Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 13, 1998

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

Published on November 13, 1998






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 SEPTEMBER 30, 1998

[ ] 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 September 30, 1998, 7,333,754 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 September 3
30, 1998 (unaudited) and June 30, 1998

Condensed Consolidated Statements of Income 4
(unaudited) for Three Months Ended September 30, 1998
and 1997

Condensed Consolidated Statements of Cash Flows 5
(unaudited) for the Three Months Ended September 30,
1998 and 1997

Notes to Condensed Consolidated Financial Statements 6

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

Item 3 Quantitative and Qualitative Disclosure About Market 15
Risk






PART II OTHER INFORMATION




Item 1 Legal Proceedings 16

Item 2 Changes in Securities 16

Item 3 Defaults Upon Senior Securities 16

Item 4 Submission of Matters to a Vote of Security Holders 16

Item 5 Other Information 16

Item 6 Exhibits and Reports on Form 8-K 16

SIGNATURES 17




- -2-

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements



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




September 30, June 30,
--------------- --------------
1998 1998
--------------- --------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 16,476 15,526
Marketable securities - available for sale 3,880 5,220
Accounts receivable, net of allowance of $280 at September
30, 1998 and $248 at June 30, 1998 11,318 12,789
Government grants 496 384
Inventories (note 3) 9,391 7,647
Deferred income taxes 2,599 2,518
Prepaid expenses and other current assets 1,369 2,520
_____________ _____________
Total current assets 45,529 46,604
_____________ _____________
Property, plant and equipment, net of accumulated depreciation
of $6,122 at September 30, 1998 and $5,395 at June 30, 1998 13,945 11,111
Patents, net of accumulated amortization of $382 at September
30,1998 and $368 at June 30, 1998 460 459
Goodwill, net of accumulated amortization of $1,110 at September
30,1998 and $893 at June 30, 1998 6,737 5,445
Other assets 667 999
_____________ _____________
Total assets $ 67,338 64,618
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,328 3,759
Accrued expenses 5,542 6,637
Income taxes payable 3,917 3,222
Loan payable 218 227
_____________ _____________
Total current liabilities 13,005 13,845
_____________ _____________
Total liabilities 13,005 13,845
_____________ _____________
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 7,333,754 at September
30, 1998 and 7,276,000 at June 30, 1998 30 29
Additional paid-in capital 32,163 31,253
Retained earnings 30,363 27,179
Accumulated other comprehensive income (note 4) (8,223) (7,688)
_____________ _____________
54,333 50,773
_____________ _____________
Commitments and contingencies (note 5) - -
_____________ _____________
Total liabilities and Stockholders' equity $ 67,338 64,618
============= =============


See the accompanying notes to the condensed consolidated financial statements.



- -3-
RESMED INC. AND SUBSIDIARIES



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


Three Months Ended
September 30,
--------------------


1998 1997
-------------------- ----------

Net revenue $ 19,244 13,978
Cost of sales 6,084 5,425
________ ________
Gross profit 13,160 8,553
________ ________

Operating expenses
Selling, general and administrative expenses 6,355 4,650
Research and development expenses 1,433 1,265
________ ________
Total operating expenses 7,788 5,915
________ ________
Income from operations 5,372 2,638
________ ________

Other income (expenses), net:
Interest income, net 207 291
Government grants 130 157
Other income (expenses), net (878) 208
________ ________
Total other income (expenses), net (541) 656
________ ________

Income before income taxes 4,831 3,294
Income taxes (1,647) (1,137)
________ ________
Net income $ 3,184 2,157
======== ========

Basic earnings per share $ 0.44 $ 0.30
Diluted earnings per share $ 0.42 $ 0.29






See the accompanying notes to the condensed consolidated financial statements.



