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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
_________________
FORM 10-K
_________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 0-26038
RESMED INC
(Exact name of Registrant as specified in its Charter)
DELAWARE 98-0152841
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
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(G) OF THE ACT:
TITLE OF EACH CLASS:
Common Stock, $.004 Par Value
Rights to Purchase Series A Junior
Participating Preferred Stock
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 8, 2000, computed by reference to the closing sale
price of such stock on the New York Stock Exchange, was approximately
$885,000,000 (All directors, executive officers, and 10% stockholders of
Registrant are considered affiliates.)
At September 8, 2000, Registrant had 30,918,262 shares of Common Stock, $.004
par value, issued and outstanding.
Portions of Registrant's definitive Proxy Statement for its November 6, 2000
meeting of stockholders are incorporated by reference into Part III of this
report.
- --------------------------------------------------------------------------------
THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS,
WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES", "BELIEVES",
"EXPECTS", "INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY", OR WORDS OF
SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE
IDENTIFIED BELOW IN PART I, ITEM 3 AND PART II, ITEM 7 OF THIS REPORT.
- --------------------------------------------------------------------------------
RESMED INC
TABLE OF CONTENTS
______________________
PAGE
Part I Item 1 Business 3
Item 2 Properties 16
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 17
Part II Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters 17
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Financial Operation 19
Item 7A Quantitative and Qualitative Disclosures About Market Risk 23
Item 8 Consolidated Financial Statements and Supplementary Data 25
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
Part III Item 10 Directors and Executive Officers of the Registrant 26
Item 11 Executive Compensation 26
Item 12 Security Ownership of Certain Beneficial Owners and
Management 26
Item 13 Certain Relationships and Related Transactions 26
Part IV Item 14 Exhibits, Consolidated Financial Statement Schedule and
Reports on Form 8-K 27
- -2-
PART I
Item 1 BUSINESS
GENERAL
ResMed is a leading developer, manufacturer and distributor of medical equipment
for treating, diagnosing and managing sleep disordered breathing ('SDB'). SDB
includes sleep apnea and related respiratory disorders that occur during sleep.
The Company employs over 600 people and sells its products in over 50 countries
through a combination of wholly owned subsidiaries and independent distributors.
When ResMed was formed in 1989, its primary purpose was to commercialize a
device for treating obstructive sleep apnea (OSA). Developed by Professor Colin
Sullivan of the University of Sydney, nasal continuous positive airway pressure
(CPAP) was the first successful noninvasive treatment of OSA.
Since 1989, ResMed has broadened its focus to cover sleep disordered breathing
in all its manifestations. Operations have expanded rapidly through the
introduction of a number of highly innovative product lines. As of June 2000,
the Company's compound annual growth rate was in excess of market growth rates:
35% for sales and 49% for net income, using fiscal 1996 as a base. ResMed
believes its success is due to a continuing focus on sleep disordered breathing
and the development of therapeutic technology to ameliorate its serious medical
consequences.
CORPORATE HISTORY
ResMed Inc, a Delaware corporation, was formed in March 1994 as the ultimate
holding company for its Australian, European and United States operating
subsidiaries. On June 1, 1995 the Company completed an initial public offering
of common stock and on June 2, 1995 the Company's common stock commenced trading
on The NASDAQ National Market. On September 30, 1999 the Company transferred
its principal public listing to the New York Stock Exchange, trading under the
ticker symbol RMD. On November 25, 1999, the Company established a secondary
listing of its shares as Chess Depositary Instruments (CDI) on the Australian
Stock Exchange, also under the symbol RMD. (Ten ASX CDIs are equivalent to one
NYSE share). ResMed Inc's Australian subsidiary, ResMed Holdings Limited
('RHL'), was originally organized in 1989 by Dr. Peter Farrell to acquire from
Baxter Center for Medical Research Pty Limited ('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 of the University
of Sydney, who invented nasal CPAP for the treatment of OSA. Since 1989, the
Company and its subsidiaries have specialized in the design, manufacture and
marketing of nasal CPAP and variable positive airway pressure ('VPAP ')
equipment for the diagnosis and treatment of sleep disordered breathing,
primarily OSA.
The Company acquired the distribution businesses of Dieter W Priess Medtechnik,
Premium Medical SARL, Innovmedics Pte Ltd and EINAR Egnell AB, its 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 the Company made an equity investment in Flaga hf,
based in Iceland. The Company now markets Flaga's polysomnographic products
under the Embla label in the US and selected other markets.
- -3-
OBSTRUCTIVE SLEEP APNEA
OSA is a breathing disorder in which an individual experiences a temporary
collapse of the upper airway during sleep. This restricts breathing and
severely disrupts the individual's sleep. Sleep is a complex neurological
process that includes two distinct states: rapid eye movement ('REM') sleep and
non-rapid eye movement ('non-REM') sleep. REM sleep, which is about 20-25% of
total sleep in 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 upper airway closure
during sleep (an 'apnea'), resulting in an inability to breathe, or near closure
(a 'hypopnea') which causes snoring and breathing difficulties. These
breathing irregularities result in a lowering of blood oxygen concentration,
until the brain reacts to the lack of oxygen or increased carbon dioxide and
signals the body to respond. Typically, the individual subconsciously arouses
from sleep, causing the throat muscles to contract, thus 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. The cycle of complete or
partial upper airway closure with subconscious arousal to lighter levels of
sleep can be repeated as many as several hundred times during six to eight hours
of sleep. Sufferers of OSA typically experience ten or more such cycles per
hour. These awakenings greatly impair the quality of sleep, although the
individual is not normally aware of these disruptions.
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. OSA has been associated with
employment difficulties, marital discord, impotence and other adverse effects.
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. Certain studies have linked OSA to increased
occurrences of traffic and workplace accidents. Several studies indicate that
the oxygen desaturation, increased heart rate and elevated blood pressure caused
by OSA may be associated with increased risk of hypertension, cardiovascular
morbidity and mortality due to angina, stroke and heart attack.
THE MARKET
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. Nearly 6.5 million of these persons over the
age of 30 experience moderate to severe forms of sleep apnea. However, there is
a general lack of awareness of OSA among both the medical community and the
general public, which has led to a corresponding failure to diagnose the
disorder. It is estimated that less than 5% of those persons 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.
- -4-
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 over 50% of post stroke patients and
patients with congestive heart failure have significant SDB.
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.
The Company estimates that there are currently more than 2,000 sleep clinics in
the United States, a substantial portion of which are affiliated with hospitals.
Sleep clinics generally range in size from one to six beds. The number of sleep
clinics has expanded significantly from approximately 100 such facilities in
1985. The Company believes that despite the increase in sleep clinics, testing
facilities currently remain inadequate to address the large population of
undiagnosed OSA sufferers.
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 was first used as a treatment for OSA in 1980 by Dr. Colin Sullivan,
the Chairman of the Company's 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. The Company
estimates that during fiscal 2000, CPAP treatment was prescribed for over
200,000 new patients in the United States.
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. Upon
diagnosis of OSA and the decision to prescribe CPAP treatment for an OSA
sufferer, the physician must determine an appropriate pressure setting for the
CPAP device. This pressure titration (adjustment) procedure typically occurs in
the sleep clinic while the patient sleeps using the CPAP device, and a
technician manually increases the pressure until sleeping and breathing are
normalized. After determination of the proper therapeutic pressure, the patient
is prescribed a nasal CPAP device set to that pressure for home use. However,
recently developed autotitrating devices, including ResMed's AutoSet T positive
airway pressure device, are designed to set appropriate pressure levels
automatically in response to the patient's breathing patterns.
- -5-
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,
and bilevel flow generators, including VPAP systems, which provide different air
pressures for inhalation and exhalation.
BUSINESS STRATEGY
ResMed believes that the SDB market will increase in the future due to a number
of factors including increasing awareness of OSA, improved understanding of the
role of SDB treatment in the management of cardiac, neurologic and related
disorders, and an increase in home-based diagnosis.
ResMed's strategy for the expansion of its business operations consists of the
following key elements:
Continue Product Development and Innovation - ResMed is committed to ongoing
innovation in developing products for the diagnosis and treatment of sleep
disordered breathing. Since its founding, ResMed has been a leading innovator in
products designed to increase patient comfort and encourage compliance with
therapy. ResMed believes that continued product development and innovation are
key factors in its ongoing success.
Expand Geographic Presence - ResMed markets its products in over 50 countries
to sleep clinics, home health care dealers and managed care organizations.
ResMed intends to increase its sales and marketing efforts in its principal
markets, as well as expand its presence in the cardiac and neurologic sectors.
Increase Public and Clinical Awareness - ResMed intends to expand its existing
promotion activities in the awareness and prevalence of SDB and its treatment
alternatives within three main groups:
(1) The population with predisposition to SDB.
(2) Primary care physicians and other specialists, such as cardiologists,
neurologists, and pulmonologists.
(3) Special interest groups, such as sleep disorder support groups.
As part of this program ResMed will continue its significant Clinical Education
programs including the sponsorship of international symposia on different
clinical effects of SDB, including the cardiovascular and cerebrovascular
implications of SDB. As well as providing a forum for exchange of ideas and
information for attending healthcare professionals, results of each conference
will be published and distributed. ResMed also intends to use its existing
public relations and general marketing programs to further promote awareness of
SDB to both physicians and the general public.
Expand into New Markets - ResMed as a strategic goal believes in developing
strong links to the medical community both to identify new directions in
treatment and markets for its products. As such the Company maintains close
working relationships with a large number of prominent physicians to explore
new medical applications for its products and technology. The Company is moving
into new medical areas significantly affected by SDB, namely stroke, congestive
heart failure (CHF), and chronic obstructive pulmonary disease (COPD).
