10-K: Annual report pursuant to Section 13 and 15(d)

Published on September 20, 2001


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
----------
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2001
Commission file number 0-26038

ResMed Inc
(Exact name of Registrant as specified in its Charter)

Delaware
(State or other jurisdiction of incorporation or organization)

98-0152841
(IRS Employer Identification No.)

14040 Danielson Street
Poway CA 92064-6857
United States Of America
(Address of principal executive offices)

(858) 746-2400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class: Name of Each exchange upon which registered:

Common Stock, $.004 Par Value New York Stock Exchange
Rights to Purchase Series A Junior New York Stock Exchange
Participating Preferred Stock


Securities registered pursuant to Section 12(g) of the Act:

None

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 filing requirements
for the past 90 days.

Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K (S 229.405 of this Chapter) is not contained herein and will
not be contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K [_].

The aggregate market value of the voting stock held by non-affiliates of
registrant as of September 7, 2001, computed by reference to the closing sale
price of such stock on the New York Stock Exchange, was approximately
$1,105,000,000. (All directors, executive officers, and 10% stockholders of
Registrant are considered affiliates.)

At September 7, 2001, registrant had 31,870,060 shares of Common Stock, $.004
par value, issued and outstanding.

Portions of registrant's definitive Proxy Statement for its November 5, 2001
meeting of stockholders are incorporated by reference into Part III of this
report.

RESMED INC

TABLE OF CONTENTS
______________________



PAGE


Part I Item 1 Business 2

Item 2 Properties 15

Item 3 Legal Proceedings 16

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


Part II Item 5 Market for Registrant's Common Equity and Related Stockholder 17
Matters

Item 6 Selected Financial Data 18

Item 7 Management's Discussion and Analysis of Financial Condition and 19
Results of Financial Operation

Item 7A Quantitative and Qualitative Disclosures About Market and Business 24
Risks

Item 8 Consolidated Financial Statements and Supplementary Data 32

Item 9 Changes in and Disagreements with Accountants on Accounting and 32
Financial Disclosure


Part III Item 10 Directors and Executive Officers of the Registrant 33


Item 11 Executive Compensation 33

Item 12 Security Ownership of Certain Beneficial Owners and Management 33

Item 13 Certain Relationships and Related Transactions 33


Part IV Item 14 Exhibits, Consolidated Financial Statement Schedule and Reports on 34
Form 8-K


Sullivan, VPAP, AutoSet, Bubble Mask, Bubble Cushion, SmartStart,
ResCap, Mirage, HumidAire, Aero-Click, minni Max nCPAP, Moritz II
biLEVEL, Aero-Fix, Twister remove, SELFSET, MESAMIV; Poly-MESAM, MEPAL,
Auto VPAP, AutoScan, AutoSet CS, AutoSet T, AutoView, IPAP MAX,
ResControl, SCAN, S6, Ultra Mirage, VPAP MAX, AutoSet.com, AutoSet-
CS.com, and ResMed are our trademarks.

As used in this 10-K, the terms "we," "us," and "our" refer to ResMed
Inc., a Delaware corporation, and its subsidiaries, unless otherwise
stated.

PART I

Item 1 Business

General

We are a leading developer, manufacturer and distributor of medical
equipment for treating, diagnosing, and managing sleep disordered
breathing, or SDB. SDB includes obstructive sleep apnea, or OSA, and
related respiratory disorders that occur during sleep. When we were
formed in 1989, our primary purpose was to commercialize a treatment for
OSA developed by Professor Colin Sullivan of the University of Sydney,
the current Chairman of our Medical Advisory Board. This treatment,
nasal Continuous Positive Airway Pressure, or CPAP, was the first
successful noninvasive treatment for OSA. CPAP systems deliver
pressurized air, typically through a nasal mask, to prevent collapse of
the upper airway during sleep.

Since the development of nasal CPAP, we have developed a number of
innovative products for SDB, including flow generators, diagnostic
products, mask systems, headgear and other accessories. Our growth has
been fueled by a productive research and product development effort,
geographic expansion, and increased awareness of SDB as a significant
health concern among physicians and patients. In February 2001, we
acquired MAP Medizin-Technologie GmbH, or MAP. MAP is a leading German
designer, manufacturer and distributor of medical devices for the
diagnosis and treatment of SDB, with a particular focus on OSA. This
acquisition enhances our position in Europe, particularly in Germany,
the second largest market worldwide for OSA products.

We employ over 950 people and sell our products in over 60 countries
through a combination of wholly owned subsidiaries and independent
distributors.

Corporate History

ResMed Inc, a Delaware corporation, was formed in March 1994 as the
ultimate holding company for our Australian, European and United States
operating subsidiaries. On June 1, 1995, we completed an initial public
offering of common stock and on June 2, 1995 our common stock commenced
trading on The NASDAQ National Market. On September 30, 1999 we
transferred our principal public listing to the New York Stock Exchange,
trading under the ticker symbol RMD. On November 25, 1999, we
established a secondary listing of our shares as Chess Depositary
Instruments, or CDIs, on the Australian Stock Exchange, also under the
symbol RMD. Ten CDIs on the ASX represent one share of our common stock
on the NYSE.

Our Australian subsidiary, ResMed Holdings Limited, was originally
organized in 1989 by Dr. Peter Farrell to acquire from Baxter Center for
Medical Research Pty Limited, or Baxter, the rights to certain
technology relating to CPAP treatment as well as Baxter's existing CPAP
device business. Baxter had sold CPAP devices in Australia since 1988,
having acquired the rights to the technology in 1987 from Dr. Colin
Sullivan.

In addition to acquiring MAP in February 2001, we also acquired the
distribution businesses of Dieter W. Priess Medtechnik, Premium Medical
SARL, Innovmedics Pte Ltd and EINAR Egnell AB, our German, French,
Singaporean and Swedish distributors, on February 7, 1996, June 12,
1996, November 1, 1997 and January 31, 2000, respectively. During the
1999 fiscal year we made an equity investment in Flaga hf, based in
Iceland. We now market Flaga's polysomnographic products under the Embla
and Embletta label in the United States and selected other markets.

2

The Market

Sleep is a complex neurological process that includes two distinct states:
rapid eye movement, or REM, sleep and non-rapid eye movement, or non-REM,
sleep. REM sleep, which is about 20-25% of total sleep experienced by
adults, is characterized by a high level of brain activity, bursts of
rapid eye movement, increased heart and respiration rates, and paralysis
of many muscles. Non-REM sleep is subdivided into four stages that
generally parallel sleep depth; stage 1 is the lightest and stage 4 is the
deepest.

The upper airway has no rigid support and is held open by active
contraction of upper airway muscles. Normally, during REM sleep and deeper
levels of non-REM sleep, upper airway muscles relax and the airway
narrows. Individuals with narrow upper airways or poor muscle tone are
prone to temporary collapses of the upper airway during sleep, or apneas,
or near closures of the upper airways, or hypopneas. These breathing
irregularities result in a lowering of blood oxygen concentration, causing
the central nervous system to react to the lack of oxygen or increased
carbon dioxide and signaling the body to respond. Typically, the
individual subconsciously arouses from sleep, causing the throat muscles
to contract, opening the airway. After a few gasping breaths, blood oxygen
levels increase and the individual can resume a deeper sleep until the
cycle repeats itself. Sufferers of OSA typically experience ten or more
such cycles per hour. While these awakenings greatly impair the quality of
sleep, the individual is not normally aware of these disruptions.

In its "Wake Up America" report to Congress in 1993, the National
Commission on Sleep Disorders Research estimated that approximately 40
million individuals in the United States suffer from chronic disorders of
sleep and wakefulness, such as sleep apnea, insomnia and narcolepsy.
According to this report, sleep apnea is the most common sleep disorder,
affecting approximately 20 million individuals in the United States.
Despite the high prevalence of OSA, there is a general lack of awareness
of OSA among both the medical community and the general public. It is
estimated that less than 10% of those afflicted by OSA know the cause of
their fatigue or other symptoms. Health care professionals are often
unable to diagnose OSA because they are unaware that such non-specific
symptoms as fatigue, snoring and irritability are characteristic of OSA.

While OSA has been diagnosed in a broad cross-section of the population,
it is predominant among middle-aged men and those who are obese, smoke,
consume alcohol in excess or use muscle-relaxing drugs. In addition,
patients who are being treated for certain other conditions, including
those undergoing dialysis treatment or suffering from diabetes, may be
medically predisposed to OSA. Recent studies have also shown that SDB is
associated with hypertension, the leading risk factor for the development
of stroke and heart disease, and that over 50% of post stroke patients and
patients with congestive heart failure have SDB.

Sleep Disordered Breathing and Obstructive Sleep Apnea

Sleep disordered breathing, or SDB, encompasses all physiological
processes that cause detrimental breathing patterns during sleep.
Manifestations include OSA, central sleep apnea, or CSA, and
hypoventilation syndromes that occur during sleep. Hypoventilation
syndromes are generally associated with obesity, chronic obstructive lung
disease, neuromuscular disease and upper airway resistance changes. OSA is
the most common form of SDB.

Sleep fragmentation and the loss of the deeper levels of sleep caused by
OSA can lead to excessive daytime sleepiness, reduced cognitive function,
including memory loss and lack of concentration, depression and
irritability. OSA sufferers also may experience an increase in heart rate
and an elevation of blood pressure during the cycle of apneas. Several
studies indicate that the oxygen

3

desaturation, increased heart rate and elevated blood pressure caused by
OSA may be associated with increased risk of cardiovascular morbidity and
mortality due to angina, stroke and heart attack. Patients with OSA have
been shown to have impaired daytime performance in a variety of cognitive
functions including problem solving, response speed and visual motor
coordination, and studies have linked OSA to increased occurrences of
traffic and workplace accidents.

Generally, an individual seeking treatment for the symptoms of OSA is
referred by a general practitioner to a specialist for further evaluation.
The diagnosis of OSA typically requires monitoring the patient during
sleep at either a sleep clinic or the patient's home. During overnight
testing, respiratory parameters and sleep patterns are monitored along
with other vital signs such as blood pressure, heart rate and blood oxygen
levels. These tests allow sleep clinicians to detect any sleep
disturbances such as apneas, hypopneas or subconscious awakenings. We
estimate that there are currently more than 2,000 sleep clinics in the
United States, a substantial portion of which are affiliated with
hospitals. The number of sleep clinics has expanded significantly from
approximately 100 such facilities in 1985.

Existing Therapies

Prior to 1981, the primary treatment for OSA was a tracheotomy, a surgical
procedure to cut a hole in the patient's windpipe to create a channel for
airflow. Most recently, surgery has involved either
uvulopalatopharyngoplasty ('UPPP'), in which surgery is performed on the
upper airway to remove excess tissue and to streamline the shape of the
airway, or mandibular advancement, in which the lower jaw is moved forward
to widen the patient's airway. UPPP alone has a poor success rate;
however, when performed in conjunction with mandibular advancement, a
greater success rate has been claimed. This combined procedure, performed
by highly specialized surgeons, is expensive and involves prolonged and
often painful recovery periods.

Nasal CPAP, by contrast, is a non-invasive means of treating OSA. Nasal
CPAP was first used as a treatment for OSA in 1980 by Dr. Colin Sullivan,
the Chairman of our Medical Advisory Board. CPAP systems were
commercialized for treatment of OSA in the United States in the mid
1980's. Today, use of nasal positive airway pressure is generally
acknowledged as the most effective and least invasive therapy for managing
OSA.

During nasal CPAP treatment, a patient sleeps with a nasal mask connected
to a small portable air flow generator that delivers room air at a
positive pressure. The patient breathes in air from the flow generator
and breathes out through an exhaust port in the mask. Continuous air
pressure applied in this manner acts as a pneumatic splint to keep the
upper airway open and unobstructed.

CPAP is not a cure but a therapy for managing OSA, and therefore, must be
used on a daily basis as long as treatment is required. Patient
compliance has been a major factor in the efficacy of CPAP treatment.
Early generations of CPAP units provided limited patient comfort and
convenience. Patients experienced soreness from the repeated use of nasal
masks and had difficulty falling asleep with the CPAP device operating at
the prescribed pressure. In more recent years, product innovations to
improve patient comfort and compliance have been developed. These include
more comfortable mask systems, delay timers which gradually raise air
pressure allowing the patient to fall asleep more easily; bilevel flow
generators, including VPAP systems, which provide different air pressures
for inhalation and exhalation; heated humidification systems to make the
airflow more comfortable; and autotitration devices which reduce the
average pressure delivered during the night.

Business Strategy

We believe that the SDB market will continue to grow in the future due to
a number of factors including increasing awareness of OSA, improved
understanding of the role of SDB treatment in the

4

management of cardiac, neurologic and related disorders, and an increase
in home-based diagnosis. Our strategy for expanding our business
operations and capitalizing on the growth of the SDB market consists of
the following key elements:

. Continue Product Development and Innovation. We are committed to
ongoing innovation in developing products for the diagnosis and
treatment of SDB. We have been a leading innovator of products designed
to more effectively treat apneas, increase patient comfort and
encourage compliance with prescribed therapy. For example, in 1997 we
introduced the Mirage Mask. This mask contains an inflatable air
pocket, which conforms to the patient's facial contours, creating a
more comfortable and better seal. Additionally, in 1999 we introduced
the AutoSet T flow generator, an autotitrating device that adapts to
the patient's breathing patterns to more effectively prevent apneas. We
believe that continued product development and innovation are key
factors to our ongoing success. Approximately 14% of our employees are
devoted to research and development activities. In fiscal year 2001, we
invested $11.1 million, or 7.2% of our revenues, in research and
development.

. Expand Geographic Presence. We market our products in over 60 countries
to sleep clinics, home health care dealers and third party payers. We
intend to increase our sales and marketing efforts in our principal
markets, as well as expand our presence into new geographic regions.
For example, our acquisition of MAP enhances our position in Europe,
particularly in Germany, the second largest market worldwide for OSA
products.

. Increase Public and Clinical Awareness. We intend to continue to expand
our existing promotional activities to increase awareness of SDB and
our treatment alternatives. These promotional activities target the
population with predisposition to SDB as well as primary care
physicians and specialists, such as cardiologists, neurologists and
pulmonologists. In addition, we also target special interest groups,
including the National Stroke Association, the American Heart
Association and the National Sleep Foundation.

. Expand into New Clinical Applications. We continually seek to identify
new applications of our technology for significant unmet medical needs.
SDB is associated with a number of symptoms beyond fatigue and
irritability. In particular, recent studies have established a clinical
association between OSA and stroke and congestive heart failure. We are
currently developing a device, which has not been approved for sale in
the United States, for the treatment of Cheyne-Stokes breathing in
patients with congestive heart failure. In addition, we maintain close
working relationships with a number of prominent physicians to explore
new medical applications for our products and technology.

. Leverage the Experience of our Management Team and Medical Advisory
Board. Our senior management team has extensive experience in the
medical device industry in general, and in the field of SDB in
particular. Our Medical Advisory Board is comprised of experts in the
field of SDB, including Dr. Colin Sullivan, the inventor of nasal CPAP.
We intend to continue to leverage the experience and expertise of these
individuals to maintain our innovative approach to the development of
products and increase awareness of the serious medical problems caused
by SDB.

Products

Our portfolio of products for the treatment of OSA and other forms of SDB
include flow generators, diagnostic products, mask systems, headgear and
other accessories.

5

Flow Generators
We produce nasal CPAP, VPAP and AutoSet systems for the diagnosis,
titration and treatment of SDB. The flow generator systems deliver
positive airway pressure through a small nasal mask (or sometimes a full-
face mask). Our VPAP units deliver ultra-quiet, comfortable bilevel
therapy. There are two preset pressures: a higher pressure as the patient
breathes in, and a lower pressure as the patient breathes out. Breathing
out against a lower pressure makes treatment more comfortable,
particularly for patients who need high pressure levels or for those with
impaired breathing ability. AutoSet systems are based on a proprietary
technology to monitor breathing that can also be used in the diagnosis and
treatment of OSA. CPAP and VPAP flow generators, together with our
diagnostic products, accounted for approximately 57%, 60% and 64% of our
net revenues in fiscal years 2001, 2000 and 1999, respectively.