- -4-
RESMED INC. AND SUBSIDIARIES



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


Three Months Ended
September 30,
--------------------



1998 1997
-------------------- --------------

Cash flows from operating activities:
Net income $ 3,184 2,157

Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,007 904
Provision for service warranties (5) 40
Foreign currency options revaluations 506 97
Changes in operating assets and liabilities:
Accounts receivable, net 1,712 (497)
Government grants (130) 61
Inventories (1,618) (682)
Prepaid expenses and other current assets 1,208 (112)
Accounts payable, accrued expenses and other liabilities (1,480) (452)
_____________ _____________
Net cash provided by operating activities 4,384 1,516
_____________ _____________
Cash flows from investing activities:
Purchases of property, plant and equipment (3,996) (1,532)
Patent Costs (50) (25)
Purchase of non trading investments (205) (126)
Deferred payments- business acquisitions (1,033) -
Purchases of marketable securities - available for sale (989) (11,155)
Proceeds from sale of marketable securities - available for sale 2,307 15,420
_____________ _____________
Net cash provided by/(used) in investing activities (3,966) 2,582
_____________ _____________
Cash flows from financing activities:
Proceeds from issuance of common stock 911 443
_____________ _____________
Net cash from financing activities 911 443
_____________ _____________
Effect of exchange rate changes on cash (379) (196)
_____________ _____________
Net increase in cash and cash equivalents 950 4,345
_____________ _____________
Cash and cash equivalents at beginning of period 15,526 9,077
_____________ _____________
Cash and cash equivalents at end of period $ 16,476 13,422
============= =============
Supplemental disclosure of cash flow information:
Income taxes paid 934 831
Interest paid - 21



See the accompanying notes to the condensed consolidated financial statements.



- -5-

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 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 September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended June 30, 1999.

(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. Service revenue
received in advance from service contracts is initially deferred and
recognized as revenue over the life of the service contract. Revenue from
sale of marketing and distribution rights is initially deferred and
recognized as revenue over the terms of the agreements.

(c) Cash and Cash Equivalents:

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

(d) Inventories:

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

- -6-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(e) Property, Plant and Equipment:

Property, plant and equipment is recorded at cost. Depreciation expense
is computed using the straight- line method over the estimated useful lives
of the assets, generally two to 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) Goodwill

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

(h) Government Grants:

Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to support
continued development and export of the Company's proprietary positive airway
pressure technology and to assist development of export markets. Grants of
$130,000 and $157,000 have been recognized for the three month period ended
September 30, 1998 and September 30, 1997, respectively.

(i) Foreign Currency:

The consolidated financial statements of the Company's non- U.S.
subsidiaries are translated into U.S. dollars for financial reporting
purposes. Assets and liabilities of non- U.S. subsidiaries whose functional
currencies are other than the U.S. dollar are translated at period end
exchange rates, 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 4, and are
included in "Accumulated Other Comprehensive Income" on the Condensed
Consolidated Balance Sheet until such time as the subsidiary is sold or
substantially or completely liquidated. Gains and losses on transactions,
denominated in other than the functional currency of the entity, are
reflected in operations.

- -7-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(j) Research and Development:

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

(k) Earnings Per Share:

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 7,307,000 and 7,229,000
for the quarters ended September 30, 1998 and 1997, 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
320,000 and 183,000 for the quarters ended September 30, 1998 and 1997,
respectively.

(l) Financial Instruments:

The carrying value of financial instruments, such as cash and cash
equivalents, marketable securities - available for sale, accounts receivable,
government grants, foreign currency option contracts, 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.

(m) Foreign Exchange Risk Management:

The Company enters into various types of foreign exchange contracts in
managing its foreign exchange risk, including derivative financial
instruments encompassing 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 September 30, 1998 and
June 30, 1998 unamortized premiums amounted to $419,000 and $267,000,
respectively.

- -8-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(m) Foreign Exchange Risk Management, Continued

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

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

The Company held foreign currency option contracts with notional amounts
totaling $66,058,000 and $62,683,000 at September 30, 1998 and June 30, 1998,
respectively to hedge foreign currency items. These contracts mature at
various dates prior to December 31, 2000.

(n) Income Taxes:

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

(o) Warranty:

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

(p) Impairment of Long-Lived Assets:

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

- -9-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2) Summary of Significant Accounting Policies, Continued

(q) As of July 1, 1998 the Company adopted Statement of Financial
Accounting Standards No 131 "Disclosures About Segments of an Enterprise
and Related Information". This Statement addresses presentation and
disclosure matters and will have no impact on the Company's financial
position or results of operations. As required by Statement 131,
compliance with the respective reporting disclosures will be reflected in
the Company's 1999 Annual Report on Form 10-K.

(3) Inventories



Inventories were comprised of the following at September 30, 1998 and
June 30, 1998 (in thousands):




September 30, June 30,
1998 1998
-------------- --------

Raw materials $ 2,814 2,169
Work in progress 967 546
Finished goods 5,610 4,932
_______ _______
$ 9,391 7,647
======= =======



(4) Comprehensive Income

As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No 130, "Reporting Comprehensive Income", which established
standards for the reporting and display of comprehensive income and its
components in the financial statements. The only component of comprehensive
income that impacts the Company is foreign currency translation adjustments.
The net loss associated with the foreign currency translation adjustments for
the three months ended September 30, 1998 and 1997 was $535,000 and $534,000,
respectively. The Company does not provide for US income taxes on foreign
currency translation adjustments since it does not provide for such taxes on
undistributed earnings of foreign subsidiaries. Accumulated other
comprehensive income at September 30, 1998 and June 30, 1998 consisted solely
of foreign currency translation adjustments with debit balances of $8.2
million and $7.7 million, respectively.

