Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

February 12, 1998

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

Published on February 12, 1998


RESMED INC. AND SUBSIDIARIES




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, 1997

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

Commission file number: 0-26038


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


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



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

619 689 2400
(Registrant's telephone number including area code)


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

As of December 31, 1997, 7,250,120 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
1997 (unaudited) and June 30, 1997

Unaudited Condensed Consolidated Statements of Income for 4
the Three Months Ended December 31, 1997 and 1996 and the
Six Months Ended December 31, 1997 and 1996

Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended December 31, 1997 and 1996

Notes to the unaudited Condensed Consolidated Financial 6
Statements

Item 2 Managements Discussion and Analysis of Financial 11
Conditions 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,
Assets 1997 1997
- ---------------------------------------------------------------- -------------- -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 7,581 9,077
Marketable securities - available for sale 13,027 18,908
Accounts receivable, net of allowance of $270 at
December 31, 1997 and $277 at June 30, 1997 9,365 7,834
Government grants 469 391
Inventories 7,572 5,797
Deferred income taxes 951 999
Prepaid expenses and other current assets 2,016 1,385
____________ ____________
Total current assets 40,981 44,391
____________ ____________

Property, plant and equipment, net of accumulated depreciation
of $4,225 at December 31, 1997 and $3,467 at June 30, 1997 9,098 4,916
Patents, net of accumulated amortization of $326 at December
31, 1997 and $325 at June 30, 1997 326 253
Deferred income taxes 150 157
Goodwill, net of accumulated amortization of $632 at
December 31, 1997 and $433 at June 30, 1997 5,651 4,553
Other assets 838 625
____________ ____________
Total Assets $ 57,044 54,895
============ ============
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------
Current liabilities:
Accounts payable $ 2,907 2,641
Accrued expenses 7,010 3,537
Income taxes payable 1,403 3,544
Current portion of long-term debt 358 274
____________ ____________
Total current liabilities 11,678 9,996
____________ ____________
Long-term debt, less current portion - 274
____________ ____________
Total liabilities 11,678 10,270
____________ ____________
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000 shares
authorized; none issued - -
Series A Junior Participating preferred stock, $0.01 par value,
150,000 shares authorized; none issued - -
Common stock, $0.004 par value, 15,000,000 shares authorized;
issued and outstanding 7,250,120 at December 31, 1997 and
7,202,413 at June 30, 1997 29 29
Additional paid-in capital 30,187 29,656
Retained earnings 21,017 16,568
Currency translation adjustment (5,867) (1,628)
____________ ____________
45,366 44,625
____________ ____________
Commitments and contingencies - -
____________ ____________
Total liabilities and Stockholders' equity $ 57,044 54,895
============ ============


See accompanying notes to condensed consolidated financial statements.



- -3-
RESMED INC. AND SUBSIDIARIES




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

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


1997 1996 1997 1996
-------------------- ---------------- -------------- -------------

Net revenue $ 16,146 11,587 30,124 22,728
Cost of sales 5,173 4,715 10,598 9,565
_____________ _____________ _____________ _____________
Gross profit 10,973 6,872 19,526 13,163
_____________ _____________ _____________ _____________

Operating expenses
Selling, general and administrative expenses 5,044 4,134 9,694 8,056
Research and development expenses 1,234 891 2,499 1,682
_____________ _____________ _____________ _____________
Total operating expenses 6,278 5,025 12,193 9,738
_____________ _____________ _____________ _____________
Income from operations 4,695 1,847 7,333 3,425
_____________ _____________ _____________ _____________

Other income (expense), net:
Interest income, net 263 301 554 544
Government grants 191 89 348 178
Other income (expense), net (1,649) 237 (1,441) 1,033
_____________ _____________ _____________ _____________
Total other income (expense), net (1,195) 627 (539) 1,755
_____________ _____________ _____________ _____________

Income before income taxes 3,500 2,474 6,794 5,180
Income taxes 1,208 792 2,345 1,658
_____________ _____________ _____________ _____________
Net income 2,292 1,682 4,449 3,522
============= ============= ============= =============


Basic earnings per share $ 0.32 0.23 0.61 0.49
Diluted earnings per share $ 0.31 0.23 0.60 0.48



See accompanying notes to condensed consolidated financial statements.