- -6-
As part of its research focus ResMed maintains extensive external as well as
internal research programs including programs in the treatment of stroke,
cardiac and post-operative surgery patients.
PRODUCTS
FLOW GENERATORS
Currently, ResMed produces nasal CPAP, VPAP and AutoSet systems for the
diagnosis, titration and treatment of SDB. These are flow generator systems
which deliver positive airway pressure through a small nasal mask. The flow of
air acts like an "air splint" to keep the patient's upper airway open and
prevent apneas. These apneas occur when the muscles that normally hold the
airway open during sleep, relax too much and close the airway off. AutoSet
systems are based on a proprietary technology that can also be used in the
diagnosis of OSA.
ResMed also manufactures air delivery systems that include nasal masks, tubing
and headgear to connect the flow generator to the patient. In addition, a
growing range of sleep laboratory products and other accessories which improve
patient comfort, convenience and compliance are marketed.
CPAP and VPAP - Introduced in June 2000, the ResMed S6 flow generators are the
Company's main CPAP flow generator products. Each of the four models in the
range is small, compact and comes with different features to suit different
patient needs. The ResMed S6 represents a significant improvement over earlier
CPAP flow generator products with SPL decibel noise levels at 10 cm of water
pressure reduced from 40.3 db on the original Sullivan V CPAP to 29.4 db on the
S6 Lightweight. To the human ear, this represents a noise reduction of
approximately 50 percent.
ResMed also manufactures Variable Positive Airways Pressure (VPAP ) units which
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 patients with impaired breathing ability.
There are five models in the VPAP range: the VPAP II, the Comfort, the VPAP
II ST, the VPAP II ST-A and the VPAP MAXTM.
The VPAP MAXTM is a Ventilatory Support System for the treatment of adult
patients with respiratory insufficiency or respiratory failure. In 1998, the
system received FDA clearance for the US hospital critical care market.
AutoSet T - In March 1999, the Company introduced the AutoSet T home positive
airway pressure unit for use in the treatment of SDB conditions. While
conventional CPAP units operate at a fixed CPAP pressure, actual pressure
required for effective treatment of OSA can vary depending on factors such as
weight change, alcohol consumption, sedative use, stage of sleep and body
position. The AutoSet T is designed to continually detect the level of airway
resistance and adjust the air pressure to the required level throughout the
night. This results in greater patient comfort and reduced pressure related
side effects.
CPAP and VPAP Flow generators accounted for approximately 60%, 64% and 66% of
the Company's net revenues in fiscal 2000, 1999 and 1998 respectively.
- -7-
The following table lists the Company's principal products.
Date of
Product Features Commercial
Introduction
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FLOW GENERATORS
VPAP II Dual pressure portable device provides different March 1996
Pressure levels for inhalation and exhalation,
features improved pressure switching and
reduced noise output and spontaneous breath
triggering
COMFORT Limited featured dual pressure device March 1996
VPAP II ST Dual pressure portable device with spontaneous April 1996
and spontaneous/timed breath triggering modes
of operation
VPAP II ST A Version of VPAP II ST equipped with high/low August 1998
pressure, power failure alarms. For
noninvasive positive pressure ventilation use
VPAP MAXTM The VPAP MAXTM is a Ventilatory Support System November 1998
for the treatment of adult patients with
respiratory insufficiency or respiratory failure
AutoSet TTM Micro processor controlled, automatically and March 1999
continuously monitors patient breathing.
Adjusts CPAP treatment pressure in response to
patient's needs during the night
ResMed S6 Series An advanced range of quiet compact portable June 2000
fixed pressure devices with various features to
facilitate patient comfort
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MASK SYSTEMS
Bubble Mask Includes Bubble Cushion, containing a silicone June 1991
membrane which readily adjusts to patient's
facial contours and ResCap five point attachment
headgear
Modular
Mask Frame Mask frame with T Bar forehead pads, to prevent July 1995
sideways movement of the frame and provide
maximum stability
Mirage Mask Contains contoured nasal cushion which readily August 1997
adjusts to patient's facial contours.
Lightweight, quiet, low profile mask system
Mirage Full
Face Mask A MirageTM based full face mask product June 1999
featuring adjustable cushion in a lightweight
mask system
Ultra
Mirage Mask An advanced version of the successful Mirage June 2000
mask system with reduced noise characteristics
and flexible forehead bridge
- --------------------------------------------------------------------------------
ACCESSORIES
HumidAireTM Attaches to CPAP or VPAP systems. Provides September 1997
adjustable heated humidification, relieves
drying of nasal passages, increasing
patient comfort
- --------------------------------------------------------------------------------
DIAGNOSTIC PRODUCTS
AutoSet
Portable II Plus An improved Portable version of AutoSet Clinical June 1997
with PC processor functions built in for home
use sleep studies
ResControl Used locally or remotely to monitor and adjust September 1999
ResMed CPAP, VPAP or AutoSet T flow generators.
An internal pressure transducer enables the
clinician to interface with Polysomnography (PSG)
to monitor airflow in both titration and
diagnostic studies. ResControl will also
monitor the pressure of any flow generator
without the need for a separate manometer.
Embla The Embla Sleep Recorder (manufactured by Flaga October 1999
hf) is a powerful digital recorder with the
flexibility to satisfy both sleep study and
research needs. With 16 multipurpose channels,
2 oximeter channels (saturation and pulse),
and 1 event channel, it provides digital
recording technology for PSG and EEG
applications.
- -8-
DIAGNOSTIC PRODUCTS
Fully portable respiratory sleep studies - ResMed markets devices for the
diagnosis, titration and treatment of SDB in sleep clinics, hospitals and
patients' homes. These fully portable systems give sleep clinics and specialists
the means to expand their capabilities and increase patient throughput.
The AutoSet Portable II Plus with AutoSet Clinical III software is used to
diagnose OSA in sleep clinics, hospitals or patients' homes. The system records
all relevant respiratory data, which can then be downloaded to a computer for
review and print out.
The ResControl was introduced in September of 1999 and supersedes the UCU
product line of controllers. The ResControl is used locally or remotely to
monitor and adjust ResMed CPAP, VPAP or AutoSet T flow generators. An internal
pressure transducer enables the clinician to interface with polysomnography
(PSG) to monitor airflow in both titration and diagnostic studies. ResControl
will also monitor the pressure of any flow generator without the need for a
separate manometer.
AutoScan Compliance 2.0 Software was introduced in March of 1999 for use with
the AutoSet T flow generator. AutoScan 2.0 collects compliance data. Efficacy
data is collected in the form of an AHI (apnea hypopnea index) and mask or mouth
leak information. This data allows evaluation of the effectiveness of the
therapy. In February 2000 AutoScan 3.0 was introduced and functions with all
ResMed flow generators. AutoScan 3.0 supersedes SCAN 2.0 by providing a single
software platform for the entire ResMed flow generator range.
In October 1999, ResMed commenced distribution of Flaga's Embla Sleep Recorder,
which can carry out a full sleep diagnosis equivalent to that performed during
an overnight stay in a sleep laboratory. The Embletta PDS (Portable Diagnostic
System) is a pocketsize digital recording device that aids clinicians by making
ambulatory sleep studies convenient and reliable. It is for the diagnosis of
sleep disordered breathing and is scheduled for release during fiscal year 2001.
INNOVATIVE MASK SYSTEMS
Mirage Nasal Masks - In August 1997, ResMed released the Mirage mask system.
The Mirage is suitable for both conventional CPAP and bilevel therapy, is small,
lightweight, and designed for maximum patient comfort. The specially contoured
silicone cushion inflates with air pressure to gently 'float' on the patient's
face. A number of other design features enhance comfort and convenience and
ensure effective pressure delivery.
In June 2000 ResMed released its second generation Mirage Mask system, the Ultra
Mirage Mask. The Ultra Mirage mask represents a major improvement in noise,
facial pressure and seal over the standard Mirage mask systems. In addition,
the Ultra Mirage mask systems have been designed to fit most people so that
clinicians can fit masks faster and more easily. Inventory costs can also be
reduced with the Mirage as it eliminates the need to carry a large range of mask
types and sizes.
The MirageFull Face Mask - Released in June 1999, the Mirage Full Face mask
expands on the innovative design of the Mirage nasal mask. The Mirage Full Face
Mask provides an effective method of applying ventilatory assist (Noninvasive
Positive Pressure Ventilation - NPPV - therapy) and can be used to address
mouth-breathing problems in conventional bilevel or CPAP therapy.
- -9-
A range of other mask systems - ResMed also sells a patented Bubble Mask, which
uses a cushion made from a thin, soft silicone membrane that readily conforms to
the patient's facial contours to form a seal and minimize air leakage. The
cushion complies with body movement and eliminates the need for tight headgear
to form a secure seal. In addition to this, the Company also sells cushions,
frames and headgear separately. Typically, patients replace mask cushions once
or twice a year and headgear every three to six months.
All ResMed mask systems are available in a variety of sizes and are sold
independently of ResMed systems, either as replacement products or with other
manufacturers' devices. The Company also manufactures the Bubble Mask on an
OEM basis for one of its competitors.
Sales of mask systems, accessories and other products accounted for
approximately 40%, 36% and 34% of the Company's net revenues in fiscal 2000,
1999 and 1998, respectively.
ACCESSORIES AND OTHER PRODUCTS
To enhance patient comfort, convenience and compliance, ResMed markets a variety
of other products and accessories. These products include humidifiers, such as
the SULLIVAN HumidAire , which connect directly with the CPAP and VPAP flow
generators to humidify and, if desired, heat the air delivered to the patient.
Their use prevents the drying of nasal passages which can cause discomfort.
Other optional accessories include a passover, non-heated humidifier carry bags
and breathing circuits.