(5) Commitments and contingencies

The Company is currently engaged in significant patent litigation relating
to the enforcement and defense of certain of its patents. In 1992 the
Company's original Australian patent, which was due to expire in 1998 and
covered the CPAP method of treating, and the device for treatment of OSA,
was challenged by the Australian distributor for Respironics, Inc. and
in May 1994, was revoked by an Australian appeals court in reliance on
issues specific to Australian patent law. The Company's market share in
Australia decreased from 1995 and the Company expects that its market share
in Australia will continue to decrease. The Company on May 29, 1997 paid
$246,000 as total and final settlement of costs associated with the
litigation.

- -10-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5) Commitments and contingencies, Continued

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 judgement 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 are proceeding 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 Company's delay timer feature. This
action was consolidated with the ongoing case such that all of the
lawsuits are proceeding together. On July 1, 1997, the Court granted
Respironics a motion for partial summary judgement holding that Respironics'
accused products do not infringe one of the four patents in suit.
Subsequently, the Court undertook a de novo review of the issues raised by
the motion and, on January 27, 1998, adopted the Magistrate Judge's Report
and Recommendation. On June 18, 1998, in response to a second motion by
Respironics for summary judgement of non-infringement, the Magistrate Judge
issued a further Report and Recommendation urging the Court to find that
another of the four patents in suit was not infringed by Respironics'
products. The Court again reviewed the issues de novo and adopted the
Magistrate Judge's Report as its opinion and decision. It is ResMed's
intention to seek reversal of the two summary judgement rulings by appeal
to the United States Court of Appeals for the Federal Circuit once the
rulings have been made part of a final judgement in this case.

In May 1995, Respironics and its Australian distributor filed a Statement
of Claim against the Company and Dr Farrell in the Federal Court of
Australia. The Statement of Claim alleges that the Company engaged in
unfair trade practices, including the 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 $1,000,000, 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 this action.

- -11-



RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

Net Revenues

Net revenues increased for the three months ended September 30, 1998 to $19.2
million from $14.0 million for the three months ended September 30, 1997, an
increase of $5.2 million or 38%. The increase in net revenues is primarily
attributable to an increase in unit sales of the Company's flow generators and
accessories in North and Latin America. Net revenues in North and Latin
America increased to $11.9 million from $7.0 million for the quarter and in
Europe increased to $5.8 million from $5.4 million for the quarter.

Gross Profit

Gross profit increased for the three months ended September 30, 1998 to $13.2
million from $8.6 million for the three months ended September 30, 1997, an
increase of $4.6 million or 54%. The increase resulted primarily from a shift
to higher margin products, production efficiencies gained from increased unit
sales and a decline in the Australian dollar which in relative terms reduces
the Company's manufacturing costs. Gross profit as a percentage of net
revenues increased for the quarter ended September 30, 1998 to 68% from 61% in
three months ended September 30, 1997.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended September 30, 1998 to $6.4 million from $4.7 million for the three
months ended September 30, 1997, an increase of $1.7 million or 37%. As a
percentage of net revenues, selling, general and administrative expenses
remained static at 33% for the quarters ended September 30, 1998 and 1997,
respectively. The increase in gross selling, general and administrative
expenses was due primarily to an increase from 119 to 169 in the number of
sales and administrative personnel and other expenses related to the increase
in Company sales.

Research and Development Expenses

Research and development expenses increased for the three months ended
September 30, 1998 to $1.4 million from $1.3 million for the three months
ended September 30, 1997, an increase of approximately $160,000 or 13%. As a
percentage of net revenues, research and development expenses for the three
months ended September 30, 1998 declined to 7% from 9% for the period ended
September 30, 1997. The increase in gross research and development expenses
was due to an increase in charges for consulting fees, clinical trials and
technical assessments incurred to facilitate development of a number of new
products, partially offset by the devaluation of the Australian dollar in
which research and development costs are denominated.

Other Income (Expenses),Net

Other income (expenses), net declined for the three months ended September 30,
1998 to a net expense of $541,000, from net income of $656,000 for the three
months ended September 30, 1997. The decline in other income (expense), net
over the three month period primarily reflects foreign currency losses
associated with the devaluation of the Australian dollar and reduced interest
income as a result of lower interest rates.

- -12-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

Income Taxes

The Company's effective income tax rate for the three months ended September
30, 1998 declined to approximately 34.1% from approximately 34.5% for the
three months ended September 30, 1997. The lower tax rate was primarily due
to movements in the geographical mix of taxable profit.

