________ ____________ ____________ ____________

Other income, net:
Interest income, net 301 274 544 531
Government grants 89 170 178 305
Other income, net 237 91 1,033 241
____________ ____________ ____________ ____________
Total other income, net 627 535 1,755 1,077
____________ ____________ ____________ ____________

Income before income taxes 2,474 1,267 5,180 2,490
Income taxes 792 345 1,658 688
____________ ____________ ____________ ____________
Net income 1,682 922 3,522 1,802
============ ============ ============ ============

Net income per common and common
equivalent share:
Primary 0.23 0.13 0.48 0.25
Assuming full dilution 0.23 0.13 0.48 0.25

Weighted average shares per common and
common equivalent outstanding:
Primary 7,320 7,194 7,308 7,173
Assuming full dilution 7,373 7,188 7,354 7,188

See accompanying notes to condensed consolidated financial statements.





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RESMED INC. AND SUBSIDIARIES



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



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

1996 1995
----------------- -------------

Cash flows from operating activities:
Net income 3,522 1,802
____________ ____________
Adjustment to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,076 395
Provision for service warranties 40 12
Deferred income taxes 2 686
Foreign currency options (792) 57
Changes in operating assets and liabilities:
Accounts receivable, net (516) (1,388)
Government grants 35 80
Inventories 330 (871)
Prepaid expenses and other current assets (751) (206)
Accounts payable, accrued expenses and other liabilities 1,693 (1,145)
____________ ____________
Net cash provided by (used in) operating activities 4,639 (578)
____________ ____________
Cash flows used in investing activities:
Purchases of property, plant and equipment (1,426) (649)
Purchases of patents (81) (37)
Purchase of non-trading investments - (329)
Proceeds from sale of non-trading investments 738 -
Loans receivable (150) -
Deferred payments business acquisition (991) -
Purchases of marketable securities - available for sale (25,560) (45,752)
Proceeds from sale of marketable securities - available for sale 25,953 41,633
____________ ____________
Net cash used in investing activities (1,517) (5,134)
____________ ____________
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock 122 5,059
Repayment of long-term debt (146) -
____________ ____________
Net cash provided by (used in) financing activities (24) 5,059
____________ ____________
Effect of exchange rate changes on cash 4 96
____________ ____________
Net increase (decrease) in cash and cash equivalents 3,102 (557)
____________ ____________
Cash and cash equivalents at beginning of period 5,510 3,256
____________ ____________
Cash and cash equivalents at end of period 8,612 2,699
============ ============
Supplemental disclosure of cash flow information:
Income taxes paid 1,107 440
Interest paid - -

See accompanying notes to condensed consolidated financial statements.




- -5-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Basis of Presentation

ResMed Inc. (the Company), is a Delaware corporation formed in March 1994
as a holding company for ResMed Holdings Ltd. (RHL), a company resident in
Australia. RHL designs, manufactures and markets devices for the evaluation
and treatment of sleep disordered breathing, primarily obstructive sleep
apnea. The Company's principal manufacturing operations are located in
Australia. Other principal distribution and sales sites are located in the
United States, the United Kingdom and Europe.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three
months ended December 31, 1996 and the six months ended December 31,1996 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1997.

(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.

(b) Revenue Recognition:

Revenue on product sales is recorded at the time of shipment. Royalty
revenue from license agreements is recorded when earned.

(c) Cash and Cash Equivalents:

Cash equivalents include certificates of deposit, commercial paper, and
other highly liquid investments stated at cost, which approximates market.
Investments with original maturities of 90 days or less are considered to be
cash equivalents for purposes of the consolidated statements of cash flows.
- -6-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(d) Inventories:

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

(e) Property, Plant and Equipment:

Property, plant and equipment is recorded at cost. Depreciation expense
is computed using the straight-line method over the estimated useful lives of
the assets, generally two to 10 years. Assets held under capital leases are
recorded at the lower of the net present value of the minimum lease payments
or the fair value of the leased asset at the inception of the lease.
Amortization expense is computed using the straight-line method over the
shorter of the estimated useful lives of the assets or the period of the
related lease. Straight-line and accelerated methods of depreciation are used
for tax purposes. Maintenance and repairs are charged to expense as incurred.