- -4-
RESMED INC. AND SUBSIDIARIES




Unaudited Condensed Consolidated Statements of Cash Flows
(in US$thousands)
Six Months Ended
December 31,
------------------


1997 1996
------------------ --------------

Cash flows from operating activities:
Net income $ 4,449 3,522
_____________ _____________
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,603 1,076
Provision for service warranties 60 40
Deferred income taxes 55 2
Foreign currency options revaluations 1,669 (792)
Changes in operating assets and liabilities:
Accounts receivable, net (1,629) (516)
Government grants (130) 35
Inventories (2,149) 330
Prepaid expenses and other current assets (726) (751)
Accounts payable, accrued expenses and other liabilities (1,897) 1,693
_____________ _____________
Net cash provided by operating activities 1,305 4,639
_____________ _____________
Cash flows from investing activities:
Purchases of property, plant and equipment (6,042) (1,426)
Purchases of patents (155) (81)
Purchase of investments (389) -
Proceeds from sale of investments - 738
Loans receivable - (150)
Business acquisition (1,068) (991)
Purchases of marketable securities - available for sale (18,017) (25,560)
Proceeds from sale of marketable securities - available for sale 23,478 25,953
_____________ _____________
Net cash used in investing activities (2,193) (1,517)
_____________ _____________
Cash flows from financing activities:
Proceeds from issuance of common stock 531 122
Repayment of long-term debt (124) (146)
_____________ _____________
Net cash provided by (used in) financing activities 407 (24)
_____________ _____________
Effect of exchange rate changes on cash (1,015) 4
_____________ _____________
Net increase (decrease) in cash and cash equivalents (1,496) 3,102
_____________ _____________
Cash and cash equivalents at beginning of period 9,077 5,510
_____________ _____________
Cash and cash equivalents at end of period 7,581 8,612
============= =============
Supplemental disclosure of cash flow information:
Income taxes paid 4,160 1,107
Interest paid 35 -


See accompany 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, 1997 and the six months ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1998.

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

(f) Patents:

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

(g) 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 $191,000 and $89,000 for the three month period
ended December 31, 1997 and 1996, respectively and $348,000 and $178,000 for
the six month periods ended December 31, 1997 and 1996, respectively.

(h) Foreign Currency:

The consolidated financial statements of the Company's non-US
subsidiaries are translated into US dollars for financial reporting purposes.
Assets and liabilities of non-US subsidiaries whose functional currencies are
other than the US dollar are translated at period end exchange rates, revenue
and expense transactions are translated at average exchange rates for the
period. Cumulative translation adjustments 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) Earnings per Share:

During the quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (Statement
128). As required by Statement 128, all prior period information has been
restated to conform to the provisions of Statement 128. The weighted average
shares used to calculate basic earnings per share was 7,247,000 and 7,189,000
for the quarters ended December 31, 1997 and 1996, respectively, and 7,238,000
and 7,183,000 for the six month periods ended December 31, 1997 and 1996,
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 236,000 and 184,000 for the quarters ended December 31, 1997 and
1996, respectively, and by 219,000 and 129,000 for the six month periods ended
December 31, 1997 and 1996, respectively.

(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 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
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, 1997
unamortized premiums amounted to $544,151.

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.

- -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, Continued:

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, 1997 put options issued by the Company are
recognized at fair value of $1,573,000 and are included in accrued expenses.

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, 1997 the Company held foreign currency option contracts
with notional amounts totaling $47,452,000 to hedge foreign currency items.
These contracts mature at various dates prior to December 31, 1999.

(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, 1997 and June 30, 1997:


December 31, June 30,
1997 1997
----------- ----------
$ '000 $ '000
---------- ----------

Raw materials $ 2,031 1,797
Work in progress 466 284
Finished goods 5,075 3,716
_______ _______
$ 7,572 5,797
======= =======



- -9-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(4) Commitments and contingencies

The Company is currently engaged in significant patent litigation
relating to the enforcement and defense of certain of its patents. In January
1995, the Company filed a complaint for patent infringement in the United
States against Respironics. The complaint seeks monetary damages from, and
injunctive relief against Respironics resulting from its alleged infringement
of three of the Company's patents. In February 1995, Respironics filed a
complaint against the Company seeking a declaratory judgment that Respironics
does not infringe claims of these patents and that the Company's patents are
invalid and unenforceable. The two actions have been combined and will
proceed in the United States District Court for the Western District of
Pennsylvania.

