RESMED INC. AND SUBSIDIARIES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ___________ TO _____________ Commission file number: 0-26038 ResMed Inc. (Exact name of registrant as specified in its charter) Delaware 98-0152841 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 10121 Carroll Canyon Road San Diego, CA 92131-1109 United States Of America (Address of principal executive offices) 619 689 2400 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X___ No ______ As of December 31, 1997, 7,250,120 shares of Common Stock ($0.004 par value) were outstanding.
INDEX <TABLE> <CAPTION> PART I FINANCIAL INFORMATION <S> <C> <C> Page Item 1 Financial Statements Condensed Consolidated Balance Sheets as of December 31, 3 1997 (unaudited) and June 30, 1997 Unaudited Condensed Consolidated Statements of Income for 4 the Three Months Ended December 31, 1997 and 1996 and the Six Months Ended December 31, 1997 and 1996 Unaudited Condensed Consolidated Statements of Cash Flows 5 for the Six Months Ended December 31, 1997 and 1996 Notes to the unaudited Condensed Consolidated Financial 6 Statements Item 2 Managements Discussion and Analysis of Financial 11 Conditions and Results of Operations </TABLE> <TABLE> <CAPTION> PART II OTHER INFORMATION <S> <C> <C> Item 1 Legal Proceedings 14 Item 2 Changes in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information 14 Item 6 Exhibits and Reports on Form 8-K 14 SIGNATURES 15 </TABLE> - -2-
PART I. FINANCIAL INFORMATION Item 1. Financial Statements RESMED INC. AND SUBSIDIARIES <TABLE> <CAPTION> Condensed Consolidated Balance Sheets (in US$thousands, except per share data) <S> <C> <C> December 31, June 30, Assets 1997 1997 - ---------------------------------------------------------------- -------------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 7,581 9,077 Marketable securities - available for sale 13,027 18,908 Accounts receivable, net of allowance of $270 at December 31, 1997 and $277 at June 30, 1997 9,365 7,834 Government grants 469 391 Inventories 7,572 5,797 Deferred income taxes 951 999 Prepaid expenses and other current assets 2,016 1,385 ____________ ____________ Total current assets 40,981 44,391 ____________ ____________ Property, plant and equipment, net of accumulated depreciation of $4,225 at December 31, 1997 and $3,467 at June 30, 1997 9,098 4,916 Patents, net of accumulated amortization of $326 at December 31, 1997 and $325 at June 30, 1997 326 253 Deferred income taxes 150 157 Goodwill, net of accumulated amortization of $632 at December 31, 1997 and $433 at June 30, 1997 5,651 4,553 Other assets 838 625 ____________ ____________ Total Assets $ 57,044 54,895 ============ ============ Liabilities and Stockholders' Equity - ---------------------------------------------------------------- Current liabilities: Accounts payable $ 2,907 2,641 Accrued expenses 7,010 3,537 Income taxes payable 1,403 3,544 Current portion of long-term debt 358 274 ____________ ____________ Total current liabilities 11,678 9,996 ____________ ____________ Long-term debt, less current portion - 274 ____________ ____________ Total liabilities 11,678 10,270 ____________ ____________ Stockholders' equity: Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued - - Series A Junior Participating preferred stock, $0.01 par value, 150,000 shares authorized; none issued - - Common stock, $0.004 par value, 15,000,000 shares authorized; issued and outstanding 7,250,120 at December 31, 1997 and 7,202,413 at June 30, 1997 29 29 Additional paid-in capital 30,187 29,656 Retained earnings 21,017 16,568 Currency translation adjustment (5,867) (1,628) ____________ ____________ 45,366 44,625 ____________ ____________ Commitments and contingencies - - ____________ ____________ Total liabilities and Stockholders' equity $ 57,044 54,895 ============ ============ <FN> See accompanying notes to condensed consolidated financial statements. </TABLE> - -3-
RESMED INC. AND SUBSIDIARIES <TABLE> <CAPTION> Unaudited Condensed Consolidated Statements of Income (in US$thousands, except per share data) Three Months Ended Six Months Ended December 31 December 31, -------------------- ---------------- <S> <C> <C> <C> <C> 1997 1996 1997 1996 -------------------- ---------------- -------------- ------------- Net revenue $ 16,146 11,587 30,124 22,728 Cost of sales 5,173 4,715 10,598 9,565 _____________ _____________ _____________ _____________ Gross profit 10,973 6,872 19,526 13,163 _____________ _____________ _____________ _____________ Operating expenses Selling, general and administrative expenses 5,044 4,134 9,694 8,056 Research and development expenses 1,234 891 2,499 1,682 _____________ _____________ _____________ _____________ Total operating expenses 