Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

February 12, 1999

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

Published on February 12, 1999





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, 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 December 31, 1998, 14,719,456 shares of Common Stock ($0.004 par value)
were outstanding.

RESMED INC. AND SUBSIDIARIES
INDEX




PART I FINANCIAL INFORMATION




Page

Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 3
1998 (unaudited) and June 30, 1998

Unaudited Condensed Consolidated Statements of Income for 4
the Three Months Ended December 31, 1998 and 1997 and the
Six Months Ended December 31, 1998 and 1997

Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended December 31, 1998 and 1997

Notes to the unaudited Condensed Consolidated Financial 6
Statements

Item 2 Managements Discussion and Analysis of Financial 12
Conditions and Results of Operations

Item 3 Quantitative and Qualitative Disclosure About Market 16
Risk






PART II OTHER INFORMATION




Item 1 Legal Proceedings 17

Item 2 Changes in Securities 17

Item 3 Defaults Upon Senior Securities 17

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

Item 5 Other Information 17

Item 6 Exhibits and Reports on Form 8-K 17

SIGNATURES 18




- -2-

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements



RESMED INC. AND SUBSIDIARIES

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




December 31, June 30,
Assets 1998 1998
- ---------------------------------------------------------------- -------------- ---------
(Unaudited)
Current assets:
Cash and cash equivalents $ 13,595 15,526
Marketable securities - available for sale 5,530 5,220
Accounts receivable, net of allowance of $309 at
December 31, 1998 and $248 at June 30, 1998 13,445 12,789
Government grants 259 384
Inventories 10,551 7,647
Deferred income taxes 2,514 2,518
Prepaid expenses and other current assets 1,965 2,520
________ ________
Total current assets 47,859 46,604
________ ________

Property, plant and equipment, net of accumulated depreciation
of $7,108 at December 31, 1998 and $5,395 at June 30, 1998 20,025 11,111
Patents, net of accumulated amortization of $432 at December
31, 1998 and $368 at June 30, 1998 537 459
Goodwill, net of accumulated amortization of $1,282 at
December 31, 1998 and $893 at June 30, 1998 6,615 5,445
Other assets 470 999
________ ________
Total Assets $ 75,506 64,618
======== ========
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------
Current liabilities:
Accounts payable $ 4,340 3,759
Accrued expenses 6,903 6,637
Income taxes payable 4,410 3,222
Loan payable 112 227
________ ________
Total current liabilities 15,765 13,845
________ ________
Total liabilities 15,765 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, 50,000,000 shares authorized;
issued and outstanding 14,719,456 at December 31, 1998 and
14,552,000 at June 30, 1998 59 58
Additional paid-in capital 32,622 31,224
Retained earnings 34,276 27,179
Accumulated other comprehensive income (note 4) (7,216) (7,688)
________ ________
59,741 50,773
________ ________
Commitments and contingencies (note 5) - -
________ ________
Total liabilities and Stockholders' equity $ 75,506 64,618
======== ========

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,
-------------------- -----------------


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

Net revenue $ 21,480 16,146 40,724 30,124
Cost of sales 6,964 5,173 13,048 10,598
_______ _______ _______ _______
Gross profit 14,516 10,973 27,676 19,526
_______ _______ _______ _______

Operating expenses
Selling, general and administrative expenses 6,898 5,044 13,253 9,694
Research and development expenses 1,636 1,234 3,069 2,499
_______ _______ _______ _______
Total operating expenses 8,534 6,278 16,322 12,193
_______ _______ _______ _______
Income from operations 5,982 4,695 11,354 7,333
_______ _______ _______ _______

Other income (expense), net:
Interest income, net 196 263 403 554
Government grants 134 191 264 348
Other income (expense), net (336) (1,649) (1,214) (1,441)
_______ _______ _______ _______
Total other income (expense), net (6) (1,195) (547) (539)
_______ _______ _______ _______

Income before income taxes 5,976 3,500 10,807 6,794
Income taxes (2,063) (1,208) (3,710) (2,345)
_______ _______ _______ _______
Net income 3,913 2,292 7,097 4,449
======= ======= ======= =======