In June 1996 the Company initiated a further action in Pennsylvania
against Respironics regarding alleged infringement of a fourth patent, granted
June 4, 1996, related to the delay timer feature. This action was again
consolidated with the ongoing case such that the two remaining actions are to
proceed together. On July 1, 1997 the Court granted Respironics a motion for
partial summary judgment in which Respironics alleged its accused products do
not infringe one of the four patents in suit. Subsequently the court
undertook a de novo review of the motion and on January 27, 1998 confirmed the
initial ruling. It is ResMed's intention to appeal to the Patents Court of
Appeal for the Federal Circuit once a final judgment has been rendered.

On May 17, 1995, Respironics and its Australian distributor filed a
Statement of Claim against the Company and Dr. Peter Farrell in the Federal
Court of Australia. The Statement of Claim alleges that the Company engaged
in unfair trade practices, including the misuse of the power afforded by its
Australian patent 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 $730,000, constituting lost profit on sales.
While the Company intends to defend this action, 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.

- -10-

RESMED INC. AND SUBSIDIARIES

Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

Net Revenue

Net revenue increased for the three months ended December 31, 1997 to $16.1
million from $11.6 million for the three months ended December 31, 1996, an
increase of $4.6 million or 39%. For the six month period ended December 31,
1997 net revenue increased to $30.1 million from $22.7 million in the six
month period ended December 31, 1996, an increase of $7.4 million or 33%.
Both the three month and six month increases in net revenue were attributable
to an increase in unit sales of the Company's flow generators and accessories
primarily in North America. In fiscal 1998 net revenue in North America
increased to $8.3 million from $4.9 million for the quarter, and to $15.2
million from $9.3 million for the six month period ended December 31,
respectively. In Europe net revenue increased to $5.5 million from $5.2
million for the quarter, and to $10.9 million from $10.6 million for the six
month period ended December 31, respectively.

Gross Profit

Gross profit increased for the three months ended December 31, 1997 to $11.0
million from $6.9 million for the three months ended December 31, 1996, an
increase of $4.1 million or 60%. Gross profit as a percentage of net revenue
increased for the quarter ended December 31, 1997 to 68% from 59% for the
quarter ended December 31, 1996. These increases resulted primarily from
increased unit sales, a shift to higher margin products, and a significant
devaluation of the Australian Dollar in which the Company's manufacturing
activities are conducted.

For the six month period ended December 31, 1997 gross profit increased to
$19.5 million from $13.2 million in the same period of fiscal 1997, an
increase of $6.4 million or 48%. Gross profit as a percentage of net revenue
increased for the six month period ended December 31, 1997 to 65% from 58% for
the six months ended December 31, 1996. These increases also resulted from
increased revenues, a swift to higher margin product sales and the devaluation
noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended December 31, 1997 to $5.0 million from $4.1 million for the three months
ended December 31, 1996, an increase of $0.9 million or 22%. As a percentage
of net revenue, selling, general and administrative expenses decreased to 31%
for the quarter ended December 31, 1997 from 36% for the quarter ended
December 31, 1996. The increase in selling, general and administrative
expenses was primarily due to an increase from 91 to 124 in the number of
sales and administrative personnel while legal costs associated with ongoing
legal action (refer Note 4) marginally declined to $306,000 from $323,000 and
other expenses rose in relation to the increase in Company sales.

Selling, general and administrative expenses for the six months ended December
31, 1997 increased to $9.7 million from $8.1 million for the six months ended
December 31, 1996, an increase of $1.6 million or 20%. As a percentage of net
revenue selling, general and administration expenses declined to 32% for the
six months ended December 31, 1997 from 35% in the six months ended December
31, 1996.