--------------------------------------------------------------------------------------------------------------
Date of
Flow Generators Description Commercial
Introduction
--------------------------------------------------------------------------------------------------------------

VPAP II Bilevel portable device providing different pressure levels for March 1996
inhalation and exhalation, improved pressure switching and
reduced noise output and spontaneous breath triggering.

COMFORT Bilevel device with limited features. March 1996

VPAP II ST Bilevel portable device with spontaneous and April 1996
spontaneous/timed breath triggering modes of operation.

VPAP II ST A Bilevel device with power failure alarms. August 1998

VPAP MAX Bilevel ventilatory support system for the treatment of adult November 1998
patients with respiratory insufficiency or respiratory failure.

AutoSet T Autotitrating device which continually adjusts CPAP March 1999
treatment pressure based on patient airway resistance.

ResMed S6 series Quiet, compact CPAP device with various comfort features. June 2000

Minni Max nCPAP CPAP device with integrated humidification capabilities February 2001*
and low noise levels.

Moritz II Bilevel Bilevel portable device. February 2001*
--------------------------------------------------------------------------------------------------------------


*Date of acquisition of MAP. The MAP products are not approved for
marketing in the United States.

6

Mask Systems

Mask systems are one of the most important elements of an OSA treatment
system. Masks are a primary determinant of patient comfort and as such may
drive or impede patient compliance with therapy. We have been a consistent
innovator in masks, improving patient comfort while minimizing size and
weight.



---------------------------------------------------------------------------------------------------------------
Date of
Mask Products Description Commercial
Introduction
---------------------------------------------------------------------------------------------------------------

Mirage Mask Proprietary mask design with a contoured nasal cushion that August 1997
adjusts to patient's facial contours. Quiet, light and low
profile.

Mirage Full Face Mirage-based full face mask system. Provides an effective June 1999
Mask method of applying ventilatory assist Noninvasive Positive
Pressure Ventilation therapy. Can be used to address mouth-
breathing problems in conventional bilevel or CPAP therapy.

Ultra Mirage Mask Advanced version of the Mirage system with reduced noise June 2000
characteristics and improved forehead bridge.
---------------------------------------------------------------------------------------------------------------


Diagnostic Products

We market sleep recorders for the diagnosis, titration and treatment of SDB
in sleep clinics and hospitals. These diagnostic systems record relevant
respiratory and sleep data, which can be analyzed by a sleep specialist or
physician who can then tailor an appropriate OSA treatment regimen for the
patient.



---------------------------------------------------------------------------------------------------------------
Date of
Diagnostic Products Description Commercial
Introduction
---------------------------------------------------------------------------------------------------------------

AutoSet Portable II Portable version of the AutoSet Clinical with PC processor June 1997
Plus functions.

ResControl Device to permit remote monitoring and adjustment of September 1999
ResMed CPAP, VPAP, and AutoSet T Flow generators. An
internal pressure transducer enables the clinician to
interface with polysomnography to monitor airflow in both
titration and diagnostic studies.

Embla Digital sleep recorder that provides comprehensive sleep October 1999
diagnosis in a sleep laboratory.

Embletta Pocket-size digital recorder that performs ambulatory sleep November 2000
studies.

MESAM IV Portable Portable diagnostic system that measures snore, heart rate, February 2001*
Diagnostic System body position, and oxygen saturation in conjunction with
computer assisted analysis.

Poly-MESAM Portable Configurable polysomnography system adaptable to February 2001*
Diagnostic System individual sleep laboratory needs.

MEPAL Diagnostic Polysomnography system designed for use in the sleep February 2001*
System laboratory.

MEPAL mobil Ambulatory polysomnography system. February 2001*
Diagnostic System
---------------------------------------------------------------------------------------------------------------


*Date of acquisition of MAP. The MAP products are not approved for
marketing in the United States.

7

Accessories and Other Products

To enhance patient comfort, convenience and compliance, we market a
variety of other products and accessories. These products include
humidifiers, such as the SULLIVAN HumidAire, which connect directly with
the CPAP, VPAP and AutoSet flow generators to humidify and heat the air
delivered to the patient. Their use prevents the drying of nasal passages
which can cause discomfort. Other optional accessories include a cold
passover humidifier, carry bags and breathing circuits. MAP also offers a
range of accessories, including the Twister remote, an intelligent remote
control for use in the sleep lab environment to set and monitor flow
generators, the Aero-Click connection system, which allows a quick, simple
connect/disconnect between the mask and CPAP air delivery source and the
AeroFix headgear, for the comfortable adjustment of masks for CPAP
therapy.


Product Development and Clinical Trials

We have a strong track record in innovation in the sleep market. In 1989,
we introduced our first nasal CPAP device. Since then we have been
committed to an ongoing program of product advancement and development.
Currently, our product development efforts are focused on not only
improving our current product offerings, but also expanding into new
product applications. For example, in 1997, we introduced the Mirage Mask.
This mask was based on the innovative Bubble Mask technology introduced in
1991, which used the principle of air inflation of the mask cushion to
create a more comfortable and better seal by better conforming to patient
facial contours. Additionally, in 1999, we introduced the AutoSet T Flow
generator, an autotitrating device that adapts to the patient's breathing
patterns to effectively prevent apneas.

We continually seek to identify new applications of our technology for
significant unmet medical needs. SDB is associated with a number of
symptoms beyond fatigue and irritability. In particular, recent studies
have established a clinical association between SDB and stroke and
congestive heart failure. For example, we are currently developing a
device, which has not been approved for sale in the United States, for the
treatment of Cheyne-Stokes breathing in patients with congestive heart
failure. We also support clinical trials in the United States, Germany,
France, the United Kingdom and Australia.

We consult with physicians at major sleep centers throughout the world to
identify technological trends in the treatment of SDB. Some of these
physicians currently serve on our Medical Advisory Board. New product
ideas are also identified by our marketing staff, direct sales force,
network of distributors, manufacturers' representatives, customers, and
patients. Typically, our internal development staff then performs new
product development.

In fiscal years 2001, 2000 and 1999, we invested $11,146,000, $8,499,000
and $6,542,000, respectively, on research and development.


Sales and Marketing

Our products are typically purchased by a home healthcare dealer who then
sells the products to the patient. The decision to purchase our products,
as opposed those of our competitors, is made or influenced by one or more
of the following individuals or organizations: the prescribing physician
and his or her staff, the home healthcare dealer, the insurer and the
patient.

We currently market our products in over 60 countries using a network of
distributors, independent manufacturers' representatives and our direct
sales force. We attempt to tailor our marketing

8

approach to each national market, based on regional awareness of SDB as a
health problem, physician referral patterns, consumer preferences and
local reimbursement policies.

North America and Latin America

In the United States, our sales and marketing activities are conducted
through a field sales organization made up of regional territory
representatives, program development specialists and diagnostic system
specialists, regional sales directors, and independent manufacturers'
representatives. Our United States field sales organization markets and
sells products to more than 4,000 home health care dealer branch locations
throughout the United States. Our direct sales force receives a base
salary, plus commissions, while our independent sales representatives
receive higher commissions, but no base salary.

We also promote and market our products directly to sleep clinics.
Patients who are diagnosed with OSA and prescribed CPAP treatment are
typically referred by the diagnosing sleep clinic to a home health care
dealer to fill the prescription. The home health care dealer, in
consultation with the referring physician, will assist the patient in
selecting the equipment, fit the patient with the appropriate mask and set
the flow generator pressure to the prescribed level. In the United States,
our sales employees and manufacturers' representatives are managed by two
regional Sales Managers, a Director of Sales and ultimately our Senior
Vice President, U.S. Sales and Marketing.

Our Canadian and Latin American sales are conducted through independent
distributors. Sales in North America and Latin America accounted for 52%,
54% and 57% of our net revenues for fiscal years 2001, 2000 and 1999,
respectively.

Europe

We market our products in most major European countries. We have wholly
owned subsidiaries in the United Kingdom, Germany, France and Sweden, and
we use independent distributors to sell our products in other areas of
Europe. Distributors are selected in each country based on their knowledge
of respiratory medicine and a commitment to SDB therapy. In each country
in which we have a subsidiary, a local senior manager is responsible for
direct national sales. MAP conducts its sales efforts through a direct
sales force.

Our Executive Vice President is responsible for coordination of all
European activities and, in conjunction with local management, the direct
sales activity in Europe. Sales in Europe accounted for 39%, 35% and 34%
of our total net revenues for fiscal years 2001, 2000 and 1999,
respectively. As a result of the MAP acquisition, we expect European sales
to increase as a percentage of total net revenues in the near future.

Australia/Rest of World

Marketing in Australia and the rest of the world is the responsibility of
our Executive Vice President. Sales in Australia and the rest of the world
accounted for 9%, 11% and 9% of our total net revenues for the fiscal
years ended June 30, 2001, 2000 and 1999, respectively.

Other Marketing Efforts

In addition to our sales efforts, we work with the following organizations
to promote public and clinical awareness of SDB and OSA:

. National Stroke Association: We have developed a strategic alliance
with the National Stroke Association to increase awareness about the
high prevalence of SDB in the stroke survivor population.

9

. American Heart Association: We are working closely with the Western
Affiliates of the American Heart Association on a number of local
programs to increase awareness and education about SDB. We are also in
discussions with the national American Heart/American Stroke
associations regarding national programs initially targeting clinicians
on the impact of SDB on both heart disease and stroke patients, as well
as its role in the development of hypertension, a major risk factor for
both heart disease and stroke.

. National Sleep Foundation: The National Sleep Foundation is a non
profit organization dedicated to improving public health and safety by
raising the level of awareness and education toward sleep related
programs and research. We have been an active corporate partner and
have supported the National Sleep Foundation for a number of years.

We believe that our affiliations and continued work with these
organizations raises the awareness of SDB as a significant health concern.

Manufacturing

Our principal manufacturing facilities are located in Sydney, Australia
and comprise a 120,000 square foot manufacturing and research and
development facility. Our manufacturing operations consist primarily of
assembly and testing of our flow generators, masks and accessories. Of the
numerous raw materials, parts and components purchased for assembly of our
therapeutic and diagnostic sleep disorder products, most are off-the-shelf
items available from multiple vendors. We generally manufacture to our
internal sales forecasts and fill orders as received. Our quality control
group performs tests at various steps in the manufacturing cycle to ensure
compliance with our specifications.

Our quality management system is based upon the requirements of ISO 9001,
EN46001 (European Medical Standards), FDA Quality System Regulations for
medical devices (21 CFR part 820) and the Medical Device Directive
(93/42/EEC). Our Sydney, Australia facility is accredited to ISO 9001 and
EN46001 and our San Diego, California facility is accredited to ISO 9002
and EN46002. These two sites have third party audits conducted by the ISO
certification bodies at regular intervals.

Our newly acquired German manufacturing operation based in Munich operates
in a facility of approximately 24,000 square feet. This facility is
accredited to ISO 9001 and EN46001. The products are primarily flow
generators that have been developed internally by a small development
team. The manufacturing process consists of major sub-assemblies produced
externally by sub-contractors, and final assembly and test of the finished
product being performed in house. Appropriate quality controls monitor and
measure product assembly and performance.

We purchase uniquely configured components for our devices from single-
source suppliers. A reduction or stoppage in supply while a replacement
supplier reconfigures its components, or while we reconfigure our
components for the replacement part, if required, would limit our ability
to manufacture our devices, which could result in a significant reduction
in sales and profitability.

Third-Party Reimbursement

The cost of medical care in many of the countries in which we operate is
funded in substantial part by government and private insurance programs.
Although we do not generally receive payments for

10

our products directly from these payers, our success in major markets is
dependent upon the ability of patients to obtain adequate reimbursement
for our products.

In the United States, our products are purchased primarily by home health
care dealers, hospitals or sleep clinics, which then invoice third-party
payers directly. Domestic third-party payers include Medicare, Medicaid,
and corporate health insurance plans. These payers may deny reimbursement
if they determine that a device is not used in accordance with cost-
effective treatment methods, or is experimental, unnecessary or
inappropriate. The long-term trend towards managed health care could
control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care, may
result in lower prices for our products.

In the United States, we sell our products primarily to home health care
dealers and to sleep clinics; we do not file claims and bill governmental
programs and other third-party payers directly for reimbursement for our
products. Nevertheless, we are still subject to laws and regulations
relating to governmental programs, and any violation of these laws and
regulations could result in civil and criminal penalties, including fines.

In particular, the federal Anti-Kickback Law prohibits persons from
knowingly and willfully soliciting, receiving, offering or providing
remuneration, directly or indirectly, to induce either the referral of an
individual, or the furnishing, recommending or arranging for a good or
service, for which payment may be made under a Federal healthcare program
such as the Medicare and Medicaid programs. The government has interpreted
this law broadly to apply to the marketing and sales activities of
manufacturers and distributors like us. Many states have adopted laws
similar to the federal Anti-Kickback Law. We are also subject to other
federal and state fraud laws applicable to payment from any third-party
payer. These laws prohibit persons from knowingly and willfully filing
false claims or executing a scheme to defraud any healthcare benefit
program, including private third-party payers. These laws may apply to
manufacturers and distributors who provide information on coverage, coding
and reimbursement of their products to persons who bill third-party
payers. We continuously strive to comply with these laws and believe that
our arrangements do not violate these laws. Liability may still arise from
the intentions or actions of the parties with whom we do business or from
a different governmental agency interpretation of the laws.

In some foreign markets, such as Spain, France and Germany, government
reimbursement is currently available for purchase or rental of our
products subject, however, to constraints such as price controls or unit
sales limitations. In Australia and in some other foreign markets, there
is currently limited or no reimbursement for devices that treat OSA.

Service and Warranty

We generally offer one-to-two year limited warranties on our flow
generator products. Warranties on mask systems are for 90 days. In most
markets, we rely on our distributors to repair our products with parts
supplied by us. In the United States, home health care dealers generally
arrange shipment of products to our San Diego facility for repair.

We receive returns of our products from the field for various reasons. We
believe that the level of returns experienced to date is consistent with
levels typically experienced by manufacturers of similar devices. We
provide for warranties and returns based on historical data.

11

Competition

The markets for our products are highly competitive. We believe that the
principal competitive factors in all of our markets are product features,
reliability and price. Reputation and efficient distribution are also
important factors.

We compete on a market-by-market basis with various companies, some of
which have greater financial, research, manufacturing and marketing
resources than ourselves. In the United States, our principal market,
Respironics, Inc., DeVilbiss, a division of Sunrise Medical Inc., and
Nellcor Puritan Bennett, a subsidiary of Tyco Inc., are the primary
competitors for our CPAP products. Our principal European competitors are
also Respironics, DeVilbiss, and Nellcor Puritan Bennett, as well as
regional European manufacturers. The disparity between our resources and
those of our competitors may increase as a result of the recent trend
towards consolidation in the health care industry. In addition, our
products compete with surgical procedures and dental appliances designed
to treat OSA and other SDB related respiratory conditions. The development
of new or innovative procedures or devices by others could result in our
products becoming obsolete or noncompetitive, resulting in a material
adverse effect on our business, financial condition and results of
operations.

Any product developed by us that gains regulatory clearance will have to
compete for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which we can develop
products, complete clinical testing and regulatory clearance processes and
supply commercial quantities of the product to the market are expected to
be important competitive factors. In addition, our ability to compete will
continue to be dependent on the extent to which we are successful in
protecting our patents and other intellectual property.

Patents and Proprietary Rights and Related Litigation

Through our subsidiaries ResMed Limited and MAP Medizintechnik fur Arzt
und Patient GmbH, we own or have licensed rights to 51 issued United
States patents (including 13 design patents) and 102 issued foreign
patents. In addition, there are 82 pending United States patent
applications (including 4 design patent applications) and 197 pending
foreign patent applications. Some of these patents and patent applications
relate to significant aspects and features of our products. These include
U.S. patents relating to CPAP devices, delay timer system, the Bubble
Mask, and an automated means of varying air pressure based upon a
patient's changing needs during nightly use, such as that employed in our
AutoSet device.