Basic earnings per share $ 0.27 0.16 0.48 0.31
Diluted earnings per share $ 0.25 0.15 0.46 0.30



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,
------------------



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

Cash flows from operating activities:
Net income $ 7,097 4,449
_______ _______
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,148 1,603
Provision for service warranties 92 60
Deferred income taxes - 55
Foreign currency options revaluations 709 1,669
Changes in operating assets and liabilities:
Accounts receivable, net (384) (1,629)
Government grants 127 (130)
Inventories (2,628) (2,149)
Prepaid expenses and other current assets 439 (726)
Accounts payable, accrued expenses and other liabilities 1,599 (1,897)
_______ _______
Net cash provided by operating activities 9,199 1,305
_______ _______
Cash flows from investing activities:
Purchases of property, plant and equipment (10,718) (6,042)
Patents costs (151) (155)
Purchase of trading investments (205) (389)
Deferred payments - business acquisition (1,033) (1,068)
Purchases of marketable securities - available for sale (7,589) (18,017)
Proceeds from sale of marketable securities - available for sale 7,257 23,478
_______ _______
Net cash provided by/(used in) investing activities (12,439) (2,193)
_______ _______
Cash flows from financing activities:
Proceeds from issuance of common stock 1,399 531
Repayment of long-term debt (115) (124)
_______ _______
Net cash provided by/(used in) financing activities 1,284 407
_______ _______
Effect of exchange rate changes on cash 25 (1,015)
_______ _______
Net increase (decrease) in cash and cash equivalents (1,931) (1,496)
_______ _______
Cash and cash equivalents at beginning of period 15,526 9,077
_______ _______
Cash and cash equivalents at end of period $ 13,595 7,581
======= =======
Supplemental disclosure of cash flow information:
Income taxes paid 1,373 4,160
Interest paid 4 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 the ResMed Group. The Company designs, manufactures
and markets devices for the evaluation and treatment of sleep disordered
breathing, primarily obstructive sleep apnea. The Company's principal
manufacturing operations are located in Australia. Other principal
distribution and sales sites are located in the United States, the United
Kingdom, Asia and Europe.

The accompanying unaudited 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, 1998 and the six months ended December
31, 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 THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued


(e) Property, Plant and Equipment:

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

(f) Patents:

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

(g) Goodwill

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

(h) Government Grants:

Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to support
continued development and export of the Company's proprietary positive airway
pressure technology and to assist development of export markets. Grants of
$134,000 and $191,000 have been recognized for the three month periods ended
December 31, 1998 and 1997, respectively and $264,000 and $348,000 for the
six month periods ended December 31, 1998 and 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 THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(j) Research and Development:

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

(k) Earnings per Share:

The weighted average shares used to calculate basic earnings per share
was 14,693,000 and 14,494,000 for the quarters ended December 31, 1998 and
1997, respectively, and 14,654,000 and 14,476,000 for the six month periods
ended December 31, 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 893,000 and
472,000 for the quarters ended December 31, 1998 and 1997, respectively, and
by 766,000 and 438,000 for the six month periods ended December 31, 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 December 31, 1998 and June
30, 1998 unamortized premiums amounted to $452,000 and $267,000,
respectively.

- -8-
RESMED INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(2) Summary of Significant Accounting Policies, Continued

(m) Foreign Exchange Risk Management, Continued:

Unrealized gains or losses are recognized as incurred in the statement of
financial position as either other assets or other liabilities and are
recorded within other income, net 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 $60,501,000 and $62,683,000 at December 31, 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 THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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 December 31, 1998 and June
30, 1998:




December 31, June 30,
1998 1998
------------- ---------
$ '000 $ '000
------------- ---------

Raw materials $ 3,537 2,169
Work in progress 34 546
Finished goods 6,980 4,932
_______ _______
$ 10,551 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 gain associated with the foreign currency translation adjustments for
the three months ended December 31, 1998 was $1.0 million compared to a net
loss of $3.7 million for the three months ended December 31, 1997. The net
gain associated with the foreign currency translation adjustments for the six
months ended December 31, 1998 was $472,000 compared to a net loss of $4.2
million for the six months ended December 31, 1997. 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 December 31, 1998
and June 30, 1998 consisted solely of foreign currency translation
adjustments with debit balances of $7.2 million and $7.7 million,
respectively.