- -11-
RESMED INC. AND SUBSIDIARIES

MANAGEMENTS 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, 1997 to $1.2 million from $891,000 for the three months ended
December 31, 1996, an increase of $343,000 or 38%. As a percentage of net
revenue, research and development expenses remained constant for the three
months ended December 31, 1997 and for the period ended December 31, 1996 at
8% of net revenues. 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, 1997 research and development
expenses increased to $2.5 million from $1.7 million for the same period in
fiscal 1997, an increase of $817,000 or 49%. As a percentage of net revenue,
research and development expenses increased for the six months ended December
31, 1997 to 8% from 7% for the six months ended December 31, 1996. The
increase in gross research and development expenditure for the six months
reflects additional costs relating to development and evaluation of new
products.

Other Income (Expense), Net

Other Income (Expense), Net, declined for the three months ended December 31,
1997 to a loss of $1.2 million from a profit of $627,000 for the three months
ended December 31, 1996, a decrease of $1.8 million. This decline was due
primarily to net foreign exchange losses of $1.6 million arising from the
devaluation of foreign currency option contracts associated with the
significant decline in the value of the Australian Dollar. Government grants
income increased for the three months ended December 31, 1997 to $191,000 from
$89,000 for the three months ended December 31, 1996 reflecting the
recognition of Australian Federal Government research grants.

Other Income (Expense), Net also declined for the six months ended December
31, 1997 to a loss of $539,000, from a profit of $1.8 million for the six
months ended December 31, 1996 a decrease of $2.3 million. The decline in
Other Income (Expense), Net over the six month period from the corresponding
period in fiscal 1997, primarily reflects losses incurred in foreign currency
option contracts relating to the devaluation of the Australian Dollar.

Income Taxes

The Company's effective income tax rate for the three months ended December
31, 1997 increased to approximately 35% from approximately 32% for the three
months ended December 31, 1996 and to 35% from 32% 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 1998 over fiscal 1997 for which the Company
receives a 125% deduction under Australian tax law.

- -12-
RESMED INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Liquidity and Capital Resources

As of December 31, 1997 and June 30, 1997, the Company had cash and cash
equivalents and marketable securities available for sale of approximately
$20.6 million and $28.0 million, respectively. The Company's working capital
approximated $29.3 million and $34.4 million, at December 31, 1997 and June
30, 1997, respectively. The decline in working capital balances reflects
primarily the purchase of a 173,000ft2 site for construction of a
manufacturing and warehouse facility in Sydney, Australia.

During the six months ended December 31, 1997, the Company's operations
generated $1.3 million of cash from operations, primarily as a result of
increased profit from operations, offset by increases in accounts receivable
due to increased sales and inventory and the payment of $4.2 million of income
taxes. During the six months ended December 31, 1996 approximately $4.6
million of cash was generated by operations primarily due to increased profit
from operations.

The Company's capital expenditures for the six month period ended December 31,
1997 and 1996 aggregated $6.0 million and $1.4 million respectively. The
majority of the expenditures in the six month period ending December 31, 1997
related to the construction of a new manufacturing facility along with the
purchase of computer hardware and production tooling. As a result of these
capital expenditures, the Company's December 31, 1997 balance sheet reflects
net property plant and equipment of approximately $9.1 million at December 31,
1997 compared to $4.9 million at June 30, 1997.

In addition, during the six month period ended December 31, 1997 the Company
paid $1.1 million in deferred business acquisition payments with regards to
the 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 revenue and gross profit
margins from international operations. As approximately 2% of the Company's
net revenues are generated in South East Asia, the Company is not anticipated
to be significantly impacted by the recent Asian economic crisis. The Company
does however have a substantial exposure to fluctuations in the Australian
Dollar with respect to its manufacturing and research activities. The
Company's Australian Dollar exposure is managed 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 $358,000 and $548,000 at
December 31, 1997 and June 30, 1997, respectively.

- -13-
RESMED INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Refer Note 4 to the Condensed Consolidated Financial Statements

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

The Company's Annual Meeting of Shareholders was held on November 10,
1997. The holders of 6,248,502 shares of the Company's stock (approximately
86% of the outstanding shares) were presented at the meeting in person or by
proxy. The only matters voted upon at the meeting were (i) the election of
two persons to serve as directors for a three year term expiring at the annual
meeting of shareholders in 2000, (ii) the approval of 1997 Equity
Participation Plan, and (iii) the ratification of the selection of KPMG Peat
Marwick LLP as independent public accountants to audit the financial
statements of the Company for the fiscal year ending June 30, 1998.