None of our patents is due to expire in the next five years, with the
exception of five foreign patents due to expire in 2002 and one foreign
patent in each of the years 2004 and 2005. We believe that the expiration
of these patents will not have a material adverse impact on our
competitive position.

We rely on a combination of patents, trade secrets, trade marks and non-
disclosure agreements to protect our proprietary technology and rights.
ResMed Limited is pursuing an infringement action against one of its
competitors and is investigating possible infringement by others. See
Item 3 - "Legal Proceedings".

Additional litigation may be necessary to attempt to enforce patents
issued to us, to protect our rights, or to defend third-party claims of
infringement by us of the proprietary rights of others. Patent laws
regarding the enforceability of patents vary from country to country.
Therefore, there

12

can be no assurance that patent issues will be uniformly resolved, or that
local laws will provide us with consistent rights and benefits.

Government Regulations

Our products are subject to extensive regulation particularly as to
safety, efficacy and adherence to FDA Quality System Regulation, or QSR,
and related manufacturing standards. Medical device products are subject
to rigorous FDA and other governmental agency regulations in the United
States and regulations of relevant foreign agencies abroad. The FDA
regulates the introduction, manufacture, advertising, labeling, packaging,
marketing, distribution, and record keeping for such products, in order to
ensure that medical products distributed in the United States are safe and
effective for their intended use. In addition, the FDA is authorized to
establish special controls to provide reasonable assurance of the safety
and effectiveness of most devices. Non compliance with applicable
requirements can result in import detentions, fines, civil penalties,
injunctions, suspensions or losses of regulatory approvals, recall or
seizure of products, operating restrictions, refusal of the government to
approve product export applications or allow us to enter into supply
contracts, and criminal prosecution.

The FDA requires that a manufacturer introducing a new medical device or a
new indication for use of an existing medical device obtain either a
Section 510(k) premarket notification clearance or a premarket approval,
or PMA, prior to it being introduced into the market. Our products
currently marketed in the United States are marketed in reliance on 510(k)
pre-marketing clearances as either Class I or Class II devices. The
process of obtaining a Section 510(k) clearance generally requires the
submission of performance data and often clinical data, which in some
cases can be extensive, to demonstrate that the device is "substantially
equivalent'' to a device that was on the market prior to 1976 or to a
device that has been found by the FDA to be "substantially equivalent'' to
such a pre-1976 device. As a result, FDA approval requirements may extend
the development process for a considerable length of time. In addition, in
some cases, the FDA may require additional review by an advisory panel,
which can further lengthen the process. The PMA process, which is reserved
for new devices that are not substantially equivalent to any predicate
device and for high risk devices or those that are used to support or
sustain human life, may take several years and requires the submission of
extensive performance and clinical information.

As a medical device manufacturer, all of our domestic and Australian
manufacturing facilities are subject to inspection on a routine basis by
the FDA. We believe that our design, manufacturing and quality control
procedures are in substantial compliance with the FDA's regulatory
requirements. MAP's facilities are not subject to FDA regulation, because
none of MAP's products is currently marketed in the United States.

Sales of medical devices outside the United States are subject to
regulatory requirements that vary widely from country to country. Approval
for sale of our medical devices in Europe is through the CE mark process.
Our products where appropriate, are CE marked to the European Union's
Medical Device Directive. Under the CE marketing scheme, our products are
classified as either Class I or Class II, our devices are listed in the
United States with FDA, in Australia with the Therapeutic Goods
Administration, or TGA, and in Canada with Health Canada.

Employees

As of June 30, 2001, we have 953 employees or full time consultants, of
which 353 persons were employed in warehousing and manufacturing, 129 in
research and development, 276 in sales and

13

marketing and 195 in administration. Of our employees and consultants, 517
were located in Australia, 151 in the United States, 273 in Europe and 12
in Singapore, New Zealand and Malaysia.

We believe that the success of our business will depend, in part, on our
ability to attract and retain qualified personnel. None of our employees
is covered by a collective bargaining agreement. We believe that our
relationship with our employees is good.

Medical Advisory Board

Our Medical Advisory Board, or MAB, consists of physicians and scientists
specializing in the field of sleep disordered breathing. MAB members meet
as a group twice a year with members of our senior management and members
of our research and marketing departments to advise us on technology
trends in SDB and other developments in sleep disorders medicine. MAB
members are also available to consult on an as-needed basis with our
senior management. In alphabetical order, MAB members include:

Claudio Bassetti, Dr. Claudio Bassetti is a Professor in the Faculty of
Medicine, University of Zurich, where he is the Director and Vice-Chairman
of the Neurological Clinic. A member of the American Academy of Neurology
and the American Sleep Disorders Association, Dr. Bassetti is also a
member of the scientific board of the European Sleep Research Society, and
an associate editor of 'Sleep Medicine'. He is on the editorial board of
'Swiss Archives of Neurology and Psychiatry and has produced over 100
publications. Dr. Bassetti is a leader in studying the implications of
sleep disordered breathing on stroke.

Michael Coppola, MD, is a leading pulmonary critical care and sleep
disorders physician in private practice in Massachusetts. He is an
attending physician at Baystate Medical Center and Mercy Hospital in
Springfield, MA and a Fellow of the American College of Chest Physicians.
He is Chairman of the Massachusetts Sleep Breathing Disorders Society. He
is also the Medical Director of Winmar Diagnostics, a sleep disordered
breathing specialty company, and Associate Clinical Professor of Medicine
at Tufts University School of Medicine.

Terence M. Davidson, MD, FACS, is Professor of Surgery in the Division of
Otolaryngology - Head and Neck Surgery at the University of California,
San Diego, School of Medicine. He is Section Chief of Head and Neck
Surgery at the Veterans Administration San Diego Healthcare System and
Associate Dean for Continuing Medical Education at UCSD. He is also
director of the UCSD Head and Neck Surgery Sleep Clinic in La Jolla, CA.

Neil J. Douglas, MD, FRCP, is Professor of Respiratory and Sleep Medicine,
University of Edinburgh, an Honorary Consultant Physician, Royal Infirmary
of Edinburgh and Director of the Scottish National Sleep Laboratory. He is
Dean of the Royal College of Physicians of Edinburgh and Vice Chairman of
the UK Royal Colleges Committee of CME Directors and a member of the
Working Party on Sleep Apnea of the Royal College of Physicians of London.
He is a past Chairman of the British Sleep Society and past Secretary of
the British Thoracic Society. He has published over 200 papers on
breathing during sleep.

Nicholas Hill, MD, is Professor of Medicine at Brown University and
Director of Critical Care Services at Rhode Island Hospital and Pulmonary
Medicine at the Miriam Hospital, both in Providence. He is a Fellow of the
American College of Chest Physicians and a member of the Planning
Committee for the American Thoracic Society.

14

Barry J. Make, MD, is Director, Emphysema Center and Pulmonary
Rehabilitation National Jewish Medical and Research Center, and Professor
of Pulmonary Sciences and Critical Care Medicine of the University of
Colorado School of Medicine. He has served on numerous national and
international committees for respiratory and cardiovascular diseases. His
research and clinical work has resulted in a large number of publications
on mechanisms, treatment and rehabilitation of chronic respiratory
disease.

Colin Sullivan, MD, PhD, FRACP, FAA is Chairman of the MAB and the
inventor of nasal CPAP for treating obstructive sleep apnea. He is
Professor of Medicine and Director of the David Read Research Laboratory
and Director of the Australian Centre for Advanced Medical Technology at
the Sydney University Medical School. He is Head of the Centre for
Respiratory Failure and Sleep Disorders, as well as a thoracic physician
at the Royal Prince Alfred Hospital. He is also Academic head of the
Pediatric Sleep Laboratory, New Children's Hospital, and Sydney
Children's Hospital. Dr. Sullivan is a Fellow of the Royal Australian
College of Physicians, and Fellow of the Australian Academy of Science.

Helmut Teschler, MD, is Associate Professor and Head of the Department of
Respiratory Medicine and Sleep Medicine, Ruhrlandklinik, Medical Faculty,
University of Essen, Germany. He is a Fellow of each of the following
Associations: German Pneumology Society, American Thoracic Society,
European Respiratory Society and American Sleep Disorders Association.

J. Woodrow Weiss, MD, is Associate Professor of Medicine and Co-Chairman
of the Division of Sleep Medicine at Harvard Medical School, as well as
Chief, Pulmonary & Critical Care Medicine, Beth Israel Deaconess Medical
Center, Boston, MA.

B. Tucker Woodson, MD, FACS, is an Associate Professor of Otolaryngology
and Communication Sciences at the Medical College of Wisconsin. He is a
Fellow of the American Academy of Otolaryngology - Head and Neck Surgery
and the American College of Surgeons. Dr. Woodson is the Director of the
Medical College of Wisconsin/Froedert Memorial Lutheran Hospital Center
for Sleep. He is active on multiple committees for the American Academy
of Sleep Medicine and American Academy of Otolaryngology.


Item 2 Properties

Our principal executive offices and U.S. distribution facilities,
consisting of approximately 144,000 square feet, are located in Poway
(North San Diego County), California in a building we own; part of the
building is leased to other companies. Primary manufacturing operations
are situated in Sydney, Australia in a 120,000 square foot facility also
owned by us.

Sales and warehousing facilities are leased in Oxford, England;
Moenchengladbach, Germany; Lyon, France; Trollhaettan, Sweden and
Singapore. Prior to moving our executive offices and distribution
facilities to Poway, California, we leased space for this purpose in San
Diego, California. Our lease on those premises expires in 2005. In August
2000, we began subleasing those premises to another company.

MAP's principal offices are located in Munich Germany in a 45,000 square
foot facility leased by us. MAP's subsidiaries also lease sales and
warehouse facilities in Paris, Lyon and Nantes, France; Lyss,
Switzerland; Villach, Austria and s'Hertogenbosch, The Netherlands.

15

Item 3 Legal Proceedings

We are currently engaged in litigation relating to the enforcement and
defense of certain of our patents.

In January 1995, we filed a complaint in the United States District Court
for the Southern District of California seeking monetary damages from and
injunctive relief against Respironics for alleged infringement of three
of our patents. In February 1995, Respironics filed a complaint in the
United States District Court for the Western District of Pennsylvania
against us seeking a declaratory judgment that Respironics does not
infringe claims of these patents and that our patents are invalid and
unenforceable. The two actions were combined and are proceeding in the
United States District Court for the Western District of Pennsylvania. In
June 1996, we filed an additional complaint against Respironics for
infringement of a fourth ResMed patent, and that complaint was
consolidated with the earlier action. As of this date, Respironics has
brought three partial summary judgment motions for non-infringement of
the ResMed patents; the Court has granted each of the motions. In
December 1999, in response to the Court's ruling on Respironics' third
summary judgment motion, the parties jointly stipulated to a dismissal of
charges of infringement under the fourth ResMed patent, with us reserving
the right to reassert the charges in the event of a favorable ruling on
appeal. It is our intention to appeal the summary judgment rulings after
a final judgment in the consolidated litigation has been entered in the
District Court proceedings.

In January 2001, MAP Medizin-Technologie GmbH filed a lawsuit in the
Civil Chamber of Munich Court against Hofrichter GmbH seeking actual and
exemplary monetary damages for the unauthorized and infringing use of our
trademarks and patents. An initial decision has been made in favor of
MAP. Hofrichter has filed an appeal and have sort Court determination
that the MAP patents do not apply to certain Hofrichter products.

While we are prosecuting the above actions, there can be no assurance
that we will be successful.

On March 31, 2000, we filed a lawsuit in the United States District court
for the Southern District of California against MPV Truma and Tiara
Medical Systems, Inc., seeking actual and exemplary monetary damages and
injunctive relief for the unauthorized and infringing use of our
trademarks, trade dress, and patents related to our Mirage mask. The
parties reached a confidential out of court settlement on April 9, 2001.

In May, 1995, Respironics and its Australian distributor filed a
Statement of Claim against us and Dr. Farrell in the Federal Court of
Australia, alleging that we engaged in unfair trade practices. The
Statement of Claim asserted damage claims for lost profits on sales in
the aggregate amount of approximately $1,000,000. The parties reached a
confidential out of court settlement of this Action on April 16, 2001.


Item 4 Submission of Matters to a Vote of Security Holders

None.

16

PART II

Item 5 Market for Registrant's Common Equity and Related Stockholder Matters

Our Common Stock commenced trading on June 2, 1995 on The NASDAQ
National Market under the symbol "RESM". On September 30, 1999, we
transferred our primary listing to the New York Stock Exchange (NYSE)
under the symbol "RMD". The following table sets forth for the fiscal
periods indicated the high and low closing prices for the Common Stock
as reported by the New York Stock Exchange.



-------------------------------------------------------------------------------------------------------------
2001 2000
High Low High Low
------------------------------------------------

Quarter One, ended September 30, $38.38 $24.63 $17.19 $11.82
Quarter Two, ended December 31, 41.50 25.50 23.13 12.75
Quarter Three, ended March 31, 47.00 36.65 39.62 20.34
Quarter Four, ended June 30, 57.68 37.91 38.06 22.00
-------------------------------------------------------------------------------------------------------------


As of September 7, 2001, there were approximately 13,500 beneficial
holders of our Common Stock. We have not paid any cash dividends on our
common stock since prior to the initial public offering of our common
stock and we do not currently intend to pay cash dividends in the
foreseeable future. Management anticipates that all of our earnings and
other cash resources, if any, will be retained for the operation and
expansion of our business and for general corporate purposes.

Recent Sales of Unregistered Securities

On June 20, 2001, we issued $150.0 million of 4% convertible
subordinated notes due 2006 to initial purchasers including Merrill
Lynch, Pierce Fenner & Smith Incorporated, Deutsche Banc Alex. Brown
Inc., William Blair & Company, LLC, Macquarie Bank, and UBS Warburg LLC.
The discount to the initial purchasers on their purchase of the notes
was $4,650,000. On July 3, 2001, we issued an additional $30.0 million
in notes to the initial purchasers upon exercise of the initial
purchasers' over allotment option, with an additional discount to the
initial purchasers of $930,000. This increased the total amount of
convertible subordinated notes issued to $180.0 million, with a total
discount to the initial purchasers of $5,580,000.

The notes were issued pursuant to an exemption from the registration
requirements of the Securities and Exchange Act of 1933, as amended, or
the Securities Act, set forth under Rule 144A of the Securities Act.
Accordingly, the notes were offered and sold only to "qualified
institutional buyers" as defined in Rule 144A or in offshore
transactions outside the United States that met the requirements of Rule
903 of Regulation S under the Securities Act.

The notes are subject to an indenture between us and American Stock
Transfer & Trust Company, as trustee. The notes are convertible, at the
option of the holder, at any time on or prior to maturity, into shares
of our common stock at a conversion price of $60.60 per share, which is
equal to a conversion rate of 16.5017 shares per $1,000 principal amount
of notes. The conversion price is subject to adjustment. The notes bear
interest at 4% per year, payable semiannually on June 20 and December 20
of each year, beginning December 20, 2001.

We may redeem some or all of the notes at any time before June 20, 2004
at a redemption price of $1,000 per $1,000 principal amount of notes,
plus accrued and unpaid interest, if any, to the redemption date, if (a)
the closing price of our common stock has exceeded 150% of the
conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day before
the date of mailing of the provisional redemption notice and (b) a shelf
registration statement covering resale of the notes and the common stock
issuable upon conversion of the notes is effective and available for use
and expected to remain effective and available for use for the 30 days
following the provisional redemption date. Upon any such provisional
redemption,

17

we will make an additional payment in cash equal to $166.67 per $1,000
principal amount of notes, less the amount of any interest actually paid
on the notes before the provisional redemption date. We may also redeem
some or all of the notes at any time on or after June 22, 2004, but prior
to June 20, 2005, at a redemption price equal to 101.6% of the principal
amount of notes redeemed and at any time after June 19, 2005, at a
redemption price equal to 100.8% of the principal amount of notes
redeemed, plus in any case, accrued and unpaid interest, if any, to the
redemption date, if the closing price of our common stock has exceeded
130% of the conversion price then in effect for at least 20 trading days
within a period of 30 consecutive trading days ending on the trading day
before the date of mailing of the optional redemption notice.