PRODUCT DEVELOPMENT
The Company is committed to an ongoing program of product advancement and
development. Currently, product development efforts are focused on AutoSet
systems, improved CPAP, VPAP and mask systems and manufacturing cost-reduction
programs.
The Company consults 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 the Company's Medical Advisory Board. New product
ideas are also identified by the Company's marketing staff, direct sales force,
network of distributors, manufacturers' representatives and patients. Typically,
ResMed's internal development staff then perform new product development.
In the three fiscal years ended June 30, 2000, 1999 and 1998, the Company
expended $8,499,000, $6,542,000 and $4,994,000 respectively, on research and
development.
SALES AND MARKETING
The Company currently markets its products in over 50 countries using a network
of distributors, independent manufacturers' representatives and its direct sales
force. The Company attempts to tailor its marketing 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 - In the United States, the Company's marketing activities are
conducted through a field sales organization comprised of 24 regional territory
representatives, program development specialists and diagnostic system
specialists, plus two regional sales directors and 45 independent manufacturers'
representatives. The United States field sales organization markets and sells
products to more than 4,000 home health care dealer branch locations throughout
the United States.
- -10-
The Company also promotes and markets its 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, sales employees and manufacturers'
subrepresentatives are managed by two regional Sales Managers, a Director of
Sales and ultimately the Company's Senior Vice President - US Sales and
Marketing.
The Company also maintain an extensive marketing presence in the North American
market. The Company's Canadian and Latin American sales are conducted through
independent distributors. Sales in North America accounted for 54%, 57% and 52%
of the Company's net revenues for the fiscal years ended June 30, 2000, 1999 and
1998, respectively.
Europe - The Company markets its products in most major European countries.
ResMed has wholly owned subsidiaries in the United Kingdom, Germany, France and
from February 2000 Sweden, and uses independent distributors to sell its
products in other areas of Europe. These distributors have been selected in
each country based on their knowledge of respiratory medicine as well as a
commitment to SDB therapy. In each country in which the Company has a
subsidiary, a local senior manager is responsible for direct national sales. In
addition, the Company uses a consultant in Switzerland to assist in sales and
marketing efforts for selected European countries.
The Company's Executive Vice President is responsible for coordination of all
European distributors and, in conjunction with local management, the direct
sales activity in Europe. Sales in Europe accounted for 35%, 34% and 35% of the
Company's total net revenues for the fiscal years ended June 30, 2000, 1999 and
1998, respectively.
Australia/Rest of World- Marketing in Australia and the rest of the world is
the responsibility of the Executive Vice President. Sales in Australia and the
rest of the world accounted for 11%, 9% and 13% of the Company's total net
revenues for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
MANUFACTURING
The Company's principal manufacturing facilities are located in Sydney,
Australia and comprise a 120,000 square feet manufacturing and research and
development facility. The Company's manufacturing operations consist primarily
of assembly and testing of the Company's flow generators, masks and accessories.
Of the numerous raw materials, parts and components purchased for assembly of
the Company's therapeutic and diagnostic sleep disorder products, most are
off-the-shelf items available from multiple vendors. The Company generally
manufactures to its internal sales forecasts and fills orders as received. As a
result, the Company generally has no significant backlog of orders for its
products. The Company's quality control group performs tests at various steps
in the manufacturing cycle to ensure compliance with the Company's
specifications.
The Company uses management information systems to integrate its manufacturing
planning, billing and accounting systems.
- -11-
SERVICE AND WARRANTY
The Company generally offers one-to-two year limited warranties on its flow
generator products. Warranties on mask systems are for 90 days. In most
markets, the Company relies on its distributors to repair the Company's products
with parts supplied by the Company. In the United States, home health care
dealers generally arrange shipment of products to the Company's San Diego
facility for repair.
The Company has received returns of its products from the field for various
reasons. The Company believes that the level of returns it has experienced to
date is consistent with levels typically experienced by manufacturers of similar
devices. The Company provides for warranties and returns based on historical
data.
THIRD-PARTY REIMBURSEMENT
The cost of medical care is funded in substantial part by government and private
insurance programs. Although the Company does not generally receive payments
for its products directly from these payors, the Company's success is dependent
upon the ability of patients to obtain adequate reimbursement for the Company's
products.
In the United States, the Company's products are purchased primarily by home
health care dealers, hospitals or sleep clinics, which then invoice third-party
payors directly. Domestically third-party payors include Medicare, Medicaid and
corporate health insurance plans. These payors 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. Third-party payors
are also increasingly challenging prices charged for medical products and
services, and certain private insurers have initiated reimbursement systems
designed to reduce health care costs. 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 the Company's products.
In some foreign markets, such as Spain, France and Germany, government
reimbursement is currently available for purchase or rental of the Company's
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.
COMPETITION
The markets for the Company's products are highly competitive. The Company
believes that the principal competitive factors in all of its markets are
product features, reliability and price. Reputation and efficient distribution
are also important factors.
The Company competes on a market-by-market basis with various companies, some of
which have greater financial, research, manufacturing and marketing resources
than the Company. In the United States, its principal market, Respironics, Inc.
('Respironics'), DeVilbiss, a division of Sunrise Medical Inc., and Nellcor
Puritan Bennett, a subsidiary of Mallinckrodt, Inc. are the primary competitors
for the Company's CPAP products. The Company's principal European competitors
are also Respironics, DeVilbiss and Nellcor Puritan Bennett, as well as regional
European manufacturers. The disparity between the Company's resources and those
of its competitors may increase as a result of the recent trend towards
consolidation in the health care industry. In addition, the Company's 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 the Company's products becoming
obsolete or noncompetitive, resulting in a material adverse effect on the
Company's business, financial condition and results of operations.
- -12-
Any product developed by the Company 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 the Company 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, the Company's ability to compete will
continue to be dependent on the extent to which the Company is successful in
protecting its patents and other intellectual property.
PATENTS AND PROPRIETARY RIGHTS AND RELATED LITIGATION
The Company, through its subsidiary ResMed Limited, owns or has licensed rights
to 20 issued United States patents (including 5 design patents) and 33 issued
foreign patents. In addition, there are 83 pending United States patent
applications (including 9 design patent applications) and 128 pending foreign
patent applications. Some of these patents and patent applications relate to
significant aspects and features of the Company's products. These include
United States patents relating to CPAP devices, a 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 the Company's
AutoSet devices.
None of the Company's patents is due to expire in the next five years, with the
exception of four foreign patents due to expire in April 2002. The Company
believes that the expiration of these patents will not have a material adverse
impact on the Company's competitive position.
The Company relies on a combination of patents, trade secrets, trade marks and
non-disclosure agreements to protect its 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
the Company, to protect the Company's proprietary rights, or to defend
third-party claims of infringement by the Company of the proprietary rights of
others. Patent laws regarding the enforceability of patents vary from country
to country. Therefore, there can be no assurance that patent issues will be
uniformly resolved, or that local laws will provide the Company with consistent
rights and benefits.
GOVERNMENT REGULATIONS
The Company's products are subject to extensive regulation particularly as to
safety, efficacy and adherence to FDA Quality System Regulation (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. Noncompliance 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 the
Company to enter into supply contracts, and criminal prosecution.
- -13-
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 ('PMA') prior to it
being introduced into the market. The Company's products currently marketed in
the United States are marketed in reliance on 510(k) pre-marketing clearances.
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, the Company is subject to inspection on a
routine basis by the FDA for compliance with the FDA's QSR which impose
procedural and documentation requirements with respect to design, manufacturing
and quality control activities. The Company believes that its design,
manufacturing and quality control procedures meet the requirements of the
regulations.
Sales of medical devices outside the United States are subject to regulatory
requirements that vary widely from country to country. Approval for sale of the
Company's medical devices in Europe is through the CE mark process. The
Company's products where appropriate, are CE marked to the European Unions
Medical Device Directive.
EMPLOYEES
As of June 30, 2000, the Company had 605 employees or full time consultants, of
which 239 persons were employed in warehousing and manufacturing, 85 in research
and development, 156 in sales and marketing and 125 in administration. Of the
Company's employees and consultants, 389 were located in Australia, 113 in the
United States, 93 in Europe and 10 in Singapore, New Zealand and Malaysia.
The Company believes that the success of its business will depend, in part, on
its ability to attract and retain qualified personnel. None of the Company's
employees is covered by a collective bargaining agreement. The Company believes
that its relationship with its employees is good.
MEDICAL ADVISORY BOARD
ResMed's international Medical Advisory Board ('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 ResMed's senior management and
members of its research and marketing departments to advise the Company 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 senior
management of the Company. 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.
- -14-
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 (Ex officio), 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. His main research interests are in the acute and chronic
applications of non-invasive positive pressure ventilation for treating lung
disease.
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. Dr Sullivan
continues to contribute to ResMed's innovation, product development and clinical
testing programs.
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. He is an
internationally recognized researcher in respiratory medicine and sleep
disorders medicine.
- -15-
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. Dr Weiss is an internationally recognized researcher in sleep disorders
medicine.
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. His initial surgical training was with Dr. Fujita,
the pioneer of uvulopalatopharyngoplasty to treat obstructive sleep apnea.
Subsequently, he has developed a research and teaching interest in improving
surgical management of sleep apnea and developing better methods to evaluate
obstruction of the upper airway during sleep. He is a strong proponent of nasal
CPAP therapy.
Item 2 PROPERTIES
ResMed's principal executive offices and US distribution facilities, consisting
of approximately 144,000 square feet, are located in Poway, California. The
Company entered into an agreement to purchase this property effective July 7,
2000 for $17,200,000; part of the building is leased to other companies.
Primary manufacturing operations are situated in Sydney, Australia in a 120,000
square feet facility also owned by the Company.