(f) Patents:

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

(g) Government Grants:

Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to support
continued development of the Company's proprietary positive airway pressure
technology and to assist development of export markets. Grants have been
recognized in the amount of $89,000 and $170,000 for the three month period
ended December 31, 1996 and 1995, respectively and $178,000 and $305,000 for
the six month periods ended December 31, 1996 and 1995, respectively.
Subsequent to June 30, 1996 the Company ceased to qualify for the payment of
grants for the development of export markets.

(h) Foreign Currency:

The consolidated financial statements of the Company's non-U.S.
subsidiaries are translated into US dollars for financial reporting purposes.
Assets and liabilities of non-U.S. subsidiaries whose functional currencies
are other than the US dollar are translated at average exchange rates
throughout the year. Cumulative translation effects are reflected in
stockholders' equity. 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.
- -7-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(j) Net Income per Common and Common Equivalent Share:

Primary net income per common and common equivalent share and net income
per common and common equivalent share, assuming full dilution, are computed
using the weighted average number of shares outstanding. There is adjustment
for the incremental shares attributed to outstanding options to purchase
common stock as determined under the treasury stock method.

(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, accounts payable and
long-term debt, approximate their fair value. The Company does not hold or
issue financial instruments for trading purposes.

The following table presents carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996 and June 30, 1996.
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.




December 31, 1996 June 30, 1996
------------------ ---------------

Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ------ ---------- -------
(US$ in thousands)
Financial assets
Cash and cash equivalents $ 8,612 8,612 5,510 5,510
Marketable securities -
available for sale 17,629 17,629 18,021 18,021
Accounts receivable, net 6,895 6,895 6,252 6,252
Government grants 888 888 915 915
Other assets 1,410 1,410 1,263 1,263
Financial liabilities
Accounts payable 2,428 2,428 2,421 2,421
Long - term debt 728 728 867 867




Carrying amounts shown in the table are included in the statement of
financial position under the indicated captions.

- -8-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(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
denominated in principally Australian Dollars, Pound Sterling and
Deutschmarks. The term of such foreign exchange contracts generally do not
exceed three years.

Premiums to enter certain foreign currency options are included in other
assets and are amortized over the period of the agreement in the consolidated
statement of income against other income, net. At December 31, 1996
unamortized premiums amounted to $327,000.

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

Foreign currency option contracts have been purchased in part by the
issue of put options to counterparts. As a result, should foreign exchange
rates drop below a specified level, on a specific date, the Company is
required to deliver certain funds to counterparts at contracted foreign
exchange rates. As at December 31, 1996 none of the put options issued by the
Company are exercisable as foreign exchange rates remain above the foreign
exchange rates specified.

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

At December 31, 1996 the Company held foreign currency option contracts
with notional amounts totaling $42,589,000 to hedge foreign currency items.
These contracts mature at various dates prior to December 31, 1998.

- -9-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(m) Income Taxes:

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109).
Statement 109 requires an asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(3) Inventories



Inventories were comprised of the following at December 31, 1996 and June
30, 1996:




December 31, June 30,
1996 1996
------------- ---------

Raw materials $ 1,577 $ 2,088
Work in progress 503 257
Finished goods 3,605 3,789
_______ _______
$ 5,685 $ 6,134
======= =======




- -10-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Net Revenues

Net revenues increased for the three months ended December 31, 1996 to $11.6
million from $7.9 million for the three months ended December 31, 1995, an
increase of $3.7 million or 47%. For the six month period ended December 31,
1996 net revenues increased to $22.7 million from $14.6 million in the six
month period ended December 31, 1995 an increase of $8.1 million or 56%. Both
the three month and six month increases in net revenues were primarily
attributable to an increase in unit sales of the Company's flow generators and
accessories in North America and Europe. Europe benefited from additional
revenues generated in Germany from the Priess business acquired in February
1996. In fiscal 1997 net revenues in North America increased to $4.9 million
from $4.1 million for the quarter, and to $9.3 million from $7.6 million for
the six month period ended December 31. In Europe net revenue increased to
$5.2 million from $2.5 million for the quarter, and to $10.6 million from $4.4
million for the six month December 31, respectively.