The notes are general unsecured obligations and are subordinated to all
of our existing and future senior indebtedness and will be effectively
subordinated to all of the indebtedness and liabilities of our
subsidiaries. The indenture governing the notes will not limit the
incurrence by us or our subsidiaries of senior indebtedness or other
indebtedness. The notes mature on June 20, 2006.

Item 6 Selected Financial Data

The following table summarizes certain selected consolidated financial
data for, and as of the end of, each of the fiscal years in the five-year
period ended June 30, 2001. The data set forth below should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere in this Report.



Years Ended June 30,
Consolidated Statement of Income Data: 2001 2000 1999 1998 1997
(In thousands, except per share data)
------------------------------------------------------

Net revenues $155,156 $115,615 $88,627 $66,519 $49,180
Cost of sales 50,377 36,991 29,416 23,069 20,287
------------------------------------------------------
Gross profit 104,779 78,624 59,211 43,450 28,893
------------------------------------------------------
Selling, general and administrative
Expenses 49,364 36,987 27,414 21,093 16,759
Provision for restructure 550 - - -
In-process research and development write off 17,677 - - - -
Research and development expenses 11,146 8,499 6,542 4,994 3,807
------------------------------------------------------

Total operating expenses 78,737 45,486 33,956 26,087 20,566
------------------------------------------------------

Income from operations 26,042 33,138 25,255 17,363 8,327
------------------------------------------------------
Other income (expenses):
Interest income (expense), net (762) 801 779 1,011 1,205
Government grants 72 279 833 611 316
Other, net 1,962 (52) (2,290) (2,873) 1,239
------------------------------------------------------

Total other income (expenses) 1,272 1,028 (678) (1,251) 2,760
------------------------------------------------------

Income before income taxes 27,314 34,166 24,577 16,112 11,087
Income taxes 15,684 11,940 8,475 5,501 3,622
------------------------------------------------------

Net income $ 11,630 $ 22,226 $16,102 $10,611 $ 7,465
======================================================

Basic earnings per share $ 0.37 $ 0.74 $ 0.55 $ 0.37 $ 0.26
======================================================

Diluted earnings per share $ 0.35 $ 0.69 $ 0.52 $ 0.35 $ 0.26

Basic shares outstanding 31,129 30,153 29,416 29,000 28,756

Diluted shares outstanding 33,484 32,303 31,068 30,044 29,268


18



-------------------------------------------------
As of June 30,
2001 2000 1999 1998 1997
Consolidated Balance Sheet Data: (In thousands)

Working capital 144,272 $ 47,550 $32,529 $32,759 $34,395
Total assets 288,090 115,594 89,889 64,618 54,895
Long-term debt, less current maturities 150,000 - - - 274
Total stockholders' equity 100,366 93,972 71,647 50,773 44,625
=================================================


Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

Management's discussion and analysis of financial condition and results
of operations should be read in conjunction with selected financial data
and consolidated financial statements and notes, included herein.

We design, manufacture and market equipment for the diagnosis and
treatment of sleep disordered breathing conditions, including
obstructive sleep apnea. Our net revenues are generated from the sale of
our various flow generator devices, nasal mask systems, accessories and
other products, and, to a lesser extent from royalties.

We have invested significant resources in research and development and
product enhancement. Since 1989, we have developed several innovations
to the original CPAP device to increase patient comfort and to improve
ease of product use. We have been developing products for automated
treatment, titration and monitoring of OSA, such as the AutoSet T flow
generator. Our research and development expenses have been subsidized in
part by grants and tax incentives from the Australian federal
government.

On February 16, 2001, we acquired all of the outstanding shares of MAP.
The total transaction was valued at approximately $70 million paid in
cash and the assumption of bank debt. MAP designs, manufactures and
distributes medical devices for the diagnosis and treatment of SDB, with
a particular focus on OSA.

The acquisition has been accounted for as a purchase and accordingly,
the results of operations of MAP have been included in our consolidated
financial statements from February 16, 2001. The excess of the purchase
price over the fair market value of the net identifiable assets acquired
of $47.1 million has been recorded as goodwill and is currently being
amortized on a straight line basis over 20 years.

As a consequence of the MAP acquisition, we incurred non-recurring
acquisition charges of $550,000 for restructuring of MAP's unprofitable
French operations and $17,677,000 for purchased in-process research and
development.

Purchased in-process research and development of $17,677,000 was
expensed upon acquisition of MAP because technological feasibility of
the products under development had not been established and no further
alternative uses existed. The value of in process technology was
calculated by identifying research projects in areas for which
technological feasibility had not been established, estimating the costs
to develop the purchased in process technology into commercially viable
products, estimating the resulting net cash flows from such products,
discounting the net cash flows to present value, and applying the
reduced percentage completion of the projects thereto. The discount
rates used in the analysis were between 27% and 33% and were based on
the risk profile of the acquired assets.

All purchased research and development projects related to medical
equipment for the treatment of sleep disordered breathing, primarily
relating to the development of mask interface systems and

19

autotitrating devices for the treatment of obstructive sleep apnea and
associated disorders. Key assumptions used in the analysis included
gross margins ranging from 70% to 80%. As of the date of acquisition,
the mask interface systems are expected to be completed and commercially
available in 2002 and versions of the autotitrating devices between 2003
and 2005. These projects have estimated costs to complete totalling
approximately $2.0 million.

We believe that the assumptions used to value the acquired intangible
assets were reasonable at the time of acquisition. No assurance can be
given, however, that the underlying assumptions used to estimate
expected project revenues, development costs or profitability, or events
associated with such projects, will transpire as estimated. For these
reasons, among others, actual results may vary from the projected
results.

Our income tax rate is governed by the laws of the regions in which our
income is recognized. To date, a substantial portion of our income has
been subject to income tax in Australia where the statutory rate is 34%.
During fiscal 2001, 2000 and 1999, our effective tax rate has fluctuated
from approximately 34% to approximately 35%. These fluctuations have
resulted from, and future effective tax rates will depend upon, numerous
factors, including the amount of research and development expenditures
for which a 125% Australian tax deduction is available, the level of
non-deductible expenses, and the use of available net operating loss
carryforward deductions and other tax credits or benefits available to
us under applicable tax laws.


Fiscal Year Ended June 30, 2001 Compared to Fiscal Year Ended June 30,
2000

Net revenues. Net revenues increased in fiscal 2001 to $155.2 million
from $115.6 million in fiscal 2000, an increase of $39.5 million or 34%.
This increase was primarily attributable to an increase in unit sales of
our flow generators and accessories in North and Latin America where net
revenues increased to $79.9 million from $62.7 million and in Europe,
where net revenues increased to $60.5 million from $40.5 million. Net
revenues were unfavorably impacted by a decline in European foreign
exchange rates.

Gross profit. Gross profit increased in fiscal 2001 to $104.8 million
from $78.6 million in fiscal 2000, an increase of $26.2 million or 33%.
The increase resulted primarily from increased unit sales during fiscal
2001. Gross profit as a percentage of net revenues was 68%, consistent
with fiscal 2000. Lower flow generator selling prices were offset by a
decline in the Australian dollar, improved manufacturing efficiencies
and increased sales of higher margin mask system units.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased in 2001 to $49.4 million from $37.0
million for 2000, an increase of $12.4 million or 33%. As a percentage
of net revenues, selling, general and administrative expenses were
steady in fiscal 2001, compared to fiscal 2000 at 32%. The gross
increase in expenses was due primarily to an increase to 471 from 281 in
the number of sales and administrative personnel and other expenses
related to the increase in our sales.

Research and development expenses. Research and development expenses
increased in fiscal 2001 to $11.1 million from $8.5 million in fiscal
2000, an increase of $2.6 million or 31%. As a percentage of net
revenues, research and development expenses remained static in fiscal
2001 at 7%. The dollar increase in research and development expenses was
due primarily to an increase in clinical trial costs, personnel and
external consultancy fees.

Other income (expense). Other income (expense) improved in fiscal 2001
to $1.3 million from $1.0 million for fiscal 2000, an increase of $0.3
million. This improvement was due primarily to foreign currency gains
incurred in our foreign currency hedging structures, partially offset by
interest expense associated with the purchase of MAP. Net foreign
currency gains for fiscal 2001 were $2.0 million compared to net foreign
currency losses of $0.2 million in 2000.

20

Income taxes. Our effective income tax rate for fiscal 2001 before MAP
acquisition charges of $0.6 million for restructuring costs and in-
process research and development write off of $17.7 million was 34.4%
down from 34.9% for fiscal 2000. This reduction was primarily due to the
reduction in Australian corporate tax rates from 36% to 34% on July 1,
2000 and to additional research and development expenses in Australia
for which we received a 125% deduction for tax purposes.


Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30,
1999

Net revenues. Net revenues increased in fiscal 2000 to $115.6 million
from $88.6 million in fiscal 1999, an increase of $27 million or 30%.
This increase was primarily attributable to an increase in unit sales of
our flow generators and accessories in the Americas where net revenues
increased to $62.7 million from $51.0 million and, to a lesser extent,
in Europe, where net revenues increased to $40.5 million from $30.2
million. Net revenues were unfavorably impacted by a decline in European
foreign exchange rates and changes in domestic reimbursement regulations
with respect to our SULLIVAN VPAP II ST systems.

Gross profit. Gross profit increased in fiscal 2000 to $78.6 million
from $59.2 million in fiscal 1999, an increase of $19.4 million or 33%.
The increase resulted primarily from increased unit sales during fiscal
2000. Gross profit as a percentage of net revenues increased in fiscal
2000 to 68% from 66.8% in 1999. The increase was due to improved
manufacturing efficiencies, a decline in the Australian Dollar and
increased sales of higher margin mask system units.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased in 2000 to $37.0 million from $27.4
million for 1999, an increase of $9.6 million or 35%. As a percentage of
net revenues, selling, general and administrative expenses increased in
fiscal 2000 to 32% from 31% for fiscal 1999. The gross increase in
expenses was due primarily to an increase to 281 from 212 in the number
of sales and administrative personnel and other expenses related to the
increase in our sales.

Research and development expenses. Research and development expenses
increased in fiscal 2000 to $8.5 million from $6.5 million in fiscal
1999, an increase of $2.0 million or 30%. As a percentage of net
revenues, research and development expenses remained static in fiscal
2000 at 7.4%. The dollar increase in research and development expenses
was due primarily to an increase in research and development equipment,
personnel and external consultancy fees.

Other income (expense). Other income (expense) improved in fiscal 2000
to $1.0 million from a loss of $0.7 million for fiscal 1999, a change of
$1.7 million. This improvement was due primarily to reduced losses
incurred in our foreign currency hedging structures, partially offset by
reduced government grants. Net foreign currency losses for fiscal 2000
were $0.2 million compared to net foreign currency losses of $2.5
million in 1999.

Income taxes. Our effective income tax rate for fiscal 2000 increased to
approximately 34.9% from approximately 34.5% for fiscal 1999. This
increase was primarily due to the high relative taxes incurred in France
and Germany. These higher tax rates were partially offset by additional
research and development expenses in Australia for which we received a
125% deduction for tax purposes.

Liquidity and Capital Resources

As of June 30, 2001 and June 30, 2000, we had cash and cash equivalents
and marketable securities available for sale of approximately $102.8
million and $22.0 million, respectively. Our working capital
approximated $144.3 million and $47.6 million, respectively, at June 30,
2001 and 2000.

21

The increase in working capital balances reflects cash received from our
$150 million subordinated convertible note issuance that occurred on June
20, 2001.

We have financed our operations and capital expenditures through cash
generated from operations and, to a lesser extent, through sales of common
stock and our 4% convertible subordinated notes issued June 20, 2001.
During the fiscal years ended June 30, 2001 and 2000, our operations
generated cash of approximately $29.5 million and $20.3 million,
respectively, primarily as a result of continued increases in net
revenues, offset in part by increases in accounts receivable, inventory
and prepayments. Cash and cash equivalents and marketable securities
available for sale increased to $102.8 million at June 30, 2001 from $22.0
million at June 30, 2000, an increase of $80.8 million. During fiscal
2001 and 2000, approximately $7.9 million and $6.4 million of cash was
received from the issue of common stock upon exercise of common stock
options.

Our investing activities (excluding the purchases and sales of marketable
securities and business acquisitions) for fiscal years 2001 and 2000
aggregated $30.6 million and $20.4 million, respectively. The majority of
the fiscal 2001 investing activities were for the purchase of production
tooling and equipment, office furniture, research and development
equipment and costs associated with the continuing installation of our
Oracle applications computer system. In addition, we paid $17.2 million
associated with the purchase of the new U.S. headquarters in Poway,
California. As a result, our June 30, 2001 balance sheet reflects an
increase in net property, plant and equipment to approximately $55.1
million at June 30, 2001, from $36.6 million at June 30, 2000, an increase
of approximately $18.5 million.

On February 16, 2001, our wholly owned German subsidiary, ResMed
Beteiligungs GmbH, acquired all the common stock of MAP for total
consideration, including acquisition costs, of $55.4 million. We also
assumed approximately $14.5 million of bank debt in connection with the
acquisition.

On June 20, 2001 we issued $150 million of 4% convertible subordinated
notes due 2006; an additional $30 million of these notes were issued on
July 3, 2001 upon exercise of the initial purchasers' over allotment
option. For additional discussion regarding these notes, see "Item 5 -
Market for Registrant's Common Equity and Related Stockholder Matters" and
note 7 to the Consolidated Financial Statements included with this report.

The results of our international operations are affected by changes in
exchange rates between currencies. Changes in exchange rates may
negatively affect our consolidated net revenue and gross profit margins
from international operations. We have a substantial exposure to
fluctuations in the Australian dollar, with respect to our manufacturing
and research activities, which is managed through foreign currency option
contracts.

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

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. We will adopt SFAS 142 effective July 1, 2001. SFAS
142 requires goodwill and intangible assets with indefinite useful lives
to no longer be amortized, but instead be tested for impairment at least
annually.

SFAS 142 provides a six-month transitional period from the effective date
of adoption for us to perform an assessment of whether there is an
indication that goodwill is impaired. To the extent that an indication of
impairment exists, we must perform a second test to measure the amount of
the

22

impairment. The second test must be performed as soon as possible, but no
later than the end of the fiscal year. Any impairment measured as of the
date of adoption will be recognized as the cumulative effect of a change
in accounting principle. Because of the extensive effort needed to
complete this assessment, we have not determined whether there is any
indication that goodwill is impaired or estimated the amount of any
potential impairment.

Effective July 1, 2001, we will also adopt FASB SFAS No. 141, Business
Combinations. SFAS 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. We have
evaluated the impact of SFAS 141 and believe that it will not have a
material impact on our results of operations, financial position or
liquidity.

SFAS No. 133, 'Accounting for Derivative Instruments and Hedging
Activities', SFAS No. 137, 'Accounting for Derivative Instruments and
Hedging Activities' - Deferral of the Effective Date of FASB Statement No.
133 (an amendment of FASB Statement No. 133), and SFAS 138, 'Accounting
for Certain Derivative Instruments and Certain Hedging Activities' (an
amendment of FASB Statement No. 133) were issued by the FASB in June 1998,
June 1999 and June 2000, respectively and were effective for our quarter
ended September 30, 2000. 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 (i.e., 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.

Due to the restrictive definition of hedge effectiveness contained in SFAS
133, our hedging contracts do not have hedge effectiveness and are
therefore marked to market with resulting gains or losses being recognized
in earnings in the period of change. This was consistent with our
previous accounting policy and therefore adoption of SFAS 133 did not have
a material impact on our financial position or results of operation.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin, ("SAB") No. 101 Revenue Recognition in Financial
Statements', which was effective for the first quarter of fiscal 2001.
SAB 101 requires, among other things, that license and other up-front fees
be recognized over the term of the agreement, unless the fees are in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process. This did not have a material
impact on our financial position or results of operation.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of Accounting Principles Board Opinion No. 25. FIN 44 was
generally effective July 1, 2000. The application of FIN 44 did not have
a material impact on our consolidated financial statements.