Sales and warehousing facilities are leased in Oxford, England,
Moenchengladbach, Germany, Lyon, France, Trollhaettan, Sweden and Singapore as
well as the company's previous executive offices in San Diego California, which
have been subleased from August 2000.
Item 3 LEGAL PROCEEDINGS
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.
On March 31, 2000, the Company 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 the Company's
trademarks, trade dress, and patents related to its Mirage mask design.
- -16-
While the Company is prosecuting the above actions, there can be no assurance
that the Company will be successful.
In May 1995, Respironics and its Australian distributor filed a Statement of
Claim against the Company and its CEO in the Federal Court of Australia,
alleging unfair trade practices. The Statement of Claim asserts damage claims
for lost profits on sales in the aggregate amount of approximately $1,000,000.
While the Company is defending this action, there can be no assurance that the
Company will be successful or that the Company will not be required to make
significant payments to the claimants. The Company is incurring ongoing legal
costs in defending this action, as well as in the continuing litigation of its
patent cases
Item 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company commenced trading on June 2, 1995 on The NASDAQ
National Market under the symbol 'RESM'. On September 30, 1999, the Company
transferred its 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 NASDAQ and
the New York Stock Exchange.
2000 1999
High Low High Low
-------------- --------------
Quarter One, ended September 30, $17.19 $11.82 $13.19 $ 9.25
Quarter Two, ended December 31,. 23.13 12.75 23.62 10.59
Quarter Three, ended March 31, . 39.62 20.34 25.72 11.50
Quarter Four, ended June 30, . . 38.06 22.00 18.56 9.87
------ ------ ------ ------
As of September 8, 2000, there were over 5,000 beneficial holders of the
Company's Common Stock. The Company does not intend to declare any cash
dividends in the foreseeable future.
- -17-
Item 6 SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
for, and as of the end of, each of the years in the five-year period ended June
30, 2000. 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: 2000 1999 1998 1997 1996
(In thousands, except per share data)
Net revenues. . . . . . . . . . . . . . $115,615 $88,627 $66,519 $49,180 $34,562
Cost of sales . . . . . . . . . . . . . 36,991 29,416 23,069 20,287 16,990
Gross profit. . . . . . . . . . . . . . 78,624 59,211 43,450 28,893 17,572
Selling, general and administrative
Expenses. . . . . . . . . . . . . . . . 36,987 27,414 21,093 16,759 11,136
Research and development expenses . . . 8,499 6,542 4,994 3,807 2,841
Total operating expenses. . . . . . . . 45,486 33,956 26,087 20,566 13,977
Income from operations. . . . . . . . . 33,138 25,255 17,363 8,327 3,595
Other (expenses) income:
Interest income, net . . . . . . 801 779 1,011 1,205 1,072
Government grants. . . . . . . . . . . 279 833 611 316 537
Other, net . . . . . . . . . . . . . . (52) (2,290) (2,873) 1,239 1,357
Total other (expenses) income . . . . . 1,028 (678) (1,251) 2,760 2,966
Income before income taxes. . . . . 34,166 24,577 16,112 11,087 6,561
Income taxes. . . . . . . . . . . . . . 11,940 8,475 5,501 3,622 2,058
Net income. . . . . . . . . . . . . . . $ 22,226 $16,102 $10,611 $7,465 $ 4,503
======== ======== ======== ======= =======
Basic earnings per share. . . . . . . . $ 0.74 $ 0.55 $ 0.37 $ 0.26 $ 0.16
======== ======== ======== ======= =======
Weighted average common shares
Outstanding . . . . . . . . . . . . . . 30,153 29,416 29,000 28,756 28,376
Diluted earnings per share. . . . . . . $ 0.69 $ 0.52 $ 0.35 $ 0.26 $ 0.16
======== ======== ======== ======= =======
Weighted average common and common
Equivalent shares outstanding . . . . . 32,303 31,068 30,044 29,268 28,796
As of June 30,
---------------------------------------------
2000 1999 1998 1997 1996
Consolidated Balance Sheet Data: (In thousands)
Working capital . . . . . . . . . . . . $ 47,550 $ 32,529 $32,759 $34,395 $30,844
Total assets. . . . . . . . . . . . . . 115,594 89,889 64,618 54,895 47,299
Long-term debt, less current maturities - - - 274 578
Total stockholders' equity. . . . . . . 93,972 71,647 50,773 44,625 38,986
========= ======== ======= ======= =======
- -18-
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
The Company designs, manufactures and markets equipment for the diagnosis and
treatment of sleep disordered breathing conditions, including obstructive sleep
apnea. The Company's net revenues are generated from the sale of its various
flow generator devices, nasal mask systems, accessories and other products, and,
to a lesser extent from royalties. The Company receives other income through
interest and certain Australian government grants.
The Company has invested significant resources in research and development and
product enhancement. Since 1989, the Company has developed several innovations
to the original CPAP device to increase patient comfort and to improve ease of
product use. The Company has been developing products for automated treatment,
titration and monitoring of OSA, such as the AutoSet T flow generator. The
Company's research and development expenses are subsidized in part by grants and
tax incentives from the Australian federal government. The Company has also
received grants from the Australian federal government to support marketing
efforts to increase Australian export sales, and for incorporation of computer
components into its products.
The Company's income tax rate is governed by the laws of the regions in which
the Company's income is recognized. To date, a substantial portion of the
Company's income has been subject to income tax in Australia where the statutory
rate is 36%. During fiscal 2000, 1999 and 1998, the Company's effective tax
rate has fluctuated from approximately 35% to approximately 34%. 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 the
Company under applicable tax laws.
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 the Company's 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 the Company's 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 68.0% 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 the Company's sales.
- -19-
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 the Company's
foreign currency hedging structures, partially offset by reduced government
grants. Net foreign currency losses for fiscal 2000 were $182,000 compared to
net foreign currency losses of $2.5 million in 1999.
Income Taxes - The Company's 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 the Company received a 125%
deduction for tax purposes.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30 , 1998
Net Revenues - Net revenues increased in fiscal 1999 to $88.6 million from $66.5
million in fiscal 1998, an increase of $22.1 million or 33%. This increase was
primarily attributable to an increase in unit sales of the Company's flow
generators and accessories in the Americas where net revenues increased to $51.0
million from $34.3 million and, to a lesser extent, in Europe, where net
revenues increased to $30.2 million from $23.3 million. Net revenues also
improved due to a shift to higher-priced bilevel based products such as SULLIVAN
VPAP II ST and increased sales of patient mask systems.
Gross Profit - Gross profit increased in fiscal 1999 to $59.2 million from $43.5
million in fiscal 1998, an increase of $15.7 million or 36%. The increase
resulted primarily from increased unit sales during fiscal 1999. Gross profit
as a percentage of net revenues increased in fiscal 1999 to 66.8% from 65.3% in
1998. The increase was primarily due to improved manufacturing efficiencies and
increased sales of higher margin bilevel units.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased in 1999 to $27.4 million from $21.1 million
for 1998, an increase of $6.3 million or 30%. As a percentage of net revenues,
selling, general and administrative expenses decreased in fiscal 1999 to 30.9%
from 31.7% for fiscal 1998. The gross increase in expenses was due primarily to
an increase to 212 from 158 in the number of sales and administrative personnel
and other expenses related to the increase in the Company's sales.
Research and Development Expenses - Research and development expenses increased
in fiscal 1999 to $6.5 million from $5.0 million in fiscal 1998, an increase of
$1.5 million or 31%. As a percentage of net revenues, research and development
expenses in fiscal 1999 marginally declined to 7.4% from 7.5% in fiscal 1998.
The dollar increase in research and development expenses was due primarily to an
increase in research and development equipment, personnel and external
consultancy fees.
- -20-
Other Income (expense) - Other income (expense) improved in fiscal 1999 to a
loss of $0.7 million from a loss of $1.3 million for fiscal 1998, a change of
$0.6 million. This improvement was due primarily to reduced losses incurred in
the Company's foreign currency hedging structures, partially offset by reduced
license fee income. Foreign currency losses for fiscal 1999 were $2.5 million
compared to net foreign currency losses of $4.0 million in 1998.
Income Taxes - The Company's effective income tax rate for fiscal 1999 increased
to approximately 34.5% from approximately 34.1% for fiscal 1998. This increase
was primarily due to the high relative taxes incurred in France and Germany.
These higher tax rates were partially offset by research and development
expenses in Australia for which the Company received a 125% deduction for tax
purposes.
YEAR 2000
The Company incurred no significant adverse issues with respect to either its
information systems or products from the Year 2000 date change.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000 and June 30, 1999, the Company had cash and cash equivalents
and marketable securities available for sale of approximately $22.0 million and
$16.7 million, respectively. The Company's working capital approximated $47.6
million and $32.5 million, respectively, at June 30, 2000 and 1999. The
increase in working capital balances primarily reflects reduced capital spending
associated with completion of the Company's Australian manufacturing facility in
1999 and increased accounts receivable and inventory balances associated with
growth in the Company's sales activity.
The Company has financed its operations and capital expenditures through cash
generated from operations and, to a lesser extent, through sales of common
stock. During the fiscal years ended June 30, 2000 and 1999, the Company's
operations generated cash of approximately $20.3 million and $18.2 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 $22.0 million at June 30, 2000 from $16.7 million at June 30, 1999, an
increase of $5.3 million. During fiscal 2000 and 1999, approximately $6.4
million and $2.1 million of cash was received from the issue of common stock
upon exercise of common stock options.