Gross Profit

Gross profit increased for the three months ended December 31, 1996 to $6.9
million from $3.9 million for the three months ended December 31, 1995, an
increase of $3.0 million or 77%. Gross profit as a percentage of net revenues
increased for the quarter ended December 31, 1996 to 59% from 49% in three
months ended December 31, 1995. These increases resulted primarily from
increased unit sales, a shift to higher margin products, and continuing strong
European revenues.

For the six month period ended December 31, 1996 gross profit also increased
to $13.2 million from $7.4 million in the same period of fiscal 1996 an
increase of $5.8 million or 78%. Gross profit as a percentage of net revenues
increased for the six month period ended December 31, 1996 to 58% from 51%
achieved for the six months ended December 31, 1995. These increases also
resulted from increased revenues, higher margin product sales and strong
European sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended December 31, 1996 to $4.1 million from $2.5 million for the three months
ended December 31, 1995, an increase of $1.7 million or 67%. As a percentage
of net revenues, selling, general and administrative expenses increased to 36%
for the quarter ended December 31, 1996 from 31% for the three months ended
December 31, 1995. The increase in gross selling, general and administrative
expenses was primarily due to an increase from 74 to 91 in the number of sales
and administrative personnel, including 24 persons employed on acquisition of
Priess. There was also a marginal increase in legal costs from $323,000 to
$347,000 associated, with ongoing legal action (refer Part II Item 1) and
other expenses related to the increase in Company sales.

Selling, general and administrative expenses for the six months ended December
31, 1996 also increased to $8.1 million from $4.6 million for the six months
ended December 31, 1995, an increase of $3.5 million or 75%. As a percentage
of net revenues selling, general and administration expenses increased to 35%
for the six months ended December 31, 1996 from 32% in the six months ended
December 31, 1995.

- -11-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Research and Development Expenses

Research and development expenses increased for the three months ended
December 31, 1996 to $891,000 from $691,000 for the three months ended
December 31, 1995, an increase of $200,000 or 29%. As a percentage of net
revenues, research and development expenses for the three months ended
December 31, 1996 decreased to 8% from 9% for the period ended December 31,
1995. The increase in gross research and development expenses was due to an
increased use of consultants as well as increased evaluation and testing
procedures incurred to facilitate development of a number of new products.

For the six month period ended December 31, 1996 research and development
expenses increased to $1.7 million from $1.4 million for the corresponding
period in fiscal 1996, an increase of $311,000 or 23%. As a percentage of net
revenues, research and development expenses declined for the six months ended
December 31, 1996 to 7% from 9% for the six months ended December 31, 1995.
The increase in gross research and development expenditure for the six months
reflects additional costs relating to development and evaluation of new
products.

Other Net Income

Other net income, increased for the three months ended December 31, 1996 to
$627,000 from $535,000 for the three months ended December 31, 1995, an
increase of $92,000 or 17%. This increase was due primarily to net foreign
exchange gains of $223,000 arising from deliveries of foreign currency option
contracts and gains of $75,000 relating to revaluation of foreign currency
option contracts. Government grants income declined for the three months
ended December 31, 1996 to $89,000 from $170,000 for the three months ended
December 31, 1995 reflecting the termination of Australian Federal Government
export grants program effective June 30, 1996. This termination was
marginally offset by an increase in both manufacturing and research activity
for which the Company receives grant revenues.

Other net income increased for the six months ended December 31, 1996 to $1.8
million, from $1.1 million for the six months ended December 31, 1995 an
increase of $678,000 or 63%. The increase in other net income over the six
month period for the corresponding period in fiscal 1996, primarily reflects
recognition of a gain of $825,000 relating to realization of foreign currency
option contracts.