23

Item 7A Quantitative and Qualitative Disclosures about Market and Business Risks

Foreign Currency Market Risk

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

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

The table below provides information about our foreign currency
derivative financial instruments and presents such information in U.S.
dollar equivalents. The table summarizes information on instruments and
transactions that are sensitive to foreign currency exchange rates,
including foreign currency call options held at June 30, 2001. The table
presents the notional amounts and weighted average exchange rates by
contractual maturity dates for our foreign currency derivative financial
instruments. These notional amounts generally are used to calculate
payments to be exchanged under the options contracts.



------------------------------------------------------------------------------------------------------------------------------------

Fiscal Year Fair Value
--------------------------------------------------------------
2002 2003 Total Assets/ (Liabilities)
(In thousands except exchange rates) As of June 30,
2001 2000
--------------------------------------------------------------

Foreign Exchange Call Options
(Receive AUS$/Pay U.S.$)
Option amount $214,000 - $ 214,000 $ 577 $ 534
Average contractual exchange rate AUS $1 = USD 0.598 AUS $1 = USD 0.598

(Receive AUS$/Pay Euro)
Option amount $ 9,368 $ 384 $ 9,752 $ 20 $ 367
Average contractual exchange rate AUS $1 = Euro 0.659 AUS $1 = Euro 0.667 AUS $1 = Euro 0.6597
------------------------------------------------------------------------------------------------------------------------------------


Interest Rate Risk

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

At June 30, 2001, we maintained a portion of our cash and cash
equivalents in financial instruments with original maturities of three
months or less. We maintain a short-term investment portfolio containing
financial instruments in which the majority have original maturities of
greater than three months but less than twelve months. These financial
instruments, principally comprised of corporate obligations, are subject
to interest rate risk and will decline in value if interest rates
increase. A hypothetical 100 basis point change in interest rates during
the twelve months ended June 30, 2001, would have resulted in
approximately $0.2 million change in pretax income. We do not use
derivative financial instruments in our investment portfolio.

24

Forward-Looking Statements

This report on Form 10-K contains or may contain certain forward-looking
statements and information that are based on the beliefs of our management
as well as estimates and assumptions made by, and information currently
available to our management. The words "believe," "expect," "anticipate,"
"estimate," "plan," "future" and other similar expressions generally
identify forward-looking statements, including, in particular, statements
regarding the development and approval of new products and product
applications, market expansion and pending litigation. These forward-
looking statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. You are cautioned not
to place undue reliance on these forward-looking statements. Such forward-
looking statements reflect the views of our management at the time such
statements are made and are subject to a number of risks, uncertainties,
estimates and assumptions, including, without limitation, and in addition
to those identified in the text surrounding such statements, those
identified below and elsewhere in this report. In addition, important
factors to consider in evaluating such forward-looking statements include
changes or developments in social, economic, market, legal or regulatory
circumstances, changes in our business or growth strategy or an inability
to execute our strategy due to changes in our industry or the economy
generally, the emergence of new or growing competitors, the actions or
omissions of third parties, including suppliers, customers, competitors
and governmental authorities, and various other factors. Should any one or
more of these risks or uncertainties materialize, or the underlying
estimates or assumptions prove incorrect, actual results may vary
significantly from those expressed in such forward-looking statements, and
there can be no assurance that the forward-looking statements contained in
this report will in fact occur.

The risks and uncertainties that may affect our business, financial
condition or results of operations include the following:

Our inability to compete successfully in our markets may harm our
business.

The markets for our SDB products are highly competitive and are
characterized by frequent product improvements and evolving technology.
Our ability to compete successfully depends, in part, on our ability to
develop innovative new products and to be the first to market with those
products. The development of innovative new products by our competitors or
the discovery of alternative treatments or potential cures for the
conditions that our products treat could result in our products becoming
noncompetitive or obsolete.

Additionally, some of our competitors have greater financial, research and
development, manufacturing and marketing resources than we do. The past
several years have seen a trend towards consolidation in the health care
industry and in the markets for our products. Industry consolidation could
result in greater competition if our competitors combine their resources
or if our competitors are acquired by other companies with greater
resources than ours. This competition could increase pressure on us to
reduce the selling prices of our products or could cause us to increase
our spending on research and development and sales and marketing. If we
are unable to develop innovative new products, maintain competitive
pricing, and offer products that consumers perceive to be as reliable as
those of our competitors, our sales or gross margins could decrease which
would harm our business.

25

Our business depends on our ability to market effectively to dealers of
home health care products and sleep clinics.

We market our products primarily to home health care dealers and to sleep
clinics that diagnose OSA and other sleep disorders. We believe that home
health care dealers and sleep clinics play a significant role in
determining which brand of CPAP product a patient will use. For example,
in the United States, when a physician at a sleep clinic prescribes the
use of a CPAP product, the patient typically purchases the product from a
home health care dealer. The physician may or may not prescribe a specific
brand of CPAP product. If a specific brand is prescribed, we believe the
brand prescribed depends upon the brand of CPAP product that is used in
the sleep clinic. If a specific brand is not prescribed, the home health
care dealer may recommend a specific brand. Occasionally, even if the
physician prescribes a specific brand, a home health care dealer may
substitute a competitive CPAP product for the patient. We have limited
resources to market to the more than 2,000 U.S. sleep clinics and the more
than 4,000 home health care dealer branch locations, most of which use,
sell or recommend several brands of CPAP products. In addition, home
health care dealers have experienced price pressures as government and
third-party reimbursement have declined for home care products, and home
health care dealers are requiring price discounts and longer periods of
time to pay for products purchased from us. We cannot assure you that
sleep clinic physicians will continue to prescribe our products, or that
home health care dealers or patients will not substitute competing
products when a prescription specifying our products has been written. The
success of our business depends on our ability to market effectively to
home health care dealers and sleep clinics and to ensure that our products
are properly marketed and sold by these third parties.

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

If we are unable to support our continued growth, our business could
suffer.

We have experienced rapid and substantial growth. As we continue to grow,
the complexity of our operations increases, placing greater demands on our
management. Our ability to manage our growth effectively depends upon our
ability to implement and improve our financial and management information
systems on a timely basis and to effect other changes in our business.
Unexpected difficulties during expansion, the failure to attract and
retain qualified employees, the failure to successfully replace or upgrade
our management information systems, the failure to manage costs or our
inability to respond effectively to growth or plan for future expansion
could cause our growth to stop. If we fail to manage our growth, our
business could suffer.

If we fail to integrate our recent acquisition in Germany with our
operations, our business could suffer.

On February 16, 2001, we acquired all of the outstanding shares of MAP
located near Munich, Germany. We are currently in the process of
integrating our operations with those of MAP. The integration requires
significant efforts from each company. We may find it difficult to
integrate the operations of MAP. MAP personnel may leave MAP because of
the acquisition and MAP licensees, distributors or suppliers may terminate
their arrangements with MAP, or demand amended terms to these
arrangements. Additionally, our management may have their attention
diverted while trying to integrate the two companies. This diversion or
these difficulties in integration could have an adverse impact on us. If
we are not able to successfully integrate the operations of MAP, we may
not realize the anticipated benefits of the MAP acquisition.

26

We manufacture substantially all of our products outside the United States
and sell a significant portion of our products in non-U.S. markets,
subjecting us to various risks relating to international activities that
could adversely affect our overall profitability.

Sales outside North and Latin America accounted for approximately 48%,
46%, and 43% of our net revenues in fiscal years 2001, 2000 and 1999,
respectively. As a result of the MAP acquisition, we expect that sales
within these areas will account for over 50% of our net revenues in the
foreseeable future. Our sales outside of North America and our operations
in Europe, Australia and Asia are subject to several difficulties and
risks that are separate and distinct from those we face in our domestic
operations, including:

. fluctuations in currency exchange rates;

. tariffs and other trade barriers;

. compliance with foreign medical device manufacturing regulations;

. reduction in third party payer reimbursement for our products;

. inability to obtain import licenses;

. changes in trade policies and in domestic and foreign tax policies;

. possible changes in export or import restrictions; and

. the modification or introduction of other governmental policies with
potentially adverse effects.

Fluctuations in foreign currency exchange rates could result in declines
in our reported sales and earnings.

Since our international sales and a significant portion of our
manufacturing costs are denominated in local currencies and not in U.S.
dollars, our reported sales and earnings are subject to fluctuations in
foreign exchange rates. We had foreign currency transaction losses in
recent periods and may have further losses in the future. We expect that
international sales will continue to be a significant portion of our
business and that a significant portion of our manufacturing costs will
continue to be denominated in Australian dollars.

Government and private insurance plans may not reimburse patients for our
products, which could result in reductions in sales or selling prices for
our products.

Our ability to sell our products depends in large part on the extent to
which reimbursement for the cost of our products will be available from
government health administration authorities, private health insurers and
other organizations. These third party payors are increasingly challenging
the prices charged for medical products and services. Therefore, even if a
product is approved for marketing, we cannot assure you that reimbursement
will be allowed for such product or that the reimbursement amount will be
adequate or, if adequate, will not subsequently be reduced. For example,
in some markets, such as Spain, France and Germany, government
reimbursement is currently available for purchase or rental of our
products but is subject to constraints such as price controls or unit
sales limitations. In other markets, such as Australia and the United
Kingdom, there is currently limited or no reimbursement for devices that
treat sleep disordered breathing related respiratory conditions.
Additionally, future legislation or regulation concerning the health care
industry or third party or governmental coverage and reimbursement,
particularly, legislation or regulation limiting consumers' reimbursement
rights may harm our business. As we continue to develop new products,
those products will generally not qualify for reimbursement, if at all,
until they are approved for marketing.

27

In the United States, we sell our products primarily to home health care
dealers and to sleep clinics. We do not file claims and bill governmental
programs and other third party payors directly for reimbursement for our
products. However, we are still subject to laws and regulations relating
to governmental reimbursement programs, particularly Medicaid and
Medicare.

In particular, the federal Anti-Kickback Law prohibits persons from
knowingly and willfully soliciting, receiving, offering or providing
remuneration, directly or indirectly, to induce either the referral of an
individual, or the furnishing, recommending or arranging for a good or
service, for which payment may be made under a federal healthcare program
such as the Medicare and Medicaid programs. The government has interpreted
this law broadly to apply to the marketing and sales activities of
manufacturers and distributors like us. Many states have adopted laws
similar to the federal Anti-Kickback Law. We are also subject to other
federal and state fraud laws applicable to payment from any third party
payer. These laws prohibit persons from knowingly and willfully filing
false claims or executing a scheme to defraud any healthcare benefit
program, including private third party payors. These laws may apply to
manufacturers and distributors who provide information on coverage,
coding, and reimbursement of their products to persons who do bill third
party payors. Any violation of these laws and regulations could result in
civil and criminal penalties, including fines.

Complying with FDA and other regulations is an expensive and time-
consuming process, and any failure to comply could result in substantial
penalties.

We are subject to various federal, state, local and international
regulations regarding the testing, manufacture, distribution, marketing,
promotion, record keeping and reporting of our products. In particular,
our failure to comply with FDA regulations could result in, among other
things, recalls of our products, substantial fines and/or criminal charges
against us and our employees.

Product sales, introductions or modifications may be delayed or canceled
as a result of the FDA or similar foreign regulations, which could cause
our sales to decline.

Before we can market or sell a new medical device in the United States, we
must obtain FDA clearance, which can be a lengthy and time-consuming
process. We generally receive clearance from the FDA to market our
products in the United States under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act or our products are exempt from the 510(k)
clearance process. We have modified some of our 510(k) approved products
without submitting new 510(k) notices, which we do not believe were
required. However, if the FDA disagrees with us and requires us to submit
new 510(k) notifications for modifications to our existing products, we
may be required to stop marketing the products while the FDA reviews the
510(k) notification. Any new product introduction or existing product
modification could be subjected to a lengthier, more rigorous FDA
examination process. For example, in certain cases we may need to conduct
clinical trials of a new product prior to submitting a 510(k) notice.
Additionally, we may be required to obtain premarket approvals for our
products. The requirements of these more rigorous processes could delay
product introductions and increase the costs associated with FDA
compliance. Marketing and sale of our products outside the United States
are also subject to regulatory clearances and approvals, and if we fail to
obtain these regulatory approvals, our sales could suffer. We cannot
assure you that any new products we develop will receive required
regulatory approvals from U.S. or foreign regulatory agencies.

28

Off label marketing of our products could result in substantial penalties.

Clearance under Section 510(k) only permits us to market our products for
the uses indicated on the labeling cleared by the FDA. We may request
additional label indications for our current products, and the FDA may
deny those requests outright, require additional expensive clinical data
to support any additional indications or impose limitations on the
intended use of any cleared products as a condition of clearance. If the
FDA determines that we have marketed our products for off label use, we
could be subject to fines, injunctions or other penalties.

Disruptions in the supply of components from our single source suppliers
could result in a significant reduction in sales and profitability.

We purchase uniquely configured components for our devices from single-
source suppliers. We cannot assure you that a replacement supplier would
be able to configure its components for our devices on a timely basis or,
in the alternative, that we would be able to reconfigure our devices to
integrate the replacement part. A reduction or stoppage in supply while a
replacement supplier reconfigures its components, or while we reconfigure
our components for the replacement part, would limit our ability to
manufacture our devices, which could result in a significant reduction in
sales and profitability. We cannot assure you that our inventories would
be adequate to meet our production needs during any prolonged interruption
of supply.

Our intellectual property may not protect our products, and our products
may infringe on the intellectual property rights of third parties.

We rely on a combination of patents, trade secrets and non-disclosure
agreements to protect our intellectual property. Our success depends, in
part, on our ability to obtain and maintain United States and foreign
patent protection for our products, their uses and our processes to
preserve our trade secrets and to operate without infringing on the
proprietary rights of third parties. We have a number of pending patent
applications, and we do not know whether any patents will issue from any
of these applications. We do not know whether any of the claims in our
issued patents or pending applications will provide us with any
significant protection against competitive products or otherwise be
commercially valuable. Legal standards regarding the validity of patents
and the proper scope of their claims are still evolving, and there is no
consistent law or policy regarding the valid breadth of claims.
Additionally, there may be third party patents, patent applications and
other intellectual property relevant to our products and technology which
are not known to us and that block or compete with our products.

We face the risks that:

. third parties will infringe our intellectual property rights;

. our non-disclosure agreements will be breached;

. we will not have adequate remedies for infringement;

. our trade secrets will become known to or independently developed by
our competitors; or

. any third parties will be issued patents that may prevent the sale of
our products or require us to license and pay fees or royalties in
order for us to be able to market some of our products.

We are currently engaged in litigation relating to the enforcement and
defense of five of our patents. Additional litigation may be necessary to
enforce patents issued to us, to protect our proprietary

29

rights, or to defend third party claims that we have infringed upon
proprietary rights of others. The defense and prosecution of patent
claims, including these pending claims, as well as participation in other
inter-party proceedings, can be expensive and time consuming, even in
those instances in which the outcome is favorable to us. If the outcome of
any litigation or proceeding brought against us were adverse, we could be
subject to significant liabilities to third parties, could be required to
obtain licenses from third parties or could be required to cease sales of
the affected products. Additionally, the laws regarding the enforceability
of patents vary from country to country, and we cannot assure you that any
patent issues we face will be uniformly resolved, or that local laws will
provide us with consistent rights and benefits.

We are subject to product liability claims that may exceed the scope and
amount of our insurance coverage, which would expose us to liability for
uninsured claims.

We are subject to potential product liability claims as a result of the
design, manufacture and marketing of medical devices. Any product
liability claim brought against us, with or without merit, could result in
the increase of our product liability insurance rates. In addition, we
would have to pay any amount awarded by a court in excess of our policy
limits. Our insurance policies have various exclusions, and thus we may be
subject to a product liability claim for which we have no insurance
coverage, in which case, we may have to pay the entire amount of any
award. We cannot assure you that our insurance coverage will be adequate
or that all claims brought against us will be covered by our insurance.
Insurance varies in cost and can be difficult to obtain, and we cannot
assure you that we will be able to obtain insurance in the future on terms
acceptable to us or at all. A successful product liability claim brought
against us in excess of our insurance coverage, if any, may require us to
pay substantial amounts, which could harm our business.