(5) Commitments and Contingencies

The company is currently engaged in litigation relating to the enforcement and
defense of certain of its patents. In 1992, the Australian distributor for
Respironics, Inc challenged the Company's original Australian patent covering
both a method of and device for treating OSA with CPAP. In 1994, an
Australian appeals court, relying on issues specific to Australian patent law,
revoked the patent. The Company's market share in Australia has decreased
from 1995 to the present, and the Company expects that its market share in
Australia will continue to decrease.

- -10-
RESMED INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(5) Commitments and Contingencies, Continued

In 1995, the Company filed a complaint in the United States District Court
seeking monetary damages from and injunctive relief against Respironics for
alleged infringement of three ResMed patents. In 1996, the Company filed an
additional complaint against Respironics for infringement of a fourth ResMed
patent, and the actions were consolidated. As of this date, Respironics has
brought three partial summary judgment motions for non-infringement of the
ResMed patents; the Court has granted two of the motions, and the third is
currently being litigated. It is ResMed's intention to appeal the summary
judgment rulings after a final judgment in the consolidated litigation has
been entered in the District Court proceedings.

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





- -11-

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, 1998 to $21.5
million from $16.1 million for the three months ended December 31, 1997, an
increase of $5.3 million or 33%. For the six month period ended December 31,
1998 net revenue increased to $40.7 million from $30.1 million in the six
month period ended December 31, 1997, an increase of $10.6 million or 35%.
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 Latin and North America. Net revenue in Latin and North America
increased to $12.2 million from $8.3 million for the quarter, and to $24.1
million from $15.3 million for the six month period ended December 31,
respectively. In Europe net revenue increased to $7.6 million from $5.5
million for the quarter, and to $13.5 million from $10.9 million for the six
month periods ended December 31, 1998 and 1997, respectively.

Gross Profit

Gross profit increased for the three months ended December 31, 1998 to $14.5
million from $11.0 million for the three months ended December 31, 1997, an
increase of $3.5 million or 32%. Gross profit as a percentage of net revenue
was 68% for the quarters ended December 31, 1998 and 1997. The steady margin
reflects continuing domestic price competition offset by a shift in sales mix
to higher margin products.

For the six month period ended December 31, 1998 gross profit increased to
$27.7 million from $19.5 million in the same period of fiscal 1998, an
increase of $8.2 million or 42%. Gross profit as a percentage of net revenue
increased for the six month period ended December 31, 1998 to 68% from 65% for
the six months ended December 31, 1997. These increases also resulted from
increased revenues and a shift to higher margin product sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the three months
ended December 31, 1998 to $6.9 million from $5.0 million for the three months
ended December 31, 1997, an increase of $1.9 million or 37%. As a percentage
of net revenue, selling, general and administrative expenses increased to 32%
for the quarter ended December 31, 1998 from 31% for the quarter ended
December 31, 1997. The increase in selling, general and administrative
expenses was primarily due to an increase from 124 to 185 in the number of
sales and administrative personnel while legal costs associated with ongoing
legal action (refer Note 5) increased to $377,000 from $306,000 and other
expenses rose in relation to the increase in Company sales.

Selling, general and administrative expenses for the six months ended December
31, 1998 increased to $13.3 million from $9.7 million for the six months ended
December 31, 1997, an increase of $3.6 million or 37%. As a percentage of net
revenue selling, general and administration expenses increased to 33% for the
six months ended December 31, 1998 from 32% in the six months ended December
31, 1997.