(i) Dr Peter C Farrell and Dr Gary W Pace, the nominees of the Company's
Board of Directors, were elected to serve until 2000. There were no other
nominees.




Shares were voted as follows:


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

Dr Peter C Farrell 6,243,275 5,227
Dr Gary C Pace 6,245,275 3,227



(ii) Approval of the 1997 Equity Participation Plan was ratified:
affirmative votes, 2,992,867 shares; negative votes, 2,066,980 shares.

(iii) the selection of KPMG Peat Marwick LLP as independent public
accountants for the 1998 fiscal year was ratified: affirmative votes,
6,232,600 shares; negative votes, 5,700 shares.

Item 5. Other Information

None

Item 6. Exhibits and Report on Form 8K

Exhibits. The following exhibits are filed as a part of this report:
11.1 Statement re: Computation of Earnings of Share
27.1 Financial Data Schedule

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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

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Exhibit 11.1




RESMED INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended Six Months Ended
------------------- -----------------



December 31, December 31, December 31, December 31,
------------------- ----------------- ------------- -------------
1997 1996 1997 1996
------------------- ----------------- ------------- -------------
BASIC EARNINGS
Net income $ 2,292 1,682 4,449 3,522
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 7,247 7,189 7,238 7,183


Basic earnings per share: $ 0.32 $ 0.23 $ 0.61 $ 0.49
======= ======= ======= =======


DILUTED EARNINGS
Net Income $ 2,292 1,682 4,449 3,522
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 7,247 7,189 7,238 7,183
Additional shares assuming conversion of
stock options under treasury stock method 236 184 219 129
_______ _______ _______ _______
Weighted average number of common and
common equivalent shares outstanding
as adjusted 7,483 7,373 7,457 7,312
======= ======= ======= =======

Diluted earnings per share: $ 0.31 $ 0.23 $ 0.60 $ 0.48
======= ======= ======= =======




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Exhibit 27.1



ARTICLE. 5 FDS FOR 2ND QUARTER 10-Q

This schedule contains summary financial information extracted from ResMed
Inc's second quarter December 31, 1997 financial report and is qualified in
its entirety by reference to such financial statements.


CURRENCY USD $CURRENCY


PERIOD-TYPE 6-MOS 6-MOS
FISCAL-YEAR-END JUN-30-1998 JUN-30-1997
PERIOD-END DEC-31-1997 DEC 31-1996
EXCHANGE-RATE 1 1
CASH 7,581,000 8,612,000
SECURITIES 13,027,000 17,629,000
RECEIVABLES 9,365 6,895,000
ALLOWANCES 270,000 175,000
INVENTORY 7,572,000 5,685,000
CURRENT-ASSETS 40,981,000 41,622,000
PP&E 9,098,000 3,903,000
DEPRECIATION 0 0
TOTAL-ASSETS 57,044,000 52,270,000
CURRENT-LIABILITIES 11,678,000 9,274,000
BONDS 0 0
PREFERRED-MANDATORY 0 0
PREFERRED 0 0
COMMON 29,000 29,000
OTHER-SE 30,187,000 29,530,000
TOTAL-LIABILITY-AND-EQUITY 57,044,000 52,270,000
SALES 30,124,000 22,728,000
TOTAL-REVENUES 30,124,000 22,728,000
CGS 10,598,000 9,565,000
TOTAL-COSTS 0 0
OTHER-EXPENSES 0 0
LOSS-PROVISION 0 0
INTEREST-EXPENSE 0 0
INCOME-PRETAX 6,794,000 5,180,000
INCOME-TAX 2,345,000 1,658,000
INCOME-CONTINUING 4,449,000 3,522,000
DISCONTINUED 0 0
EXTRAORDINARY 0 0
CHANGES 0 0
NET-INCOME 4,449,000 3,522,000
EPS-BASIC $ 0.61 $ 0.49
EPS-DILUTED $ 0.60 $ 0.48




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