The Company's investing activities (excluding the purchases and sales of
marketable securities) for the fiscal years ended June 30, 2000 and 1999
aggregated $20.4 million and $24.5 million, respectively. The majority of the
fiscal 2000 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 its Oracle applications computer
system. In addition, the Company paid $4.6 million associated with the
construction of the new US facility in Poway, California. As a result the
Company's June 30, 2000 balance sheet reflects an increase in net property,
plant and equipment to approximately $36.6 million at June 30, 2000, from $29.3
million at June 30, 1999, an increase of approximately $7.3 million. The
Company anticipates spending approximately a further $1.0 million for the
ongoing implementation of its Oracle computer system over the next twelve
months. These payments are to be funded through cash flows from operations and
existing cash resources.
- -21-
The results of the Company's international operations are affected by changes in
exchange rates between currencies. Changes in exchange rates may negatively
affect the Company's consolidated net revenue and gross profit margins from
international operations. The Company has a substantial exposure to
fluctuations in the Australian dollar with respect to its manufacturing and
research activities which is managed through foreign currency option contracts.
The Company expects to satisfy all of its short-term liquidity requirements
through a combination of cash on hand, cash generated from operations and a $20
million revolving credit facility with he Union Bank of California.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No 133, 'Accounting for Derivative Instruments and Hedging Activities'
(SFAS 133), and 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)' were issued by the Financial Accounting
Standards Board in June 1998 and June 1999, respectively and are effective for
the Company's quarter ending 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 (ie, gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows, or
foreign currencies. If the hedged exposure is a fair value exposure, the gain
or loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. If the hedged exposure is a cash flow exposure, the
effective portion of the gain or loss on the derivative instrument is reported
initially as a component of other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as
well as the ineffective portion of the gain or loss is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the
accounting for fair value and cash flow hedges. If the derivative instrument is
not designated as a hedge, the gain or loss is recognized in earnings in the
period of change.
The Company believes that, due to the restrictive definition of hedge
effectiveness contained in Statement 133, the Company's hedging contracts will
not have hedge effectiveness and will therefore be marked to market with
resulting gains or losses being recognized in earnings in the period of change.
This is consistent with the company's current accounting policy and therefore
the Company does not expect adoption of Statement 133 will have a material
impact on the Company's financial position or results of operation.
In December 1999, the Securities and Exchange Commission ('SEC') issued Staff
Accounting Bulletin No 101 ('SAB 101'), 'Revenue Recognition in Financial
Statements'. The company will be required to adopt SAB 101 in the first quarter
of fiscal 2001. SAB101 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. The Company does not expect this to
have a material impact on the Company's financial position or results of
operation.
In March 2000, the Financial Accounting Standards Boards ('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 is effective July 1, 2000. The Company does not expect the
application of FIN 44 to have a significant effect on its consolidated financial
statements.
- -22-
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Market Risk
The Company's functional currency is the US dollar although the Company
transacts business in various foreign currencies including a number of major
European currencies as well as the Australian dollar. The Company has
significant foreign currency exposure through both its Australian manufacturing
activities and international sales operations.
The Company has established a foreign currency hedging program using purchased
currency options to hedge foreign-currency-denominated financial assets,
liabilities and manufacturing expenditure. The goal of this hedging program is
to economically guarantee or lock in the exchange rates on the Company's foreign
currency exposures denominated in Euro's and the Australian dollar. Under this
program, increases or decreases in the Company's foreign-currency-denominated
financial assets, liabilities, and firm commitments are partially offset by
gains and losses on the hedging instruments.
The Company does not use foreign currency forward exchange contracts or
purchased currency options for trading purposes.
The table below provides information about the Company's foreign currency
derivative financial instruments, by functional currency and presents such
information in US dollar equivalents. The table summarizes information
on instruments and transactions that are sensitive to foreign currency
exchange rates, including foreign currency call options held at June 30, 2000.
The table presents the notional amounts and weighted average exchange rates
by expected (contractual) maturity dates for the Company's foreign currency
derivative financial instruments. These notional amounts generally are used to
calculate payments to be exchanged under the options contracts.
Fiscal Year Fair Value
Assets/(Liabilities)
(In thousands) 2001 2002 Total As at June 30,
2000 1999
--------------------------------------- ------------------ --------------------
Foreign Exchange Call Options
(Receive AUS$/Pay US$)
Option amount. . . . . . . . . . . $95,000 $60,000 $155,000 $ 534 1,091
Average contractual exchange rate. AUS$1 = USD 0.679 AUS$1 = USD 0.682 AUS $1 = USD 0.680
(Receive AUS$/Pay Euro)
Option amount. . . . . . . . . . . $10,974 $5,556 $16,530 $ 367 320
Average contractual exchange rate. AUS$1 = Euro 0.644 AUS$1 = Euro 0.652 AUS $1 = Euro 0.647
Interest Rate Risk
The Company is exposed to risk associated with changes in interest rates
affecting the return on investments.
At June 30, 2000, the Company maintained a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. The Company maintained 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, 2000,
would have resulted in approximately $0.2 million change in pretax income. The
Company has not used derivative financial instruments in its investment
portfolio.
- -23-
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities,
patent and other litigation and similar matters. There are a variety of factors
that could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties that may
affect the Company's business, financial condition or results of operations
include the following:
The market for products designed to treat sleep disordered breathing related
respiratory conditions is characterized by frequent product improvements and
evolving technology. The development of new or innovative products by others or
the discovery of alternative treatments for such conditions could result in the
Company's products becoming obsolete or noncompetitive, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
The market for the Company's products is also highly competitive. The failure
of the Company to meet the prices offered by its competitors, or offer products
which either contain features similar to or more desirable than those products
offered by its competitors or which are perceived as unreliable by consumers
could have a material adverse effect on the business, financial condition and
results of operations of the Company. Most of the Company's competitors have
greater financial, research, manufacturing and marketing resources than the
Company. In addition, some of the Company's competitors sell additional lines
of products, and therefore can bundle products to offer higher discounts, or
offer rebates or other incentive programs to gain a competitive advantage. The
Company's competitors may also employ litigation to gain a competitive
advantage. The Company's inability to compete effectively against existing or
future competitors would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's 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 the absence of a backlog of orders for the
Company's products, the introduction of new products by the Company or its
competitors, the geographic mix of product sales, the success of the Company's
marketing efforts in new regions, changes in third-party reimbursement, timing
of regulatory action, 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, among other factors, In
addition, the Company's results of operations could be adversely affected by
changes in tax laws in the various countries in which the Company conducts its
operations.
- -24-
The Company's success is dependent upon the ability of the Company's customers
to obtain adequate reimbursement from third-party payors for purchasing the
Company's products. Third-party payors may deny reimbursement if they determine
that the prescribed device has not received appropriate United States Food and
Drug Administration ("FDA") or other governmental regulatory clearances, is not
used in accordance with cost-effective treatment methods as determined by the
payor, or is experimental, unnecessary or inappropriate. Third-party payors are
increasingly challenging the prices charged for medical products and services.
The cost containment measures that health care providers are instituting could
have an adverse effect on the Company's ability to sell its products and may
have a material adverse effect on the Company's business, financial condition
and results of operations. In some markets, such as Spain, France and Germany,
government reimbursement is currently available for purchase or rental of the
Company's products, subject to constraints such as price controls or unit sales
limitations. In Australia and some other foreign markets there is currently
limited or no reimbursement for devices that treat sleep disordered breathing
related respiratory conditions.
A substantial portion of the Company's net revenue is generated from sales
outside North America. The Company expects that such sales will continue to
account for a significant portion of the Company's net revenues in the future.
The Company's sales outside of North America are subject to certain inherent
risks of global operations, including fluctuations in currency exchange rates,
tariffs, import licenses, trade policies, domestic and foreign tax policies and
foreign medical device manufacturing regulations. The Company has had foreign
currency transaction gains and losses in recent periods. A significant fall in
the value of the United States dollar against certain international currencies
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Other factors which could potentially have a material adverse effect on the
Company's business, results of operations or financial conditions include the
costs and other effects of legal and administrative cases and proceedings,
settlements and investigations, claims and changes in those items, and
developments or assertions by or against the Company relating to intellectual
property rights and intellectual property licenses.
The information contained in this section is not intended to be an exhaustive
description of the risks and uncertainties inherent in the Company's business or
in its 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, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . F2
Consolidated Statements of Income for the years ended June 30, 2000, 1999 and 1998 . . . . . . . F3
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2000, 1999 and 1998 F4
Consolidated Statements of Cash Flows for the years ended June 30, 2000, 1999 and 1998 . . . . . F5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F6
Schedule II - Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . . . 27
b) Supplementary Data
Quarterly Financial Information (unaudited)
The quarterly results for the years ended June 30, 2000 and 1999 are summarized
below:
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
1999
-----------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
-----------------------------------------------
Net revenues . . . . . . . $ 19,244 $ 21,480 $ 22,760 $25,143 $88,627
Gross profit . . . . . . . 13,160 14,516 14,859 16,676 59,211
Net income . . . . . . . . 3,184 3,913 4,368 4,637 16,102
Basic earnings per share . $ 0.11 $ 0.13 $ 0.15 $ 0.16 $ 0.55
Diluted earnings per share $ 0.10 $ 0.13 $ 0.14 $ 0.15 $ 0.52
- -25-
(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
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to Registrant's definitive Proxy Statement for its
November 6, 2000 meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2000.
Item 11 EXECUTIVE COMPENSATION
Incorporated by reference to Registrant's definitive Proxy Statement for its
November 6, 2000 meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2000.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to Registrant's definitive Proxy Statement for its
November 6, 2000 meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2000.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr Colin Sullivan, a member of the Company's Medical Advisory Board, provides
consulting services to the Company pursuant to a Consulting Agreement that
terminates on December 31, 2000 (subject to extension for an additional
five-year term) for which he receives annual payments of $189,000 per annum.
The Company also reimburses Dr Sullivan for his out-of-pocket expenses in
performing such consulting services. The Company has also agreed to pay $126,000
to Dr Sullivan for a period of 24 months following the termination of his
consulting relationship with the Company. Total payments to Dr Sullivan were
$189,000, $186,000 and $278,000 for the Company's fiscal years ended June 30,
2000, 1999 and 1998, respectively.