- -12-
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, 1998 to $1.6 million from $1.2 million for the three months ended
December 31, 1997, an increase of $400,000 or 33%. As a percentage of net
revenue, research and development expenses remained constant for the three
months ended December 31, 1998 and 1997 at 8% of net revenues. The increase
in gross research and development expenses was due to increased evaluation and
testing procedures incurred to facilitate development of a number of new
products.

For the six month period ended December 31, 1998 research and development
expenses increased to $3.1 million from $2.5 million for the same period in
fiscal 1998, an increase of $570,000 or 23%. As a percentage of net revenue,
research and development expenses was 8% for the six months ended December 31,
1998 and 1997. 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, improved for the three months ended December 31,
1998 to a loss of $6,000 from a loss of $1.2 million for the three months
ended December 31, 1997, a decrease of $1.2 million. This decline was due
primarily to lower net foreign exchange losses arising from the Company's
foreign currency hedging program. Government grants income declined for the
three months ended December 31, 1998 to $134,000 from $191,000 for the three
months ended December 31, 1997 reflecting reduced Australian Federal
Government research grants.

Other Income (Expense), Net increased for the six months ended December 31,
1998 to a loss of $547,000, from a loss of $539,000 for the six months ended
December 31, 1997 an increase of $8,000.

Income Taxes

The Company's effective income tax rate was approximately 34.5% for the three
months ended December 31, 1998 and 1997 and for the six month period ended
December 31, 1998 decreased to 34.3% from 34.5% for the six month period ended
December 31, 1997.


- -13-
RESMED INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

Liquidity and Capital Resources

As of December 31, 1998 and June 30, 1998, the Company had cash and cash
equivalents and marketable securities available for sale of approximately
$19.1 million and $20.7 million, respectively. The Company's working capital
approximated $32.1 million and $32.8 million, at December 31, 1998 and June
30, 1998, respectively. The decline in working capital balances primarily
reflects the increase in capital expenditure associated with the construction
of the Australian manufacturing facility offset by the increase in cash
generated from operations and proceeds from the exercise of stock options.

During the six months ended December 31, 1998, the Company generated cash of
$9.2 million from operations, primarily as a result of increased profit from
operations and reduction in income taxes paid offset by increases in inventory
balances. During the six months ended December 31, 1997 approximately $1.3
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,
1998 and 1997 aggregated $10.7 million and $6.0 million respectively. The
majority of the expenditures in the six month period ending December 31, 1998
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, 1998 balance sheet reflects
net property plant and equipment of approximately $20.0 million at December
31, 1998 compared to $11.1 million at June 30, 1998.

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

The Company anticipates expending approximately $4.0 million in relation to
the construction of its new manufacturing facility and computer system over
the next three 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 revenue and gross profit
margins from international operations. The company is exposed to the risk
that the dollar value equivalent of anticipated cash flows will be adversely
affected by changes in foreign currency exchange rates. The Company manages
this risk through foreign currency option contracts.

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 $112,000 and $227,000 at
December 31, 1998 and June 30, 1998, respectively.

- -14-
RESMED INC. AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

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.

- -15-
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 call options held at December 31, 1998. The
table presents the notional amounts and weighted average exchange rates by
expected (contractual) maturity dates for the Company's foreign currency
derivative financial instruments. These notional amounts generally are used
to calculate payments to be exchanged under the contract or options.





1999 2000 2001 Total
------------------- ------------------- ----------------- -------------------


FOREIGN CURRENCY DERIVATIVES

FOREIGN EXCHANGE CALL OPTIONS

(Receive AUS$/Pay US$)
Option amount $ 16,583,000 $ 37,500,000 - $ 54,083,000
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 $ 2,083,000 $ 2,890,000 $ 1,445,000 $ 6,418,000
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

FOREIGN EXCHANGE CALL OPTIONS

(Receive AUS$/Pay US$)
Option amount $ 331,000
Average contractual exchange rate


(Receive AUS$/Pay DM)
Option amount $ 60,000
Average contractual exchange rate


- -16-
RESMED INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Refer Note 5 to the Condensed Consolidated Financial Statements