Income Taxes

The Company's effective income tax rate for the three months ended December
31, 1996 increased to approximately 32% from approximately 27% for the three
months ended December 31, 1995 and to 32% from 28% for the six month period
then ended. The increased tax rate primarily relates to a relatively higher
German effective corporate taxation rate. This effective tax rate increase is
partially offset by an increase in Australian research and development
expenses incurred in fiscal 1997 over fiscal 1996 for which the Company
receives a 150% deduction under Australian tax law. The 150% research and
development deduction was only available on expenses incurred up to August 20,
1996. Subsequent to August 20, 1996 the Company receives a 125% deduction for
research and development expenditures incurred in Australia, due to revised
Australian taxation legislation.

- -12-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Liquidity and Capital Resources

As of December 31, 1996 and June 30, 1996, the Company had cash and cash
equivalents and marketable securities available for sale of approximately
$26.2 million and $23.5 million, respectively. The Company's working capital
approximated $32.3 million and $30.5 million, at December 31, 1996 and June
30, 1996, respectively. The increase in working capital balances reflects the
increase in cash generated from operations.

During the six months ended December 31, 1996, the Company's operations
generated $4.6 million cash from operations, primarily as a result of
increased profit from operations, offset partially by increases in accounts
receivable due to increased sales. During the six months ended December 31,
1995 approximately $0.6 million of cash was used by operations primarily due
to increased inventory and increased accounts receivable levels.

The Company's capital expenditures for the six month period ended December 30,
1996 and 1995 aggregated $1,426,000 and $649,000 respectively. The majority of
the expenditures in the six month period ending December 31, 1996 relates to
purchase of computer software and hardware, production tooling and equipment
and, to a lesser extent, office furniture and research and development
equipment. As a result of these capital expenditures, the Company's December
31, 1996 balance sheet reflects net property plant and equipment of
approximately $3.9 million at December 31, 1996, compared to $3.3 million at
June 30, 1996.

In addition, during the six month period ended December 31, 1996 the Company
realized $738,000 from the restructuring of its foreign currency options and
paid $991,000 in deferred business acquisition payments in relation to
acquisition of Priess in February 1996.

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

In May 1993, the Australian Federal Government agreed to lend the Company up
to $870,000 over a six year term. Such a loan bears no interest for the first
three years but bears interest at a rate of 3.8% thereafter until maturity.
The outstanding principal balance of such loan was $728,000 and $867,000 at
December 31, 1996 and June 30, 1996, respectively.

- -13-
RESMED INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. Legal Proceedings

In October 1994, in Australia, a patent held by ResMed was revoked on
appeal on grounds that the patent was not entitled to claim priority to a
"provisional" application, which was filed before the inventor's publication.
As a result of this claim, ResMed, based in part on advice from legal counsel,
at June 30, 1994 accrued approximately $300,000 for costs associated with this
patent litigation which remains outstanding at December 31, 1996. This amount
is included in accrued expenses on consolidated balance sheets.

In January 1995, the Company filed a complaint for patent infringement in
the United States District Court against Respironics Inc., a Delaware
registered company. In response, in February 1995, Respironics filed a
complaint against the Company that asserts, (i) Respironics does not infringe
the subject patents; and (ii) that the subject patents are invalid and
unenforceable. Management believes, based, in part on advice from legal
counsel, that this action will not have a material adverse effect on the
operations or financial position of the Company.

In May 1995, Respironics and its Australian distributor filed a statement
of claim against the Company and its President in the Federal Court of
Australia, New South Wales District Registry. The statement of claim alleges
that the Company engaged in unfair trade practices, including misuse of the
power afforded by its Australian patents and dominant market position in
violation of the Australian Trade Practices Act. The statement of claim
asserts damage claims in the aggregate amount of approximately $901,000,
constituting lost profit on sales. While the Company intends to defend this
action vigorously, there can be no assurance that the Company will be
successful in defending such action or that the Company will not be required
to make significant payments to the claimants. Furthermore, the Company
expects to incur ongoing legal costs in defending such action.

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Report on Form 8K

None

- -14-
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


- -15-