- -26-
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:
1.1 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.
3.0 Exhibits. The following exhibits are filed as a part of this report:
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**
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, USA****
11.1 Computation of Earnings per Common Share
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent and Report on Schedule
27.1 Financial Data Schedule
- --------------------
* 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 from the Registrant's Report on Form 8-K (File
No. 0-26038).
*** 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)
b) Report on Form 8-K
None.
- -27-
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.
/s/ KPMG LLP
KPMG LLP
San Diego, California
August 4, 2000
- -F1-
RESMED INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, June 30,
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 18,250 $ 11,108
Marketable securities available for sale (note 3). . . . . . . . . 3,713 5,626
Accounts receivable, net of allowance for doubtful accounts. . . . 24,688 17,898
of $833 and $421 at June 30, 2000 and 1999, respectively
Inventories, net (note 4). . . . . . . . . . . . . . . . . . . . . 15,802 10,725
Deferred income taxes (note 9) . . . . . . . . . . . . . . . . . . 2,361 2,392
Prepaid expenses and other current assets. . . . . . . . . . . . . 4,358 3,022
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . 69,172 50,771
---------- ----------
Property, plant and equipment, net of accumulated depreciation of
$13,552 at June 30, 2000 and $8,511 at June 30, 1999 (note 5) . . 36,576 29,322
Patents, net of accumulated amortization of $789 and $570
at June 30, 2000 and 1999, respectively. . . . . . . . . . . . . 1,342 782
Goodwill, net of accumulated amortization of $2,003 and $1,459 at
June 30, 2000 and 1999, respectively . . . . . . . . . . . . . . 5,626 6,555
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,878 2,459
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,594 $ 89,889
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 5,929 4,772
Accrued expenses (note 6). . . . . . . . . . . . . . . . . . . . . 9,224 7,779
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 6,469 5,691
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . 21,622 18,242
---------- ----------
Stockholders' equity: (note 7)
Preferred stock, $.01 par value,
2,000,000 shares authorized; none issued . . . . . . . . . . . . - -
Series A Junior Participating preferred stock, $0.01 par value,
150,000 shares authorized; none issued . . . . . . . . . . . . . - -
Common stock, $.004 par value, 50,000,000 shares authorized;
Issued and outstanding 30,593,921 at June 30, 2000 and
29,616,000 at June 30, 1999. . . . . . . . . . . . . . . . . . . 122 118
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 41,495 33,677
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 65,507 43,281
Accumulated other comprehensive loss . . . . . . . . . . . . . . . (13,152) (5,429)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 93,972 71,647
---------- ----------
Commitments and contingencies (notes 13 and 16). . . . . . . . . . - -
Total liabilities and stockholders' equity . . . . . . . . . . . . $ 115,594 $ 89,889
========== ==========
See accompanying notes to consolidated financial statements.
- -F2-
RESMED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
June 30, June 30, June 30,
2000 1999 1998
---------- ---------- ----------
Net revenues . . . . . . . . . . . . . $ 115,615 $ 88,627 $ 66,519
Cost of sales. . . . . . . . . . . . . 36,991 29,416 23,069
---------- ---------- ----------
Gross profit . . . . . . . . . . . . . 78,624 59,211 43,450
---------- ---------- ----------
Operating expenses:
Selling, general and administrative. 36,987 27,414 21,093
Research and development . . . . . . 8,499 6,542 4,994
---------- ---------- ----------
Total operating expenses . . . . . . . 45,486 33,956 26,087
---------- ---------- ----------
Income from operations . . . . . . . . 33,138 25,255 17,363
---------- ---------- ----------
Other income (expenses):
Interest income. . . . . . . . . . . 801 779 1,011
Government grants. . . . . . . . . . 279 833 611
Other, net (note 8). . . . . . . . . (52) (2,290) (2,873)
---------- ---------- ----------
Total other income (expenses), net . . 1,028 (678) (1,251)
---------- ---------- ----------
Income before income taxes . . . . . . 34,166 24,577 16,112
Income taxes (note 9). . . . . . . . . 11,940 8,475 5,501
---------- ---------- ----------
Net income . . . . . . . . . . . . . . $ 22,226 $ 16,102 $ 10,611
========== ========== ==========
Basic earnings per share . . . . . . . $ 0.74 $ 0.55 $ 0.37
Diluted earnings per share . . . . . . $ 0.69 $ 0.52 $ 0.35
Basic shares outstanding . . . . . . . 30,153 29,416 29,000
Diluted shares outstanding . . . . . . 32,303 31,068 30,044
See accompanying notes to consolidated financial statements.
- -F3-
RESMED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS)
Accumulated
Additional other
Common stock paid-in Retained comprehensive Comprehensive
Shares Amount capital Earnings income (loss) Total Income
------ ------- ---------- -------- ------------- ------- -------------
BALANCE, JUNE 30, 1997. . . . . . . . . . . . . . . 28,808 $ 117 29,568 16,568 (1,628) $44,625
Common stock issued on exercise of options (note 7) 296 - 1,020 - - 1,020
Tax benefit from exercise of options. . . . . . . . - - 577 - - 577
Comprehensive income:
Net income. . . . . . . . . . . . . . . . . . . . - - - 10,611 - 10,611 10,611
Other comprehensive income
Foreign currency translation adjustments. . . . (6,060) (6,060) (6,060)
-------------
Comprehensive income. . . . . . . . . . . . . . . . 4,551
------ ------- ---------- -------- ------------- ------- =============
BALANCE, JUNE 30, 1998. . . . . . . . . . . . . . . 29,104 117 31,165 27,179 (7,688) 50,773
Common stock issued on exercise of options (note 7) 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 7) 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
====== ======== ========= ======= ============= =======
See accompanying notes to consolidated financial statements.
- -F4-
RESMED INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS)
June 30, June 30, June 30,
2000 1999 1998
---------- --------- ---------
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,226 16,102 10,611
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 6,248 3,973 3,232
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . 690 633 483
Provision for service warranties. . . . . . . . . . . . . . . . 184 240 6
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 77 549 (416)
Foreign currency options revaluation. . . . . . . . . . . . . . 2,158 125 1,143
Non cash consulting expenses. . . . . . . . . . . . . . . . . . 126 - -
Changes in operating assets and liabilities, net of effect
Of acquisitions:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . (7,394) (5,516) (5,096)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,027) (2,919) (2,445)
Prepaid expenses and other current assets . . . . . . . . . . . . (1,572) (204) (1,413)
Accounts payable and accrued expenses . . . . . . . . . . . . . . 1,412 2,873 1,031
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . 2,147 2,332 (353)
---------- --------- ---------
Net cash provided by operating activities . . . . . . . . . . . . 20,275 18,188 6,783
---------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . . (16,168) (20,515) (10,110)
Purchase of marketable securities - available for sale. . . . . . (36,804) (7,290) (31,292)
Proceeds from sale of marketable securities - available for sale. 38,717 6,862 44,474
Patent registration costs . . . . . . . . . . . . . . . . . . . . (961) (445) (369)
Business acquisitions (note 14) . . . . . . . . . . . . . . . . . (576) (2,024) (1,699)
Purchases of investments . . . . . . . . . . . . . . . . . . . . . (2,732) (1,529) (665)
---------- --------- ---------
Net cash provided by (used in) investing activities . . . . . . . (18,524) (24,941) 339
---------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock, net . . . . . . . . . . . 6,380 2,125 1,020
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . - (235) (239)
---------- --------- ---------
Net cash provided by financing activities. . . . . . . . . . . . 6,380 1,890 781
---------- --------- ---------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . (989) 445 (1,454)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . 7,142 (4,418) 6,449
Cash and cash equivalents at beginning of the year . . . . . . . . 11,108 15,526 9,077
---------- --------- ---------
Cash and cash equivalents at end of the year . . . . . . . . . . . $ 18,250 11,108 15,526
========== ========= =========
Supplemental disclosure of cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . $ 9,716 5,374 6,272
========== ========= =========
Fair value of assets acquired in acquisition. . . . . . . . . . . $ 383 - -
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . (36) - -
Goodwill on acquisition . . . . . . . . . . . . . . . . . . . . . 229 2,024 1,699
---------- --------- ---------
Cash paid for acquisition. . . . . . . . . . . . . . . . . . . . . $ 576 2,024 1,699
========== ========= =========
See accompanying notes to consolidated financial statements.
- -F5-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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. ResMed 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 distribution and
sales sites are located in the United States, United Kingdom, Singapore and
Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(b) Revenue Recognition
Revenue on product sales is recorded at the time of shipment. Royalty
revenue from license agreements is recorded when earned. Service revenue
received in advance from service contracts is initially 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 include 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.
- -F6-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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 is amortized on a
straight-line basis over periods ranging from three to 15 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.
During fiscal 2000 the Company acquired the business and associated
assets of Einar Egnell AB, its Swedish distributor for $576,000. The excess of
the purchase price over the fair value of the net identifiable assets acquired
of $229,000 has been recorded as goodwill. In 1999 the Company paid $2,024,000
as a final deferred goodwill payment on the 1996 acquisition of its German
distributor (see note 14).
Amortization expense of goodwill was $690,000, $633,000 and $483,000
for the years ended June 30, 2000, 1999 and 1998, 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 $279,000, $833,000 and $611,000 for the years ended
June 30, 2000, 1999 and 1998, 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.
- -F7-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Earnings Per Share
The weighted average shares used to calculate basic earnings per share were
30,153,000, 29,416,000, and 29,000,000 for the years ended June 30, 2000, 1999
and 1998, 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 2,150,000, 1,652,000 and 1,044,000 for the years ended
June 30, 2000, 1999 and 1998, 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. 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 denominated
in principally 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, 2000 was $901,000 which represents the
positive fair value of options held by the Company.