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

The Company's Annual Meeting of Shareholders was held on November 6,
1998. The holders of 6,563,531 shares of the Company's stock (approximately
90% of the outstanding shares) were present at the meeting in person or by
proxy. The only matters voted upon at the meeting were (1) to elect a
director, to serve for a three year term; (2) to amend the Certificate of
Incorporation of the Company to (i) effect a two-for-one stock split of the
outstanding shares of the Company's Common Stock and (ii) increase the number
of authorized shares of the Company's Common Stock, par value of $0.004 per
share, from 15,000,000 to 50,000,000 shares; (3) to ratify the selection of
auditors to examine the consolidated financial statements of the Company for
the fiscal year ending June 30, 1999; and (4) to transact such other business
as may properly come before the meeting.

(1) Mr Michael A Quinn, nominated by the Company's Board of Directors, was
elected to serve until 2001. There were no other nominees.



Shares were voted as follows:


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

Michael A Quinn 6,530,548 32,983



(2) The proposed amendment to the Certificate of Incorporation described
above was approved:

Affirmative votes 4,751,236
Negative votes 1,801,311

(3) the selection of KPMG Peat Marwick LLP as independent public
accountants for the 1999 fiscal year was ratified: affirmative votes,
6,549,132 shares; negative votes, 1,900 shares.

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

Item 5. Other Information

None

Item 6. Exhibits and Report on Form 8K

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

- -17-

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

- -18-



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,
------------------- ---------------- ------------ ------------
1998 1997 1998 1997
------------------- ---------------- ------------ ------------
BASIC EARNINGS
Net income $ 3,913 2,292 7,097 4,449
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 14,693 14,494 14,654 14,476
======== ======== ======== ========

Basic earnings per share: $ 0.27 0.16 0.48 0.31
======== ======== ======== ========


DILUTED EARNINGS
Net Income $ 3,913 2,292 7,097 4,449
======== ======== ======== ========
Shares
Weighted average number of common
shares outstanding 14,693 14,494 14,654 14,476
Additional shares assuming conversion of
stock options under treasury stock method 893 472 766 438
________ ________ ________ ________
Weighted average number of common and
common equivalent shares outstanding
as adjusted 15,586 14,966 15,420 14,914
======== ======== ======== ========

Diluted earnings per share: $ 0.25 0.15 0.46 0.30
======== ======== ======== ========




- -19-
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, 1998 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-30-1999 JUN-30-1998
PERIOD-END DEC-31-1998 DEC-31-1997
EXCHANGE-RATE 1 1
CASH 13,595,000 7,581,000
SECURITIES 5,530,000 13,027,000
RECEIVABLES 13,445,000 9,365,000
ALLOWANCES 309,000 270,000
INVENTORY 10,551,000 7,572,000
CURRENT-ASSETS 47,859,000 40,981,000
PP&E 20,025,000 9,098,000
DEPRECIATION 0 0
TOTAL-ASSETS 75,506,000 57,044,000
CURRENT-LIABILITIES 15,765,000 11,678,000
BONDS 0 0
PREFERRED-MANDATORY 0 0
PREFERRED 0 0
COMMON 59,000 58,000
OTHER-SE 32,622,000 31,224,000
TOTAL-LIABILITY-AND-EQUITY 75,506,000 57,044,000
SALES 40,724,000 30,124,000
TOTAL-REVENUES 40,724,000 30,124,000
CGS 13,048,000 10,598,000
TOTAL-COSTS 0 0
OTHER-EXPENSES 0 0
LOSS-PROVISION 0 0
INTEREST-EXPENSE 0 0
INCOME-PRETAX 10,807,000 6,794,000
INCOME-TAX 3,710,000 2,345,000
INCOME-CONTINUING 7,097,000 4,449,000
DISCONTINUED 0 0
EXTRAORDINARY 0 0
CHANGES 0 0
NET-INCOME 7,097,000 4,449,000
EPS-BASIC $ 0.48 $ 0.31
EPS-DILUTED $ 0.46 $ 0.30


- -20-