Liquidity and Capital Resources

The Company had cash and cash equivalents and marketable securities available
for sale of approximately $20.4 million and $20.7 million, at September 30,
1998 and June 30, 1998, respectively. The Company's working capital
approximated $32.5 million and $32.8 million, at September 30, 1998 and June
30, 1998, respectively. The marginal decline in working capital balances
primarily reflects the increase in capital expenditure offset by the increase
in cash generated from operations and proceeds from exercise of stock options.

During the three months ended September 30, 1998, the Company's operations
generated $4.4 million cash from operations, primarily as a result of
increased profit from operations and reduction in accounts receivable offset
partially by increases in inventories. During the three months ended
September 30, 1997 approximately $1.5 million of cash was provided by
operations.

The Company's capital expenditures for the three month period ended September
30, 1998 and 1997 aggregated $4.0 million and $1.5 million respectively. The
majority of the expenditures in the three month period ended September 30,
1998 related to the construction of the Company's new Australian facility,
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 September
30, 1998 balance sheet reflects net property, plant and equipment of
approximately $13.9 million at September 30, 1998, compared to $11.1 million
at June 30, 1998.

In addition, during the three month period ended September 30, 1998 the
Company paid $1.0 million in business acquisition payments in relation to the
1996 acquisition of Priess.

The Company anticipates expending approximately $6.0 million in relation to
the construction of its new manufacturing facility and computer system over
the next six months. These payments are to be funded through cash flows from
operations.

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 loan bears no interest for the first
three years and bears interest at a rate of 3.8% thereafter until maturity.
The outstanding principal balance of such loan was $218,000 and $227,000 at
September 30, 1998 and June 30, 1998, respectively.

- -13-
RESMED INC. AND SUBSIDIARIES

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

Year 2000

The Company conducted a strategic review of its information systems in fiscal
1997 with a view to upgrading operations to facilitate the growth in business
activity. As a consequence of these review procedures a decision was made to
replace existing internal systems with the Oracle Applications Enterprise
package. The decision to replace the Company's existing information systems
was driven by operational requirements although as a consequence all
information systems are expected to be fully Year 2000 compliant. While
management expects the costs associated with Year 2000 compliance to be
approximately $100,000, the cost of implementing the Oracle Application
Enterprise package is estimated to be approximately $2,000,000.

In addition, the Company is reviewing its product lines to identify any
products or systems with embedded technology which may not be Year 2000
compliant. To date, this review has not revealed any significant Year 2000
exposure with regards to the Company's products.

The Company is also conducting a review of the Year 2000 compliance of its
vendors and customers and any Year 2000 associated issues with respect to any
customer or supplier interface systems. In addition, the Company is currently
analyzing all other computer related systems and equipment to ensure Year 2000
compliance. This review is expected to be completed during fiscal 1999 as part
of the construction of the Company's new Australian manufacturing facility.

Beyond the above review procedures, the Company is in the process of, and has
developed, a number of Year 2000 contingency plans should a Year 2000
compliance issue arise. However, there can be no assurance that customers,
suppliers and service providers on which the Company relies will resolve their
Year 2000 issues accurately, thoroughly and on schedule. Failure to complete
the Year 2000 project by Year 2000 could have a material adverse effect on
future operating results or financial condition.

Recent Accounting Developments

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), was issued by the Financial Accounting Standards Board in June
1998 and is effective for the Company's quarter ending September 30, 1999.
SFAS 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial position at fair value. The accounting for changes in
the fair value (ie, gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, on the reason for holding it. If certain conditions are met,
entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows, or foreign currencies. If
the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change
together with the offsetting loss or gain on the hedged item attributable to
the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction
affects earnings. Any amounts excluded from the assessment of hedge
effectiveness as well as the ineffective portion of the gain or loss is
reported in earnings immediately. Accounting for foreign currency hedges is
similar to the accounting for fair value and cash flow hedges. If the
derivative instrument is not designated as a hedge, the gain or loss is
recognized in earnings in the period of change.

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

- -14-


RESMED INC. AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Market Risk

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

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

The table below provides information about the Company's foreign currency
derivative financial instruments, by functional currency and presents such
information in US dollar equivalents. The table summarizes information on
instruments and transactions that are sensitive to foreign currency
exchange rates, including foreign currency forward exchange agreements and
foreign currency call options held at September 30, 1998. For both foreign
currency forward exchange agreements and foreign currency call options, the
table presents the notional amounts and weighted average exchange rates by
expected (contractual) maturity dates. These notional amounts generally are
used to calculate payments to be exchanged under the contract or options.