Our business could suffer if we lose the services of key members of our
management.

We are dependent upon the continued services of key members of our senior
management and a limited number of key employees and consultants. The loss
of the services of any one of these individuals could significantly
disrupt our operations. Additionally, our future success will depend,
among other factors, on our ability to continue to hire and retain the
necessary qualified scientific, technical and managerial personnel. We
compete for such personnel with numerous other companies, academic
institutions and organizations.

Our quarterly operating results are subject to fluctuation for a variety
of reasons.

Our operating results have, from time to time, fluctuated on a quarterly
basis and may be subject to similar fluctuations in the future. These
fluctuations may result from a number of factors, including:

. the introduction of new products by us or our competitors;

. the geographic mix of product sales;

. the success of our marketing efforts in new regions;

. changes in third party reimbursement;

. timing of regulatory clearances and approvals;

. timing of orders by distributors;

. expenditures incurred for research and development;

. competitive pricing in different regions;

. seasonality;

. the cost and effect of promotional and marketing programs; and

. the effect of foreign currency transaction gains or losses.

30

We are subject to an ongoing tax audit, the results of which may require
significant tax adjustments.

We are subject to an ongoing audit of our tax returns for the years 1995
through 1998, which began in February 1998. The IRS may disagree with our
tax positions on such returns, and if challenged by the IRS, our tax
positions may not be sustained by the courts. As a result of these audits,
we may be required to make certain tax adjustments and pay additional
taxes and fines that may be significant and have a negative impact on our
result of operations.

If a natural or man made disaster strikes our manufacturing facilities, we
will be unable to manufacture our products for a substantial amount of
time and our sales will decline.

We manufacture a significant portion of our products in our facilities in
Australia. These facilities and the manufacturing equipment we use to
produce our products would be costly to replace and could require
substantial lead time to repair or replace. The facilities may be affected
by natural or man made disasters and in the event it was affected by a
disaster, we would be forced to rely on third party manufacturers.
Although we believe we possess adequate insurance for damage to our
property and the disruption of our business from casualties, such
insurance may not be sufficient to cover all of our potential losses and
may not continue to be available to us on acceptable terms, or at all.

Delaware law, provisions in our charter and our shareholder rights plan
could make the acquisition of our company by another company more
difficult.

Provisions of our certificate of incorporation may have the effect of
delaying or preventing changes in control or management which might be
beneficial to us or our securityholders. In particular, our board of
directors is divided into three classes, serving for staggered three-year
terms. Because of this classification it will require at least two annual
meetings to elect directors constituting a majority of our board of
directors.

Additionally, our board of directors has the authority to issue up to
2,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders. Under our
stockholders rights plan, we have also issued purchase rights to the
holders of our common stock that entitle those holders to purchase our
Series A Junior Participating Preferred Stock at a discount, under certain
circumstances. The rights of the holders of our common stock will be
subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control, may discourage bids for our common stock at a premium
over the market price of our common stock and may adversely affect the
market price of our common stock and the voting and other rights of the
holders of our common stock.

You may not be able to enforce the judgments of U.S. courts against some
of our assets or officers and directors.

A substantial portion of our assets are located outside the United States.
Additionally, two of our six directors and three of our eight officers
reside outside the United States, along with all or a substantial portion
of the assets of these persons. As a result, it may not be possible for
investors to enforce judgments of U.S. courts relating to any liabilities
under U.S. securities laws against our assets, those persons or their
assets. In addition, we have been advised by our Australian counsel

31

that some doubt exists as to the ability of investors to pursue claims
based on U.S. securities laws against these assets or these persons in
Australian courts.

The information contained in this section is not intended to be an
exhaustive description of the risks and uncertainties inherent in our
business or in our strategic plans. Please see Item 1 "Business" and
Item 3 "Legal Proceedings".

Item 8 Consolidated Financial Statements and Supplementary Data

a) Index to Consolidated Financial Statements



Page

Independent Auditors' Report F1
Consolidated Balance Sheets as of June 30, 2001 and 2000 F2
Consolidated Statements of Income for the years ended June 30, 2001, 2000 and 1999 F3
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2001, 2000 and 1999 F4
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999 F5
Notes to Consolidated Financial Statements F6
Schedule II - Valuation and Qualifying Accounts and Reserves 30


b) Supplementary Data

Quarterly Financial Information (unaudited)

The quarterly results for the years ended June 30, 2001 and 2000 are
summarized below (in thousands, except per share amounts):



2001
------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
------------------------------------------------

Net revenues $31,082 $34,366 $ 42,680 $47,028 $155,156
Gross profit 21,087 23,021 28,923 31,748 104,779
Net income (loss) 6,580 6,898 (10,194) 8,346 11,630

Basic earnings per share $ 0.21 $ 0.22 ($0.33) $ 0.27 $ 0.37
Diluted earnings per share $ 0.20 $ 0.21 ($0.30) $ 0.25 $ 0.35

2000
------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
------------------------------------------------

Net revenues $25,945 $28,135 $29,971 $31,564 $115,615
Gross profit 17,721 19,531 19,819 21,553 78,624
Net income 4,835 5,362 5,838 6,191 22,226

Basic earnings per share $ 0.16 $ 0.18 $ 0.19 $ 0.20 $ 0.74
Diluted earnings per share $ 0.15 $ 0.17 $ 0.18 $ 0.19 $ 0.69


/(1)/ Per share amounts for each quarter are computed independently,
and, due to the computation formula, the sum of the four
quarters may not equal the year.


Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

32

PART III

Item 10 Directors and Executive Officers of the Registrant

Incorporated by reference to our definitive Proxy Statement for our
November 5, 2001, meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2001.


Item 11 Executive Compensation

Incorporated by reference to our definitive Proxy Statement for our
November 5, 2001, meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2001.


Item 12 Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference to our definitive Proxy Statement for our
November 5, 2001, meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2001.


Item 13 Certain Relationships and Related Transactions

No material transactions.

33

PART IV

Item 14 Exhibits, Consolidated Financial Statements, Schedule, and Reports on
Form 8-K

a) The following documents are filed as part of this report:
1. Consolidated Financial Statements and Schedule

The consolidated financial statements and schedule of the
Company and its consolidated subsidiaries are set forth in the
"Index to Consolidated Financial Statements" under Item 8 of
this report.
2. Exhibits
2.1 Sale and Assignment Agreement, dated as of February 16,
2001 between ResMed Inc, ResMed Beteiligungs GmbH and the
shareholders of MAP Medizin-Technologie GmbH*
3.1 Certificate of Incorporation of Registrant, as amended**
3.2 By-laws of Registrant**
4.1 Form of certificate evidencing shares of Common Stock**
4.2 Rights agreement dated as of April 23, 1997***
4.3 Indenture dated as of June 20, 2001, between ResMed Inc
and American Stock Transfer & Trust Company

4.4 Registration Rights Agreement dated as of June 20, 2001,
by and between ResMed Inc, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Banc
Alex Brown Inc., William Blair & Company, L.L.C.,
Macquarie Bank Limited and UBS Warburg LLC

10.1 1995 Stock Option Plan**
10.2 1997 Equity Participation Plan****
10.3 Licensing Agreement between the University of Sydney and
ResMed Limited dated May 17, 1991, as amended**
10.4 Consulting Agreement between Colin Sullivan and ResMed
Limited effective from 1 January 1998*****
10.5 Loan Agreement between the Australian Trade Commission and
ResMed Limited dated May 3, 1994**
10.6 Lease for 10121 Carroll Canyon Road, San Diego CA 92131-
1109, USA*****
11.1 Computation of Earnings per Common Share
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent and Report on Schedule
--------------------
* Incorporated by reference to the Registrant's Report on Form 8-K
dated March 2, 2001
** Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (No. 33-91094) declared effective on June
1, 1995.
*** Incorporated by reference to the Registrant's Registration
Statement on Form 8-A12G filed on April 25, 1997.
**** Incorporated by reference to the Registrant's 1997 Proxy
Statement (File No. 0-26038).
***** Incorporated by reference to the Registrant's Report on Form
10-K dated June 30, 1998 (File No. 0-26038)

34

b) Reports on Form 8-K

On May 1, 2001 we filed a report on Form 8-K/A reporting Pro Forma
Condensed Consolidated Financial Information associated with the
acquisition, on February 16, 2001, of MAP Medizin-Technologie GmbH.

On June 12, 2001 we filed a report on Form 8-K that announced our
proposed private placement of $150 million of convertible subordinated
notes and included a press release issued by us on June 11, 2001 to
that same effect.

On June 15, 2001, we filed a report on Form 8-K that announced we had
entered into a purchase agreement providing for the sale to certain
initial purchasers of $150 million of convertible subordinated notes
(plus an additional $30 million to cover over allotments, if any). The
report included a press release issued by us on June 14, 2001 to that
effect. The report also announced the specific pricing for the sale of
the convertible subordinated notes and included a press release dated
June 15, 2001, to that effect.

35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

DATED September 20, 2001

ResMed Inc


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



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



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



SIGNATURE TITLE DATE


/S/ PETER C. FARRELL Chief Executive Officer, September 20, 2001
---------------------------------------------
Peter C. Farrell President, Chairman of the Board
(Principal Executive Officer)

/S/ CHRISTOPHER G. ROBERTS Director September 20, 2001
---------------------------------------------
Christopher G. Roberts

/S/ MICHAEL A. QUINN Director September 20, 2001
---------------------------------------------
Michael A. Quinn

/S/ GARY W. PACE Director September 20, 2001
---------------------------------------------
Gary W. Pace

/S/ DONAGH MCCARTHY Director September 20, 2001
---------------------------------------------
Donagh McCarthy

/S/ CHRISTOPHER BARTLETT Director September 20, 2001
---------------------------------------------
Christopher Bartlett


Independent Auditors' Report


The Board of Directors and Stockholders
ResMed Inc:


We have audited the accompanying consolidated balance sheets of ResMed Inc and
subsidiaries as of June 30, 2001, and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ResMed Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2001, in conformity with accounting principles generally accepted in the
United States of America.



/s/ KPMG LLP

KPMG LLP
San Diego, California
August 3, 2001

F-1

ResMed Inc And Subsidiaries
Consolidated Balance Sheets
June 30, 2001 and 2000
(In thousands, except share and per share data)



June 30, June 30,
2001 2000
-------------------------------------

Assets
Current assets:

Cash and cash equivalents $ 40,136 $ 18,250
Marketable securities available for sale (note 3) 62,616 3,713
Accounts receivable, net of allowance for doubtful accounts
of $892 and $833 at June 30, 2001 and 2000, respectively 32,248 24,688
Inventories, net (note 4) 29,994 15,802
Deferred income taxes (note 10) 4,152 2,361
Prepaid expenses and other current assets 8,736 4,358
-------------------------------------
Total current assets 177,882 69,172
-------------------------------------

Property, plant and equipment, net of accumulated depreciation of
$19,930 at June 30, 2001 and $13,552 at June 30, 2000 (note 5) 55,092 36,576
Patents, net of accumulated amortization of $1,030 and $789
at June 30, 2001 and 2000, respectively 1,390 1,342
Goodwill, net of accumulated amortization of $3,193 and $2,003 at
June 30, 2001 and 2000, respectively 47,870 5,626
Other assets 5,856 2,878
-------------------------------------
Total assets $288,090 $115,594
=====================================

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,971 $ 5,929
Accrued expenses (note 6) 16,751 9,224
Income taxes payable 8,888 6,469
-------------------------------------
Total current liabilities 33,610 21,622

Non current liabilities:
Deferred revenue 4,114 -
Convertible subordinated notes (note 7) 150,000 -
-------------------------------------
Total non current liabilities 154,114 -

-------------------------------------
Total liabilities 187,724 21,622
-------------------------------------

Stockholders' equity: (note 8)
Preferred stock, $.01 par value,
2,000,000 shares authorized; none issued - -
Series A Junior Participating preferred stock, $0.01 par value,
250,000 shares authorized; none issued - -
Common stock, $.004 par value, 50,000,000 shares authorized;
Issued and outstanding 31,478,780 at June 30, 2001 and
30,593,921 at June 30, 2000 126 122
Additional paid-in capital 52,675 41,495
Retained earnings 77,137 65,507
Accumulated other comprehensive loss (29,572) (13,152)
-------------------------------------
Total stockholders' equity 100,366 93,972
-------------------------------------

Commitments and contingencies (notes 13 and 16) - -

Total liabilities and stockholders' equity $288,090 $115,594
=====================================


See accompanying notes to consolidated financial statements.

F-2

ResMed Inc and Subsidiaries
Consolidated Statements of Income
Years ended June 30, 2001, 2000 and 1999
(In thousands, except per share data)



June 30, June 30, June 30,
2001 2000 1999
--------------------------------------------------------

Net revenues $155,156 $115,615 $88,627
Cost of sales 50,377 36,991 29,416
--------------------------------------------------------
Gross profit 104,779 78,624 59,211
--------------------------------------------------------

Operating expenses:
Selling, general and administrative 49,364 36,987 27,414
Provision for restructure (note 6) 550 - -
In-process research and development write off (note 14) 17,677 - -
Research and development 11,146 8,499 6,542
--------------------------------------------------------
Total operating expenses 78,737 45,486 33,956
--------------------------------------------------------

Income from operations 26,042 33,138 25,255
--------------------------------------------------------

Other income (expenses):
Interest income (expense), net (762) 801 779
Government grants 72 279 833
Other, net (note 9) 1,962 (52) (2,290)
--------------------------------------------------------
Total other income (expenses), net 1,272 1,028 (678)
--------------------------------------------------------

Income before income taxes 27,314 34,166 24,577
Income taxes (note 10) 15,684 11,940 8,475
--------------------------------------------------------

Net income $ 11,630 $ 22,226 $16,102
========================================================

Basic earnings per share $0.37 $0.74 $0.55
Diluted earnings per share $0.35 $0.69 $0.52

Basic shares outstanding 31,129 30,153 29,416
Diluted shares outstanding 33,484 32,303 31,068


See accompanying notes to consolidated financial statements.

F-3

ResMed Inc And Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended June 30, 2001, 2000 and 1999
(In thousands)



Accumulated
Additional other
Common stock paid-in Retained comprehensive Comprehensive
Shares Amount capital Earnings income (loss) Total Income
--------------------------------------------------------------------------------

Balance, June 30, 1998 29,104 $117 $31,165 $27,179 $ (7,688) $ 50,773

Common stock issued on exercise of options (note 8) 512 1 2,124 - - 2,125
Tax benefit from exercise of options - - 388 - - 388
Comprehensive income:
Net income - - - 16,102 - 16,102 $ 16,102
Other comprehensive income
Foreign currency translation adjustments 2,259 2,259 2,259
---------------
Comprehensive income $ 18,361
===============
--------------------------------------------------------------------------------

Balance, June 30, 1999 29,616 118 33,677 43,281 (5,429) 71,647

Common stock issued to consultants 10 - 126 - - 126
Common stock issued on exercise of options (note 8) 968 4 6,376 - - 6,380
Tax benefit from exercise of options - - 1,316 - - 1,316
Comprehensive income:
Net income - - - 22,226 - 22,226 $ 22,226
Other comprehensive income
Foreign currency translation adjustments (7,723) (7,723) (7,723)
---------------
Comprehensive income $ 14,503
===============
--------------------------------------------------------------------------------

Balance, June 30, 2000 30,594 $122 41,495 65,507 (13,152) 93,972

Common stock issued on exercise of options (note 8) 885 4 7,939 - - 7,943
Tax benefit from exercise of options - - 3,241 - - 3,241
Comprehensive income:
Net income - - - 11,630 - 11,630 $ 11,630
Other comprehensive income
Foreign currency translation adjustments - - - - (16,420) (16,420) (16,420)
---------------
Comprehensive income/(loss) $ (4,790)
===============

Balance, June 30, 2001 31,479 $126 $52,675 $77,137 $(29,572) $100,366
==============================================================


See accompanying notes to consolidated financial statements.