- -F8-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Foreign Exchange Risk Management (continued)
The Company held foreign currency option contracts with notional amounts
totaling $171,530,000 and $62,460,000 at June 30, 2000 and 1999, respectively to
hedge foreign currency items. These contracts mature at various dates prior to
June 2002.
(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, 2000 and 1999, 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.
- -F9-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
3. MARKETABLE SECURITIES
The estimated fair value of marketable securities available for sale as of
June 30, 2000 and 1999, was $3,713,000 and $5,626,000, 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, 2000 or 1999.
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, 2000 and
1999 (in thousands):
2000 1999
------- -------
Raw materials. . $ 4,826 $ 4,153
Work in progress 297 74
Finished goods . 10,679 6,498
------- -------
$15,802 $10,725
======= =======
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following as of June 30,
2000 and 1999 (in thousands):
2000 1999
--------- --------
Machinery and equipment. . . . . . . . . . . $ 8,024 $ 7,466
Computer equipment . . . . . . . . . . . . . 9,685 5,329
Furniture and fixtures . . . . . . . . . . . 5,214 4,008
Vehicles . . . . . . . . . . . . . . . . . . 1,214 987
Clinical, demonstration and rental equipment 7,844 5,502
Leasehold improvements . . . . . . . . . . . 552 344
Land . . . . . . . . . . . . . . . . . . . . 3,113 3,476
Buildings. . . . . . . . . . . . . . . . . . 9,837 10,721
Construction in Process. . . . . . . . . . . 4,645 -
--------- --------
50,128 37,833
Accumulated depreciation and amortization. . (13,552) (8,511)
--------- --------
$ 36,576 $29,322
========= ========
- -F10-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
6. ACCRUED EXPENSES
Accrued expenses at June 30, 2000 and 1999 consist of the following (in
thousands):
2000 1999
------ ------
Service warranties . . . . . . . $ 601 $ 478
Consulting and professional fees 324 596
Royalties. . . . . . . . . . . . 240 123
Value added taxes due. . . . . . 2,520 2,074
Employee related costs . . . . . 3,087 2,451
Deferred revenue . . . . . . . . 1,341 949
Clinical Research. . . . . . . . 178 222
Other. . . . . . . . . . . . . . 933 886
------ ------
$9,224 $7,779
====== ======
7. 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. 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 Average
Exercise Exercise Exercise Exercise
2000 Price 1999 Price 1998 Price
----------- --------- ----------- ------ ---------- ------
Outstanding at beginning of year . 3,142,272 $ 7.32 2,403,160 $ 4.57 1,756,352 $ 3.50
Granted. . . . . . . . . . . . . . 1,336,900 14.14 1,265,000 11.31 997,600 6.09
Exercised. . . . . . . . . . . . . (967,985) 6.59 (512,688) 4.15 (294,520) 3.47
Forfeited. . . . . . . . . . . . . (213,165) 10.04 (13,200) 11.32 (56,272) 5.10
----------- --------- ----------- ------ ---------- ------
Outstanding at end of year . . . . 3,298,022 $ 10.12 3,142,272 $ 7.32 2,403,160 $ 4.57
----------- --------- ----------- ------ ---------- ------
Price range of granted options . . $ 13-$27 $ 10-$12 $ 6-$9
Options exercisable at end of year 1,368,286 $ 6.92 1,254,126 $ 4.00 1,103,472 $ 3.38
----------- --------- ----------- ------ ---------- ------
- -F11-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
7. 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, 2000.
Weighted Average
Number Outstanding at Remaining Number Exercisable at
Exercise Prices June 30, 2000 Contractual Life June 30, 2000
--------------------- ---------------- ---------------------
2.75. . . . . . 237,312 4.92 237,312
3.27. . . . . . 10,000 5.88 10,000
4.09. . . . . . 354,776 6.00 354,776
6.00. . . . . . 517,734 7.10 244,798
8.75. . . . . . 22,000 7.75 12,000
11.32 . . . . . 835,328 8.00 458,728
11.57 . . . . . 42,668 8.00 26,668
11.25 . . . . . 36,004 8.25 17,337
9.88. . . . . . 10,000 8.78 6,667
17.00 . . . . . 48,000 9.00 -
13.24 . . . . . 1,104,200 9.08 -
22.00 . . . . . 42,000 9.58 -
27.00 . . . . . 38,000 9.83 -
--------------------- --------------- ---------------------
3,298,022 7.84 1,368,286
--------------------- --------------- ---------------------
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:
2000 1999 1998
------- ------- -------
Net income (in thousands):
As reported . . . . . . . . . . . . . . . . . . . . . $22,226 $16,102 $10,611
Pro forma . . . . . . . . . . . . . . . . . . . . . . 17,511 12,951 9,380
Basic earnings per common share:
As reported . . . . . . . . . . . . . . . . . . . . . $ 0.74 $ 0.55 $ 0.37
Pro forma . . . . . . . . . . . . . . . . . . . . . . $ 0.58 $ 0.44 $ 0.33
Diluted income per common and common equivalent share:
As reported . . . . . . . . . . . . . . . . . . . . . $ 0.69 $ 0.52 $ 0.35
Pro forma . . . . . . . . . . . . . . . . . . . . . . $ 0.54 $ 0.42 $ 0.31
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 6.5% for fiscal 2000 and 5.8% for
fiscals 1999 and 1998, respectively; no dividend yield; expected lives of four
years; and volatility of 61% for 2000, 55% for 1999 and 34% for 1998,
respectively.
- -F12-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
7. 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, 2000.
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 15% 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 the year, 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.
8. OTHER, NET
Other, net is comprised of the following at June 30, 2000, 1999 and 1998
(in thousands):
2000 1999 1998
-------- ------- -------
License fees . . . . . . . . . . . . . . . . $ 167 58 1,272
Unrealized gain/(loss) on foreign currency
Hedging position. . . . . . . . . . . . (1,863) 435 (1,050)
Gain/(loss) on foreign currency transactions 1,681 (2,888) (2,927)
Write down of investments. . . . . . . . . . - 300 (125)
Other. . . . . . . . . . . . . . . . . . . . (37) (195) (43)
-------- ------- -------
(52) (2,290) (2,873)
======== ======= =======
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 US homecare market.
Additionally, the Company will earn royalties on products manufactured.
9. INCOME TAXES
Income before income taxes for the years ended June 30, 2000, 1999 and
1998, was taxed under the following jurisdictions (in thousands):
2000 1999 1998
------- ------ ------
U.S. . . $ 4,644 4,043 1,730
Non-U.S. 29,522 20,534 14,382
------- ------ ------
$34,166 24,577 16,112
======= ====== ======
- -F13-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
9. INCOME TAXES (CONTINUED)
The provision for income taxes is presented below (in thousands):
2000 1999 1998
-------- ------ ------
Current:
Federal. . . . . . . . . $ 1,396 772 (13)
State. . . . . . . . . . 77 174 (148)
Non-US . . . . . . . . . 10,390 6,980 6,078
-------- ------ ------
11,863 7,926 5,917
-------- ------ ------
Deferred:
Federal. . . . . . . . . 390 360 (226)
State. . . . . . . . . . 14 (12) 94
Non-US . . . . . . . . . (327) 201 (284)
77 549 (416)
-------- ------ ------
Provision for income taxes $11,940 8,475 5,501
======== ====== ======
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):
2000 1999 1998
-------- ------ ------
Computed 'expected' tax expense . . . . . . . . . $11,616 8,356 5,478
Increase (decrease) in income taxes
Resulting from:
Non-deductible expenses . . . . . . . . . . . . 715 302 29
Research and development credit . . . . . . . . (430) (250) (371)
Tax effect of intercompany dividends. . . . . . (508) 13 (321)
Utilization of net operating loss carryforwards (4) - (22)
Change in valuation allowance . . . . . . . . . 22 71 47
Effect of non-U.S. tax rates. . . . . . . . . . 714 455 415
State income taxes. . . . . . . . . . . . . . . 235 131 (36)
Other . . . . . . . . . . . . . . . . . . . . . (420) (603) 282
-------- ------ ------
$11,940 8,475 5,501
======== ====== ======
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, 2000 and 1999 (in thousands):
2000 1999
------- ------
Deferred tax assets:
Employee benefit obligations . . . $ 534 333
Provision for service warranties . 203 170
Provision for doubtful debts . . . 254 114
Net operating loss carryforwards . 79 64
Deferred foreign tax credits . . . 970 1,334
Accrual for legal costs. . . . . . 76 426
Intercompany profit in inventories 2,188 1,567
Unrealized foreign exchange losses - 173
Property, plant and equipment. . . 290 450
Other accruals . . . . . . . . . . 418 198
------- ------
5,012 4,829
Less valuation allowance . . . . . . (86) (64)
Deferred tax assets. . . . . . . . . $4,926 4,765
------- ------
- -F14-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
9. INCOME TAXES (CONTINUED)
2000 1999
-------- -------
Deferred tax liabilities:
Patents . . . . . . . . . . . . . . . . . . $ (413) (243)
Capitalized software. . . . . . . . . . . . (453) (536)
Unrealized gain on foreign currency options (306) (508)
Unrealized foreign exchange gains . . . . . (196) -
Undistributed German income . . . . . . . . (992) (892)
Royalties receivable. . . . . . . . . . . . - (18)
Other receivables . . . . . . . . . . . . . (168) (41)
Other . . . . . . . . . . . . . . . . . . . (37) (135)
Deferred tax liabilities. . . . . . . . . . . (2,565) (2,373)
-------- -------
Net deferred tax asset. . . . . . . . . . . . $ 2,361 2,392
======== =======
The valuation allowance at June 30, 2000 and 1999, primarily relates to a
provision for uncertainty as to the utilization of net operating loss
carryforwards. The net change in the valuation allowance was an increase of
$22,000 for the year ended June 30, 2000, in comparison to an increase of
$48,000 and a decrease of $635,000, for the years ended June 30, 1999 and 1998,
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 2000,
1999 and 1998 were reduced by $4,000, $0 and $22,000, respectively through the
utilization of net operating loss carryforwards.