1999 2000 2001 Total
-------------------- ------------------- ----------------- -------------------
(In thousands)


FOREIGN CURRENCY DERIVATIVES

FORWARD EXCHANGE AGREEMENTS

(Receive AUS$/Pay DM)
Contract amount $ 414 - - $ 414
Average contractual exchange rate AUS $1 = DM 1.23 AUS $1 = DM 1.23

FOREIGN EXCHANGE CALL OPTIONS

(Receive AUS$/Pay US$)
Option amount $ 21,208 $ 37,500 - $ 58,708
Average contractual exchange rate AUS $1 = USD 0.667 AUS $1 = USD 0.667 AUS $1 = USD 0.667


(Receive AUS$/Pay DM)
Option amount $ 3,030 $ 2,880 $ 1,440 $ 7,350
Average contractual exchange rate AUS $1 = DM 1.17 AUS $1 = DM 1.12 AUS $1 = DM 1.12 AUS $1 = DM 1.134



Fair Value
Assets/(Liabilities)
---------------------



FOREIGN CURRENCY DERIVATIVES

FORWARD EXCHANGE AGREEMENTS

(Receive AUS$/Pay DM)
Contract amount ($72)
Average contractual exchange rate

FOREIGN EXCHANGE CALL OPTIONS

(Receive AUS$/Pay US$)
Option amount $ 530
Average contractual exchange rate


(Receive AUS$/Pay DM)
Option amount $ 69
Average contractual exchange rate


- -15

RESMED INC. AND SUBSIDIARIES


PART II OTHER INFORMATION

Item 1. Legal Proceedings

Refer Note 5 to the Condensed Consolidated Financial Statements

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

None

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

- -16-

SIGNATURES


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



ResMed Inc.






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





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

- -17-



Exhibit 11.1
RESMED INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



Three Months Ended
-------------------
September 30, September 30,
------------------- --------------
1998 1997
------------------- --------------



BASIC EARNINGS
Net income 3,184 2,157
======= =======
Shares
Weighted average number of common
shares outstanding 7,307 7,229
======= =======

Basic earnings per share: $ 0.44 $ 0.30
======= =======


DILUTED EARNINGS
Net Income 3,184 2,157
======= =======
Shares
Weighted average number of common
shares outstanding 7,307 7,229
Additional shares assuming conversion of
stock options under treasury stock method 320 183
________ ________
Weighted average number of common and
common equivalent shares outstanding
as adjusted 7,627 7,412
======= =======

Diluted earnings per share: $ 0.42 $ 0.29
======= =======




- -18-


Exhibit 27.1

ARTICLE. 5 FDS FOR 1ST QUARTER 10-Q

This schedule contains summary financial information extracted from ResMed
Inc's first quarter September 30, 1998 financial report and is qualified in
its entirety by reference to such financial statements.

CURRENCY USD $ CURRENCY




PERIOD-TYPE 3-MOS 3-MOS
FISCAL-YEAR-END JUN-30-1999 JUN-30-1998
PERIOD-END SEP-30-1998 SEP-30-1997
EXCHANGE-RATE 1 1
CASH 16,476,000 13,422,000
SECURITIES 3,880,000 14,643,000
RECEIVABLES 11,318,000 8,328,000
ALLOWANCES (280,000) (294,000)
INVENTORY 9,391,000 6,333,000
CURRENT-ASSETS 45,529,000 45,499,000
PP&E 13,945,000 5,547,000
DEPRECIATION 0 0
TOTAL-ASSETS 67,338,000 56,447,000
CURRENT-LIABILITIES 13,005,000 9,490,000
BONDS 0 0
PREFERRED-MANDATORY 0 0
PREFERRED 0 0
COMMON 30,000 29,000
OTHER-SE 32,163,000 30,099,000
TOTAL-LIABILITY-AND-EQUITY 67,338,000 56,447,000
SALES 19,244,000 13,978,000
TOTAL-REVENUES 19,244,000 13,978,000
CGS 6,084,000 5,425,000
TOTAL-COSTS 0 0
OTHER-EXPENSES 0 0
LOSS-PROVISION 0 0
INTEREST-EXPENSE 0 0
INCOME-PRETAX 4,831,000 3,294,000
INCOME-TAX 1,647,000 1,137,000
INCOME-CONTINUING 3,184,000 2,157,000
DISCONTINUED 0 0
EXTRAORDINARY 0 0
CHANGES 0 0
NET-INCOME 3,184,000 2,157,000
EPS-PRIMARY $ 0.44 $ 0.30
EPS-DILUTED $ 0.42 $ 0.29




- -19-