F-4

ResMed Inc And Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30, 2001, 2000 and 1999
(In thousands)



June 30, June 30, June 30,
2001 2000 1999
---------------------------------------------------------

Cash flows from operating activities:
Net income $ 11,630 $ 22,226 $ 16,102
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,015 6,248 3,973
Goodwill amortization 1,430 690 633
Provision for service warranties 174 184 240
Deferred income taxes (2,306) 77 549
Foreign currency options revaluation 2,766 2,158 125
Non cash consulting expenses - 126 -
Restructuring provision 550 - -
Purchased in-process research and development write off 17,677 - -
Changes in operating assets and liabilities, net of effect
of acquisitions:
Accounts receivable, net (5,531) (7,394) (5,516)
Inventories (8,130) (6,027) (2,919)
Prepaid expenses and other current assets (3,470) (1,572) (204)
Accounts payable and accrued expenses 2,633 1,412 2,873
Income taxes payable 5,082 2,147 2,332
---------------------------------------------------------
Net cash provided by operating activities 29,520 20,275 18,188
---------------------------------------------------------

Cash flows from investing activities:
Purchases of property, plant and equipment (27,459) (16,168) (20,515)
Purchase of marketable securities - available for sale (79,879) (36,804) (7,290)
Proceeds from sale of marketable securities - available for sale 20,976 38,717 6,862
Patent registration costs (516) (961) (445)
Business acquisitions, net of cash acquired of $367 (note 14) (55,070) (576) (2,024)
Purchases of investments (2,602) (2,732) (1,529)
---------------------------------------------------------
Net cash used in investing activities (144,550) (18,524) (24,941)
---------------------------------------------------------

Cash flows from financing activities:
Proceeds from issuance of common stock, net 7,943 6,380 2,125
Repayment of borrowings (82,854) - (235)
Proceeds from borrowings, net of borrowing costs 213,937 - -
---------------------------------------------------------
Net cash provided by financing activities 139,026 6,380 1,890
---------------------------------------------------------
Effect of exchange rate changes on cash (2,110) (989) 445
---------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 21,886 7,142 (4,418)
Cash and cash equivalents at beginning of the year 18,250 11,108 15,526
---------------------------------------------------------
Cash and cash equivalents at end of the year $ 40,136 $ 18,250 $ 11,108
=========================================================
Supplemental disclosure of cash flow information:
Income taxes paid $ 12,908 $ 9,716 $ 5,374
Interest paid 1,439 - -
=========================================================
Fair value of assets acquired in acquisition $ 33,139 $ 383 -
Liabilities assumed (24,821) (36) -
Goodwill on acquisition 47,119 229 2,024
---------------------------------------------------------
Cash paid for acquisition $ 55,437 $ 576 $ 2,024
=========================================================


See accompanying notes to consolidated financial statements.

F-5

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000


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. The Company designs, manufactures and markets devices for the
evaluation and treatment of sleep disordered breathing, primarily
obstructive sleep apnea. The Company's corporate offices are based in San
Diego, California with its principal manufacturing operation located in
Australia. Other major distribution and sales sites are located in the
United States, United Kingdom, France, Germany, Sweden and Singapore.


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 on
consolidation.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could
differ from management's estimates.

(b) Revenue Recognition

Revenue on product sales is 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
capitalized and progressively recognized as revenue over the life of
the service contract. Revenue from sale of marketing or distribution
rights is initially capitalized and progressively recognized as
revenue over the life of the contract.

(c) Cash and Cash Equivalents

Cash equivalents including certificates of deposit, commercial paper
and other highly liquid investments are 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 or market, determined
principally by the first-in, first-out method.

(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. Straight-line
and accelerated methods of depreciation are used for tax purposes.
Maintenance and repairs are charged to expense as incurred.

F-6

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

2. Summary of Significant Accounting Policies (continued)

(f) Patents

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

(g) Goodwill

Goodwill arising from business acquisitions has been amortized on a
straight-line basis over periods ranging from three to 20 years. The
Company carries goodwill at cost net of accumulated 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.

Amortization expense of goodwill was $1,430,000, $690,000 and $633,000
for the years ended June 30, 2001, 2000 and 1999, respectively.

(h) Government Grants

Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to
support the 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 $72,000,
$279,000 and $833,000 for the years ended June 30, 2001, 2000 and
1999, 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
year end exchange rates, and revenue and expense transactions are
translated at average exchange rates for the year. Cumulative
translation adjustments are recognized as part of comprehensive
income, as described in Note 15, and are included in accumulated other
comprehensive loss in the consolidated balance sheet until such time
as the subsidiary is sold or substantially or completely liquidated.
Gains and losses on transactions, denominated in other than the
functional currency of the entity, are reflected in operations.

(j) Research and Development

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

F-7

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

2. Summary of Significant Accounting Policies (continued)

(k) Earnings Per Share

The weighted average shares used to calculate basic earnings per share
were 31,129,000, 30,153,000, and 29,416,000 for the years ended June
30, 2001, 2000 and 1999, 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
2,355,000, 2,150,000 and 1,652,000 for the years ended June 30, 2001,
2000 and 1999, respectively.

(l) Financial Instruments

The carrying value of financial instruments, such as of cash and cash
equivalents, marketable securities - available for sale, accounts
receivable, government grants receivable and accounts payable
approximate their fair value because of their short term nature. The
estimated fair value of the Company's long-term debt at June 30, 2001
approximates $147.9 million compared with the carrying value of $150.0
million. Foreign currency option contracts are marked to market and
therefore reflect 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, principally denominated in Australian
dollars and Euros. The terms of such foreign currency option contracts
generally do not exceed three years.

Unrealized gains or losses are recognized as incurred in the
consolidated balance sheets 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. The credit
exposure of foreign exchange options at June 30, 2001 was $597,000,
which represents the positive fair value of options held by the
Company.

The Company held foreign currency option contracts with notional
amounts totalling $223,752,000 and $171,530,000 at June 30, 2001 and
2000, respectively to hedge foreign currency items. These contracts
mature at various dates prior to July 2002.

F-8

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

2. Summary of Significant Accounting Policies (continued)

(n) Income Taxes

The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.

(o) Marketable Securities

Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase and
re-evaluates such determination at each balance sheet date. Debt
securities for which the Company does not have the intent or ability
to hold to maturity are classified as available for sale. Securities
available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in accumulated other
comprehensive income (loss).

At June 30, 2001 and 2000, the Company's investments in debt
securities were classified on the accompanying consolidated balance
sheet as marketable securities available for sale. These investments
are diversified among high credit quality securities in accordance
with the Company's investment policy.

The amortized cost of debt securities classified as available-for-sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest
income. Realized gains and losses are included in other income or
expense. The cost of securities sold is based on the specific
identification method.

(p) Warranty

Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related
revenue is recognized.

(q) 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.

F-9

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

3. Marketable Securities

The estimated fair value of marketable securities available for sale as of
June 30, 2001 and 2000, was $62,616,000 and $3,713,000, respectively. The
estimated fair value of each investment approximates the amortized cost,
and therefore, there are no unrealized gains or losses as of June 30, 2001
or 2000.

Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.

4. Inventories

Inventories net, were comprised of the following as of June 30, 2001 and
2000 (in thousands):


2001 2000
---------------------------

Raw materials $ 7,584 $ 4,826
Work in progress 98 297
Finished goods 22,312 10,679
---------------------------
$29,994 $15,802
===========================

5. Property, Plant and Equipment

Property, plant and equipment is comprised of the following as of June 30,
2001 and 2000 (in thousands):

2001 2000
---------------------
Machinery and equipment $ 10,930 $ 8,024
Computer equipment 12,829 9,685
Furniture and fixtures 8,667 5,214
Vehicles 1,219 1,214
Clinical, demonstration and rental equipment 8,194 7,844
Leasehold improvements 663 552
Land 5,333 3,113
Buildings 27,187 9,837
Construction in Process - 4,645
---------------------
75,022 50,128
Accumulated depreciation and amortization (19,930) (13,552)
---------------------
$ 55,092 $ 36,576
=====================

F-10

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

6. Accrued Expenses

Accrued expenses at June 30, 2001 and 2000 consist of the following (in
thousands):

2001 2000
---------------------------
Service warranties $ 739 $ 601
Consulting and professional fees 809 324
Royalties 290 240
Value added taxes due 6,033 2,520
Employee related costs 4,687 3,087
Deferred revenue 1,388 1,341
Clinical research 75 178
Provision for restructure(a) 375 -
Promotional programs 1,198 -
Other 1,157 933
---------------------------
$16,751 $9,224
===========================

(a) Subsequent to the purchase of MAP Medizin-Technologie GmbH, the Company
has begun limited restructuring of MAP's activities and for the year ended
June 30, 2001, has taken a charge of $550,000 associated with the sale and
closure of MAP's unprofitable French operation. At June 30, 2001, the
provision for restructure was $375,000 representing amounts to be paid on
termination of employees and leases.

7. Long-Term Debt

Long-term debt at June 30, 2001 and 2000 consist of the following (in
thousands):

2001 2000
-----------------------------

4% Convertible subordinate notes due 2006 $150,000 $ -
=============================

On June 20, 2001 the Company issued $150.0 million of 4% convertible
subordinated notes that are due to mature on June 20, 2006. On July 3,
2001, the Company received an additional $30.0 million in over allotments.
This increased the total amount of convertible subordinated notes issued to
$180.0 million.

The notes are convertible, at the option of the holder, at any time on or
prior to maturity, into shares of common stock of ResMed Inc. The notes are
convertible at a conversion price of $60.60 per share, which is equal to a
conversion rate of 16.5017 shares per $1,000 principal amount of notes,
subject to adjustment.

Interest is to be paid on the notes on June 20 and December 20 of each year,
beginning December 20, 2001.

The Company may redeem some or all of the notes at any time before June 20,
2004 at a redemption price of $1,000 per $1,000 principal amount of notes,
plus accrued and unpaid interest, if any, to the redemption date, if the
closing price of our common stock has exceeded 150% of the conversion price
then in effect for at least 20 trading days within a period of 30
consecutive trading days ending on the trading day before the date of
mailing of the provisional redemption notice. Upon any such provisional
redemption, the Company will make an additional payment in cash equal to
$166.67 per $1,000 principal amount of notes, less the amount of any
interest actually paid on the notes before the provisional redemption date.


F-11

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

7. Long-Term Debt (continued)

The Company may also redeem some or all of the notes at any time on or after
June 22, 2004, but prior to June 20, 2005, at a redemption price equal to
101.6% of the principal amount of notes redeemed, and at any time after June
19, 2005, at a redemption price of 100.8% of the principal amount of notes,
plus in any case accrued and unpaid interest, if any, to the redemption
date, if the closing price of the Company's common stock has exceeded 130%
of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day before the
date of mailing of the optional redemption notice.

The notes are general unsecured obligations and are subordinated to all of
the Company's existing and future senior indebtedness and will be
effectively subordinated to all of the indebtedness and liabilities of the
Company's subsidiaries. The indenture governing the notes will not limit
the Company or its subsidiaries from incurring senior indebtedness or other
indebtedness.

8. Stockholders' Equity

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

In August 1997 as part of the introduction of the 1997 Equity Participation
Plan, the Company cancelled 43,880 options, being all non-issued options
remaining under the 1995 Option Plan.

The following table summarizes option activity:



---------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
2001 Price 2000 Price 1999 Price
---------------------------------------------------------------------

Outstanding at beginning of year 3,298,022 $10.12 3,142,272 $ 7.32 $ 2,403,160 $ 4.57

Granted 1,569,690 27.27 1,336,900 14.14 1,265,000 11.31
Exercised (884,859) 8.98 (967,985) 6.59 (512,688) 4.15
Forfeited (130,035) 17.78 (213,165) 10.04 (13,200) 11.32
---------------------------------------------------------------------
Outstanding at end of year 3,852,818 $17.14 3,298,022 $10.12 3,142,272 $ 7.32
---------------------------------------------------------------------
Price range of granted options $ 24-$40 $ 13-$27 $ 10-$12

Options exercisable at end of year 1,240,427 $ 8.02 1,368,286 $ 6.92 1,254,126 $ 4.00
---------------------------------------------------------------------


F-12

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

8. Stockholders' Equity (continued)

The total number of shares of Common Stock authorized for issuance upon
exercise of options and other awards, or upon vesting of restricted or
deferred stock awards, under the 1997 Plan was initially established at
1,000,000 and increases at the beginning of each fiscal year, commencing on
July 1, 1998, by an amount equal to 4% of the outstanding Common Stock on
the last day of the preceding fiscal year. The maximum number of shares of
Common Stock issuable upon exercise of incentive stock options granted under
the 1997 Plan, however, cannot exceed 8,000,000. Furthermore, the maximum
number of shares which may be subject to options, rights or other awards
granted under the 1997 Plan to any individual in any calendar year cannot
exceed 300,000.

The following table summarizes information about stock options outstanding
at June 30, 2001.



Weighted Average
Exercise Prices Number Outstanding at Remaining Number Exercisable at
June 30, 2001 Contractual Life June 30, 2001
----------------------------------------------------------------------------------------------------------------------------------

$ 0 - $10 735,578 5.35 732,244
$11 - $20 1,577,049 7.64 489,510
$21 - $30 1,178,901 9.42 18,673
$31 - $40 347,290 9.75 -
$41 - $50 14,000 9.58 -
----------------------------------------------------------------------------------------------------------------------------------
3,852,818 7.96 1,240,427
----------------------------------------------------------------------------------------------------------------------------------


The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:


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


Net income (in thousands):

As reported $11,630 $22,226 $16,102
Pro forma 2,859 17,511 12,951

Basic earnings per common share:
As reported $ 0.37 $ 0.74 $ 0.55
Pro forma $ 0.09 $ 0.58 $ 0.44

Diluted income per common and common equivalent share:
As reported $ 0.35 $ 0.69 $ 0.52
Pro forma $ 0.09 $ 0.54 $ 0.42
-------------------------------------------------------------------------------------------------------------------------------


The fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rates of 5.75% for fiscal 2001, and 6.5%
and 5.8% for fiscal 2000 and 1999, respectively; no dividend yield; expected
lives of four years; and volatility of 61% for 2001 and 2000 and 55% for
1999.

F-13

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

8. Stockholders' Equity (continued)

Preferred Stock - In April 1997, the board of directors authorized 2,000,000
---------------
shares of $0.01 par value preferred stock. No such shares were issued or
outstanding at June 30, 2001.

Stock Purchase Rights - In April 1997, the Company implemented a plan to
---------------------
protect stockholders' rights in the event of a proposed takeover of the
Company. Under the plan, each share of the Company's outstanding common
stock carries one right to purchase Series A Junior Participating Preferred
Stock (the "Right"). The Right enables the holder, under certain
circumstances, to purchase common stock of the Company or of the acquiring
person at a substantially discounted price ten days after a person or group
publicly announces it has acquired or has tendered an offer for 20% or more
of the Company's outstanding common stock. The Rights are redeemable at
$0.01 per Right and expire in 2007.

Common Stock - During fiscal 2000, the Board of Directors declared a two-
------------
for-one split of the Company's common stock, effective March 31, 2000.
Stockholders' equity has been restated for all periods presented to give
retroactive recognition to the stock split by reclassifying from additional
paid-in capital to common stock, the par value of the additional shares as a
result of the stock split.

9. Other, net

Other, net is comprised of the following at June 30, 2001, 2000 and 1999 (in
thousands):


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

License fees $ 125 $ 167 $ 58
Gain/(loss) on foreign currency hedging position (2,766) (1,863) 435
Gain/(loss) on foreign currency transactions 4,747 1,681 (2,888)
Write back of investment - - 300
Other (144) (37) (195)
-------------------------------------------------------
$ 1,962 $ (52) $(2,290)
=======================================================


In March 1998, the Company granted to a third party licenses to three of the
Company's patents for a non-refundable payment of $1,250,000. The license
agreement will allow the third party to manufacture and distribute certain
products featuring the Company's patented technology in the U.S. homecare
market. Additionally, the Company will earn royalties on products
manufactured.