At June 30, 2000, the net operating loss carryforwards relate to Singapore,
Sweden and Malaysia.
10. EMPLOYEE RETIREMENT PLANS
ResMed contributes to a number of employee retirement plans for the benefit
of its employees. These plans are detailed as follows:
Australia - ResMed 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. ResMed contributes to
the plans at the rate of 7% of the salaries of all Australian employees. Total
Company contributions to the plans for the years ended June 30, 2000, 1999 and
1998 were $632,000, $457,000 and $362,000, respectively.
United Kingdom - ResMed 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. ResMed contributes to
the plans at the rate of 3% of the salaries. Total Company contributions to the
plan were $8,000, $8,000 and $5,000 in fiscal 2000, 1999 and 1998 respectively.
- -F15-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
10. 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 $123,000,
$96,000 and $54,000 in fiscal 2000, 1999 and 1998 respectively.
11. SEGMENT INFORMATION
ResMed 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 ResMed 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, 2000,
1999 and 1998, is summarized below (in thousands):
Rest of
U.S.A Germany Australia World Total
-------- ------- --------- ------- -------
2000
Revenue from external customers $ 58,419 14,317 4,444 38,435 115,615
Long lived assets . . . . . . . $ 8,126 1,248 27,595 2,485 39,454
======== ======= ========= ====== =======
1999
Revenue from external customers $ 47,229 13,181 3,489 24,728 88,627
Long lived assets . . . . . . . $ 2,525 816 26,611 1,829 31,781
======== ======= ========= ====== =======
1998
Revenue from external customers $ 31,170 11,248 3,670 20,431 66,519
Long lived assets . . . . . . . $ 1,707 595 9,211 597 12,110
======== ======= ========= ====== =======
- -F16-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
11. 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.
12. RELATED PARTY TRANSACTIONS
For the years ended June 30, 2000, 1999 and 1998, consulting service fees in the
amount of $189,000, $186,000 and $278,000, were paid to Dr. Colin Sullivan, a
shareholder. Dr. Sullivan provides consulting services to the Company pursuant
to a consulting agreement that terminates on December 31, 2000 (subject to
extension for an additional five year term) for which he receives annual
payments of $189,000. The Company also reimburses Dr. Sullivan for his
out-of-pocket expenses in performing such consulting services.
The Company has also agreed to pay to Dr. Sullivan $126,000 for a period of 24
months following the termination of his consulting relationship with the Company
in exchange for his agreement not to compete with the Company during this
period.
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, 2000 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
---------- -------------- ------------------
2001 . . . . . . . . . . . . $ 948 $ 320 $ 628
2002 . . . . . . . . . . . . 636 289 347
2003 . . . . . . . . . . . . 510 204 306
2004 . . . . . . . . . . . . 499 210 289
2005 . . . . . . . . . . . . 408 217 191
Thereafter . . . . . . . . . 356 110 246
---------- -------------- ------------------
Total minimum lease payments $ 3,357 $ 1,350 $ 2,007
========== ============== ==================
Rent expenses under operating leases for the years ended June 30, 2000, 1999 and
1998 were approximately $744,000, $789,000 and $607,000, respectively.
14. BUSINESS ACQUISITION
On January 31, 2000 the Company's fully 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 5 years.
In fiscal 1999, the Company paid $2,024,000 as a final deferred goodwill payment
on the 1996 acquisition of its German distributor.
- -F17-
RESMED INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
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, 2000 was $7.7 million compared to a net gain of $2.3 million for the year
ended June 30, 1999 and net loss of $6.1 million for the year ended June 30,
1998. Comprehensive income for the years ended June 30, 2000, June 30, 1999 and
June 30, 1998 was $14.5 million, $18.4 million and $4.6 million, respectively.
The Company does not provide for US income taxes on foreign currency translation
adjustments since it does not provide for such taxes on undistributed earnings
of foreign subsidiaries. Accumulated other comprehensive loss at June 30, 2000
and June 30, 1999 consisted solely of foreign currency translation adjustments
and represent unrealized losses of $13.2 million and $5.4 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.
On March 31, 2000, the Company 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 the Company's
trademarks, trade dress, and design patents related to its Mirage mask design.
While the Company is prosecuting the above actions, there can be no assurance
that the Company will be successful.
- -F18-
In May 1995, Respironics and its Australian distributor filed a Statement of
Claim against the Company and Dr. Farrell in the Federal Court of Australia,
alleging that the Company engaged in unfair trade practices. The Statement of
Claim asserts damage claims for lost profits on sales in the aggregate amount of
approximately $1,000,000. While the Company is defending this action, there can
be no assurance that the Company will be successful or that the Company will not
be required to make significant payments to the claimants. Furthermore, the
Company is incurring ongoing legal costs in defending this action, as well as in
the continuing litigation of its patent cases.
17. SUBSEQUENT EVENT
On July 7, 2000, the Company purchased the land and buildings of its US
Headquarters in Poway, California for $17.2 million.
The purchase was funded by a combination of cash reserves and an unsecured $20
million revolving loan facility with the Union Bank of California. The initial
draw down on this facility was $10 million.
- -F19-
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 25, 2000 ResMed Inc
By /S/ PETER C FARRELL
_______________________________________
Peter C Farrell, President and
Chief Executive Officer
(Principal Executive Officer)
By /S/ ADRIAN M SMITH
_______________________________________
Adrian M Smith, Chief Financial Officer
(Principal 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 25, 2000
Peter C Farrell President, Chairman of the Board
(Principal Executive Officer)
/S/ CHRISTOPHER G ROBERTS Director September 25, 2000
Christopher G Roberts
/S/ MICHAEL A QUINN Director September 25, 2000
Michael A Quinn
/S/ GARY W PACE _ Director September 25, 2000
Gary W Pace
/S/ DONAGH MCCARTHY Director September 25, 2000
Donagh McCarthy
- -28-
SCHEDULE II
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN THOUSANDS)
Balance at Charged to Other Balance at
Beginning of costs and (deductions) end of
Period expenses period period
------------- ---------- ------------ ----------
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
============= ========== ============ ==========
Year ended June 30, 1998
Applied against asset account
Allowance for doubtful accounts $ 277 79 (108) 248
============= ========== ============ ==========
See accompanying independent auditor's report.
- -29-
EXHIBIT INDEX
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**
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, USA****
11.1 Computation of Earnings per Common Share
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent and Report on Schedule
27.1 Financial Data Schedule
- --------------------
* 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 from the registrants Report on Form 8-K (File
No. 0-26038).
*** 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)
EXHIBIT 11.1
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended June 30,
--------------------------------------
2000 1999 1998
-------------------- ------- -------
BASIC EARNINGS
Net income . . . . . . . . . . . . . . . . $ 22,226 16,102 10,611
==================== ======= =======
Shares
Weighted average number of common
shares outstanding. . . . . . . . . . . . 30,153 29,416 29,000
==================== ======= =======
Basic earnings per share . . . . . . . . . $ 0.74 $ 0.55 $ 0.37
==================== ======= =======
DILUTED EARNINGS
Net income . . . . . . . . . . . . . . . . $ 22,226 16,102 10,611
==================== ======= =======
Shares
Weighted average number of common
shares outstanding. . . . . . . . . . . . 30,153 29,416 29,000
Additional shares assuming conversion of
stock options under treasury stock method 2,150 1,652 1,044
-------------------- ------- -------
Weighted average number of common and
Common equivalent shares outstanding
as adjusted . . . . . . . . . . . . . . . 32,303 31,068 30,044
==================== ======= =======
Diluted earnings per share . . . . . . . . $ 0.69 $ 0.52 $ 0.35
==================== ======= =======
See accompanying independent auditor's report.
EXHIBIT 21.1
- --------------------------------------------------------------------------------
RESMED INC
SUBSIDIARIES OF THE REGISTRANT
ResMed Holdings Limited (incorporated under the laws of New South Wales,
Australia)
ResMed Limited (incorporated under the laws of New South Wales, Australia)*
ResMed Asia Pacific Limited (incorporated under the laws of New South Wales,
Australia)*
ResMed Corporation (a Minnesota corporation)
ResMed (UK) Limited (a United Kingdom corporation)*
ResMed International Inc (a Delaware corporation)
ResMed Priess GmbH and Co Kg (a German corporation)**
ResMed SA (a French corporation)**
ResMed Priess GmbH (a German corporation)
ResMed Singapore Pte Ltd (a Singaporean corporation)**
ResMed (Malaysia) Sdn Bhd (a Malaysian Corporation)**
ResMed New Zealand Limited (a New Zealand Corporation)**
ResMed R&D Limited (incorporated under the laws of New South Wales, Australia)*
ResMed Sweden AB (a Swedish Corporation)**
- ----------------------
*A subsidiary of ResMed Holdings Limited
** A subsidiary of ResMed International Inc
EXHIBIT 23.1
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors and Stockholders
ResMed Inc:
The audits referred to in our report dated August 4, 2000, included the related
financial statement schedules as of June 30, 2000 and for each of the years in
the three-year period ended June 30, 2000. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statement (No
333-08013) on Form S-8 of ResMed Inc of our reports included herein.
/s/ KPMG LLP
KPMG LLP
San Diego, California
September 25, 2000