10. Income Taxes

Income before income taxes for the years ended June 30, 2001, 2000, and
1999, was taxed under the following jurisdictions (in thousands):



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

U.S. $ 3,482 $ 4,644 $ 4,043
Non-U.S. 23,832 29,522 20,534
---------------------------------------------------
$27,314 $34,166 $24,577
===================================================


F-14

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

10. Income Taxes (continued)

The provision for income taxes is presented below (in thousands):




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

Current:
Federal $ 2,938 $ 1,396 $ 772
State 203 77 174
Non-U.S. 14,790 10,390 6,980
------------------------------------------------
17,931 11,863 7,926
------------------------------------------------
Deferred:
Federal (652) 390 360
State 90 14 (12)
Non-U.S. (1,685) (327) 201
------------------------------------------------
(2,247) 77 549
------------------------------------------------
Provision for income taxes $15,684 $11,940 $8,475
================================================


The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. federal income tax rate of 34% to
pretax income as a result of the following (in thousands):



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

Computed 'expected' tax expense $ 9,287 $11,616 $8,356
Increase (decrease) in income taxes
Resulting from:
Non-deductible expenses 460 715 302
Research and development credit (781) (430) (250)
Tax effect of intercompany dividends (3,885) (508) 13
Utilization of net operating loss carryforwards (5) (4) -
Change in valuation allowance 4,431 22 71
Effect of non-U.S. tax rates 4 714 455
State income taxes 356 235 131
In-process research and development write-off 6,010 - -
Provision for restructure 187 - -
Other (380) (420) (603)
------------------------------------------------
$15,684 $11,940 $8,475
================================================


The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
comprised of the following at June 30, 2001 and 2000 (in thousands):



------------------------------
2001 2000
------------------------------

Deferred tax assets:
Employee benefit obligations $ 573 $ 534
Provision for service warranties 203 203
Provision for doubtful debts 317 254
Net operating loss carryforwards 2,206 79
Deferred foreign tax credits 7,193 970
Accrual for legal costs 5 76
Intercompany profit in inventories 3,492 2,188
Property, plant and equipment 189 290
Other accruals 663 418
------------------------------
14,925 5,012
Less valuation allowance (5,592) (86)
------------------------------
Deferred tax assets $ 9,333 $4,926
------------------------------


F-15

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

10. Income Taxes (continued)



-------------------------------
2001 2000
-------------------------------

Deferred tax liabilities:
Patents $ (382) (413)
Capitalized software (495) (453)
Unrealized gain on foreign currency options (179) (306)
Unrealized foreign exchange gains - (196)
Undistributed German income (2,104) (992)
Deferred tax deductible goodwill amortization (1,698) -
Other receivables (197) (168)
Other (126) (37)
-------------------------------
Deferred tax liabilities (5,181) (2,565)
-------------------------------
Net deferred tax asset $ 4,152 2,361
===============================


The valuation allowance at June 30, 2001, primarily relates to a provision
for uncertainty as to the utilization of deferred foreign tax credits of
$4,322,000 and net operating loss carryforwards of $1,046,000 relating to
MAP. The net change in the valuation allowance was an increase of $5,506,000
for the year ended June 30, 2001, in comparison to an increase of $22,000
and an increase of $48,000, for the years ended June 30, 2000 and 1999,
respectively. The measurement of deferred tax assets and liabilities at June
30 of each year, reflect foreign currency translation adjustments, changes
in enacted tax rates and changes in temporary differences. Income taxes in
2001, 2000 and 1999 were reduced by $5,000, $4,000 and $0, respectively,
through the utilization of net operating loss carryforwards.

At June 30, 2001, the net operating loss carryforwards relate to MAP,
Singapore and Malaysia.

11. Employee Retirement Plans

The Company contributes to a number of employee retirement plans for the
benefit of its employees. These plans are detailed as follows:

Australia - The Company contributes to defined contribution pension plans
---------
for each employee resident in Australia. All Australian employees after
serving a qualifying period, are entitled to benefits on retirement,
disability or death. Employees may contribute additional funds to the
plans. The Company contributes to the plans at the rate of 8% of the
salaries of all Australian employees. Total Company contributions to the
plans for the years ended June 30, 2001, 2000, and 1999 were $814,000,
$632,000 and $457,000, respectively.

United Kingdom - The Company contributes to a defined contribution plan for
--------------
each permanent United Kingdom employee. All employees, after serving a
three month qualifying period, are entitled to benefit on retirement,
disability or death. Employees may contribute additional funds to the plan.
The Company contributes to the plans at the rate of 3% of the salaries.
Total Company contributions to the plan were $7,000, $8,000 and $8,000 in
fiscal 2001, 2000, and 1999 respectively.

F-16

ResMed Inc. And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

11. Employee Retirement Plans (continued)

United States - The Company sponsors a defined contribution pension plan
-------------
available to substantially all domestic employees. Company contributions to
this plan are based on a percentage of employee contributions to a maximum
of 3% of employee salaries. The cost of this plan to the Company was
$158,000, $123,000 and $96,000 in fiscal 2001, 2000 and 1999 respectively.

12. Segment Information

The Company operates solely in the sleep disordered breathing sector of the
respiratory medicine industry. The Company therefore believes that, given
the single market focus of its operations and the inter dependence of its
products that the Company operates as a single operating segment. The
Company assesses performance and allocates resources on the basis of a
single operating entity.

Financial information by geographic area for the years ended June 30, 2001,
2000 and 1999, is summarized below (in thousands):



-----------------------------------------------------------------------------

Rest of
U.S.A Germany Australia France World Total

-----------------------------------------------------------------------------

2001
Revenue from external customers $74,981 25,646 5,318 17,592 31,619 $155,156

Long lived assets $30,475 3,063 25,130 555 1,725 $ 60,948
=============================================================================

2000
Revenue from external customers $58,419 14,317 4,444 11,949 26,486 $115,615

Long lived assets $ 8,126 1,248 27,595 622 1,863 $ 39,454
=============================================================================

1999
Revenue from external customers $47,229 13,181 3,489 6,978 17,750 $ 88,627

Long lived assets $ 2,525 816 26,611 400 1,429 $ 31,781
=============================================================================


F-17

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

12. Segment Information (continued)

Net revenues from external customers is based on the location of the
customer. Long-lived assets of geographic areas are those assets used in the
Company's operations in each geographical area and excludes patents,
deferred tax assets and goodwill.

13. Commitments

The Company leases buildings, motor vehicles and office equipment under
operating leases. Rental charges for these items are expensed as incurred.
At June 30, 2001 the Company had the following future minimum lease payments
under non-cancelable operating leases (in thousands):

----------------------------------------------------------------------------
Operating Sub lease Total net minimum
Years Leases rental income lease payments
----------------------------------------------------------------------------

2002 $1,720 $ 330 $ 1,390
2003 1,540 245 1,295
2004 1,179 251 928
2005 529 257 272
2006 439 130 309
Thereafter 468 - 468
----------------------------------------------------------------------------
Total minimum lease payments $5,875 $ 1,213 $ 4,662
============================================================================

Rent expenses under operating leases for the years ended June 30, 2001, 2000
and 1999 were approximately $1,087,000, $744,000 and $789,000, respectively.

14. Business Acquisition

On February 16, 2001 the Company's fully owned German Subsidiary, ResMed
Beteiligungs GmbH, acquired all the common stock of MAP Medizin-Technologie
GmbH ("MAP'') for total consideration, including acquisition costs, of $55.4
million.

The acquisition has been accounted for as a purchase and accordingly, the
results of operations of MAP have been included in the Company's
consolidated financial statements from February 16, 2001. The excess of the
purchase price over the fair value of the net identifiable assets acquired
of $47.1 million has been recorded as goodwill and is being amortized on a
straight line basis over 20 years.

Purchased in-process research and development of $17,677,000 was expensed
upon acquisition of MAP because technological feasibility of the products
under development had not been established and no further alternative uses
existed. The value of in process technology was calculated by identifying
research projects in areas for which technological feasibility had not been
established, estimating the costs to develop the purchased in process
technology into commercially viable products, estimating the resulting net
cash flows from such products, discounting the net cash flows to present
value, and applying the reduced percentage completion of the projects
thereto. The discount rates used in the analysis were between 27% and 33%
and were based on the risk profile of the acquired assets.

All purchased research and development projects related to medical equipment
for the treatment of sleep disordered breathing, primarily relating to the
development of mask interface systems and autotitrating devices for the
treatment of obstructive sleep apnea and associated disorders. Key
assumptions used in the analysis included gross margins ranging from 70% to
80%. As of the date of acquisition, the mask interface systems are expected
to be completed and commercially available in 2002 and versions of the
autotitrating devices between 2003 and 2005. These projects have estimated
costs to complete totalling approximately $2.0 million.

F-18

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

14. Business Acquisition (Continued)

The Company believes that the assumptions used to value the acquired
intangible assets were reasonable at the time of acquisition. No assurance
can be given, however, that the underlying assumptions used to estimate
expected project revenues, development costs or profitability, or events
associated with such projects, will transpire as estimated. For these
reasons, among others, actual results may vary from the projected results.

The following unaudited pro-forma financial information presents the
combined results of operations of the Company and MAP as if the acquisition
had occurred as of the beginning of the years ended June 30, 2001 and 2000,
respectively and after giving effect to certain adjustments, including
amortization of goodwill and increased interest expense associated with debt
funding the acquisition. The pro-forma financial information does not
necessarily reflect the results of operations that would have occurred had
the Company and MAP constituted a single entity during such years.

The pro-forma net income for the year ended June 30, 2001 excludes non-
recurring acquisition charges of $17,677,000 for purchased in-process
research and development and $550,000 for restructuring of MAP's French
operations.

(In thousands except per share data)

-----------------------
2001 2000
-----------------------

Net revenue $172,250 $138,396
Net income 28,556 17,612

Basic earnings per share $ 0.92 $ 0.58
Diluted earnings per share $ 0.85 $ 0.55

Basic shares outstanding 31,129 30,153
Diluted shares outstanding 33,484 32,303

On January 31, 2000, the Company's wholly owned Swedish subsidiary, ResMed
Sweden AB, acquired the business and associated assets of Einar Egnell AB,
its Swedish distributor for $576,000 in cash. The acquisition has been
accounted for as a purchase and accordingly, the results of operations of
the Einar Egnell business have been included in the Company's consolidated
financial statements from January 31, 2000. The excess of the purchase
price over the fair value of the net identifiable assets acquired of
$229,000 has been recorded as goodwill and is being amortized on a straight
line basis over five years.

In fiscal 1999, the Company paid $2,024,000 as a final deferred goodwill
payment on the 1996 acquisition of its German distributor.

15. Comprehensive Income

As of July 1, 1999, 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 foreign currency translation adjustments for
the year ended June 30, 2001 was $16.4 million compared to a net loss of
$7.7 million for the year ended June 30, 2000 and net gain of $2.3 million
for the year ended June 30, 1999.

F-19

ResMed Inc And Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2001 and 2000

15. Comprehensive Income (Continued)

Comprehensive income/(loss) for the years ended June 30, 2001, June 30, 2000
and June 30, 1999 was ($4.8) million, $14.5 million and $18.4 million,
respectively. The Company does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes on
undistributed earnings of foreign subsidiaries. Accumulated other
comprehensive loss at June 30, 2001 and June 30, 2000 consisted of foreign
currency translation adjustments and represent unrealized losses of $29.6
million and $13.2 million, respectively.

16. Legal Actions

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

In January 1995, the Company filed a complaint in the United States District
Court for the Southern District of California seeking monetary damages from
and injunctive relief against Respironics for alleged infringement of three
ResMed patents. In February 1995, Respironics filed a complaint in the
United States District Court for the Western District of Pennsylvania
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 were combined and are proceeding in the
United States District Court for the Western District of Pennsylvania. In
June 1996, the Company filed an additional complaint against Respironics for
infringement of a fourth ResMed patent, and that complaint was consolidated
with the earlier action. As of this date, Respironics has brought three
partial summary judgment motions for non-infringement of the ResMed patents;
the Court has granted each of the motions. In December 1999, in response to
the Court's ruling on Respironics' third summary judgment motion, the
parties jointly stipulated to a dismissal of charges of infringement under
the fourth ResMed patent, with ResMed reserving the right to reassert the
charges in the event of a favorable ruling on appeal. 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 January 2001, MAP Medizin-Technologie GmbH filed a lawsuit in the Civil
Chamber of Munich Court against Hofrichter GmbH seeking actual and exemplary
monetary damages for the unauthorized and infringing use of the Company's
trademarks and patents. An initial decision has been made in favor of MAP.
Hofrichter has filed an appeal and have sort Court determination that the
MAP patents do not apply to certain Hofrichter products.

While the Company is prosecuting the above actions, there can be no
assurance that the Company will be successful.

On March 31, 2001, we filed a lawsuit in the United States District Court
for the Southern District of California against MPV Truma and Tiara Medical
Systems, Inc., seeking actual and exemplary monetary damages and injunctive
relief for the unauthorized and infringing use of our trademarks, trade
dress, and patents related to our Mirage mask. The parties reached a
confidential out of court settlement on April 9, 2001.

In May 1995, Respironics and its Australian distributor filed a Statement of
Claim against us and Dr. Farrell in the Federal Court of Australia, alleging
that we engaged in unfair trade practices. The statement of Claim asserted
damage claims for lost profits on sales in the aggregate amount of
approximately $1,000,000. The parties reached a confidential out of court
settlement of this Action on April 16, 2001.

F-20

Schedule II
--------------------------------------------------------------------------------

ResMed Inc and Subsidiaries
Valuation and Qualifying Accounts and Reserves
Years Ended June 30, 2001, 2000 and 1999
(in thousands)



-----------------------------------------------------------------------
Balance at Charged to Other Balance at
Beginning of costs and (deductions) end of
Period expenses period
-----------------------------------------------------------------------

Year ended June 30, 2001
Applied against asset account $833 681 (622) 892
Allowance for doubtful accounts
=======================================================================

Year ended June 30, 2000
Applied against asset account
Allowance for doubtful accounts $421 632 (220) 833
=======================================================================

Year ended June 30, 1999
Applied against asset account
Allowance for doubtful accounts $248 348 (175) 421
=======================================================================


See accompanying independent auditor's report.

Exhibit Index



2.1 Sale and Assignment Agreement dated as of February 16, 2001, between
ResMed Inc, ResMed Beteilingungs GmbH and the shareholders of MAP
Medizin-Technologie GmbH*
3.1 Certificate of Incorporation of Registrant, as amended**
3.2 By-laws of Registrant**
4.1 Form of certificate evidencing shares of Common Stock**
4.2 Rights agreement dated as of April 23, 1997***
4.3 Indenture dated as of June 20, 2001, between ResMed Inc and American
Stock Transfer & Trust Company
4.4 Registration Rights Agreement dated as of June 20, 2001, by and between
ResMed Inc, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Deutsche Banc Alex Brown Inc., William Blair & Company,
L.L.C., Macquarie Bank Limited and UBS Warburg LLC
10.1 1995 Stock Option Plan**
10.2 1997 Equity Participation Plan****
10.3 Licensing Agreement between the University of Sydney and ResMed Limited
dated May 17, 1991, as amended**
10.4 Consulting Agreement between Colin Sullivan and ResMed Limited effective
from 1 January 1998*****
10.5 Loan Agreement between the Australian Trade Commission and ResMed
Limited dated May 3, 1994**
10.6 Lease for 10121 Carroll Canyon Road, San Diego 92131-1109, U.S.A.*****
11.1 Computation of Earnings per Common Share
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent and Report on Schedule


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* Incorporated by reference to the Registrant's Report on Form 8-K dated
March 2, 2001
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 33-91094) declared effective June 1, 1995.
*** Incorporated by reference from the Registrants' Registration Statement
on Form 8-A12G filed April 25, 1997.
**** Incorporated by reference from the Registrant's 1997 Proxy Statement
(File No. 0-26038).
***** Incorporated by reference from the Registrant's Report on Form 10-K
dated June 30, 1998 (File No. 0-26038)