6,278 5,025 12,193 9,738 _____________ _____________ _____________ _____________ Income from operations 4,695 1,847 7,333 3,425 _____________ _____________ _____________ _____________ Other income (expense), net: Interest income, net 263 301 554 544 Government grants 191 89 348 178 Other income (expense), net (1,649) 237 (1,441) 1,033 _____________ _____________ _____________ _____________ Total other income (expense), net (1,195) 627 (539) 1,755 _____________ _____________ _____________ _____________ Income before income taxes 3,500 2,474 6,794 5,180 Income taxes 1,208 792 2,345 1,658 _____________ _____________ _____________ _____________ Net income 2,292 1,682 4,449 3,522 ============= ============= ============= ============= Basic earnings per share $ 0.32 0.23 0.61 0.49 Diluted earnings per share $ 0.31 0.23 0.60 0.48 <FN> See accompanying notes to condensed consolidated financial statements. </TABLE> - -4-
RESMED INC. AND SUBSIDIARIES <TABLE> <CAPTION> Unaudited Condensed Consolidated Statements of Cash Flows (in US$thousands) Six Months Ended December 31, ------------------ <S> <C> <C> 1997 1996 ------------------ -------------- Cash flows from operating activities: Net income $ 4,449 3,522 _____________ _____________ Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,603 1,076 Provision for service warranties 60 40 Deferred income taxes 55 2 Foreign currency options revaluations 1,669 (792) Changes in operating assets and liabilities: Accounts receivable, net (1,629) (516) Government grants (130) 35 Inventories (2,149) 330 Prepaid expenses and other current assets (726) (751) Accounts payable, accrued expenses and other liabilities (1,897) 1,693 _____________ _____________ Net cash provided by operating activities 1,305 4,639 _____________ _____________ Cash flows from investing activities: Purchases of property, plant and equipment (6,042) (1,426) Purchases of patents (155) (81) Purchase of investments (389) - Proceeds from sale of investments - 738 Loans receivable - (150) Business acquisition (1,068) (991) Purchases of marketable securities - available for sale (18,017) (25,560) Proceeds from sale of marketable securities - available for sale 23,478 25,953 _____________ _____________ Net cash used in investing activities (2,193) (1,517) _____________ _____________ Cash flows from financing activities: Proceeds from issuance of common stock 531 122 Repayment of long-term debt (124) (146) _____________ _____________ Net cash provided by (used in) financing activities 407 (24) _____________ _____________ Effect of exchange rate changes on cash (1,015) 4 _____________ _____________ Net increase (decrease) in cash and cash equivalents (1,496) 3,102 _____________ _____________ Cash and cash equivalents at beginning of period 9,077 5,510 _____________ _____________ Cash and cash equivalents at end of period 7,581 8,612 ============= ============= Supplemental disclosure of cash flow information: Income taxes paid 4,160 1,107 Interest paid 35 - <FN> See accompany notes to condensed consolidated financial statements. </TABLE> - -5-
RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Basis of Presentation ResMed Inc. (the Company), is a Delaware corporation formed in March 1994 as a holding company for ResMed Holdings Ltd. (RHL), a company resident in Australia. RHL designs, manufactures and markets devices for the evaluation and treatment of sleep disordered breathing, primarily obstructive sleep apnea. The Company's principal manufacturing operations are located in Australia. Other principal distribution and sales sites are located in the United States, the United Kingdom and Europe. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 1997 and the six months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the year ended June 30, 1998. (2) Summary of Significant Accounting Policies (a) Basis of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. (b) Revenue Recognition: Revenue on product sales is recorded at the time of shipment. Royalty revenue from license agreements is recorded when earned. (c) Cash and Cash Equivalents: Cash equivalents include certificates of deposit, commercial paper, and other highly liquid investments stated at cost, which approximates market. Investments with original maturities of 90 days or less are considered to be cash equivalents for purposes of the consolidated statements of cash flows. - -6-
RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (2) Summary of Significant Accounting Policies, Continued (d) Inventories: Inventories are stated at the lower of cost, determined principally by the first-in first-out method, or net realizable value. (e) Property, Plant and Equipment: Property, plant and equipment is recorded at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, generally two to ten years. Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease. Straight-line and accelerated methods of depreciation are used for tax purposes. Maintenance and repairs are charged to expense as incurred. (f) Patents: The registration costs for new patents are capitalized and amortized over the estimated useful life of the patent, generally five years. In the event of a patent being superseded, the unamortized costs are written off immediately. (g) Government Grants: Government grants revenue is recognized when earned. Grants have been obtained by the Company from the Australian Federal Government to support continued development of the Company's proprietary positive airway pressure technology and to assist development of export markets. Grants have been recognized in the amount of $191,000 and $89,000 for the three month period ended December 31, 1997 and 1996, respectively and $348,000 and $178,000 for the six month periods ended December 31, 1997 and 1996, respectively. (h) Foreign Currency: The consolidated financial statements of the Company's non-US subsidiaries are translated into US dollars for financial reporting purposes. Assets and liabilities of non-US subsidiaries whose functional currencies are other than the US dollar are translated at period end exchange rates, revenue and expense transactions are translated at average exchange rates for the period. Cumulative translation adjustments are reflected in stockholders' equity. Gains and losses on transactions, denominated in other than the functional currency of the entity, are reflected in operations. (i) Research and Development: All research and development costs are expensed in the period incurred. - -7-
RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (2) Summary of Significant Accounting Policies, Continued (j) Earnings per Share: During the quarter ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (Statement 128). As required by Statement 128, all prior period information has been restated to conform to the provisions of Statement 128. The weighted average shares used to calculate basic earnings per share was 7,247,000 and 7,189,000 for the quarters ended December 31, 1997 and 1996, respectively, and 7,238,000 and 7,183,000 for the six month periods ended December 31, 1997 and 1996, respectively. The difference between basic earnings per share and diluted earnings per share is attributable to the impact of outstanding stock options during the periods presented. Stock options had the effect of increasing the number of shares used in the calculation (by application of the treasury stock method) by 236,000 and 184,000 for the quarters ended December 31, 1997 and 1996, respectively, and by 219,000 and 129,000 for the six month periods ended December 31, 1997 and 1996, respectively. (k) Financial Instruments: The carrying value of financial instruments, such as cash and cash equivalents, marketable securities - available for sale, accounts receivable, government grants, foreign currency option contracts, accounts payable and long-term debt approximate their fair value. The Company does not hold or issue financial instruments for trading purposes. The Fair Value of Financial Instruments is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. (l) Foreign Exchange Risk Management: The Company enters into various types of foreign exchange contracts in managing its foreign exchange risk, including derivative financial instruments encompassing forward exchange contracts and foreign currency options. The purpose of the Company's foreign currency hedging activities is to protect the Company from adverse exchange rate fluctuations with respect to net cash movements resulting from the sales of products to foreign customers and Australian manufacturing activities. The Company enters into foreign currency option contracts to hedge anticipated sales and manufacturing costs denominated in principally Australian Dollars, Pound Sterling and Deutschmarks. The term of such foreign exchange contracts generally do not exceed three years. Premiums to enter certain foreign currency options are included in other assets and are amortized over the period of the agreement in the consolidated statement of income against other income, net. At December 31, 1997 unamortized premiums amounted to $544,151. Unrealized gains or losses are recognized as incurred in the statement of financial position as either other assets or other liabilities and are recorded within other income, net on the Company's consolidated statements of income. Unrealized gains and losses on currency derivatives are determined based on dealer quoted prices. - -8-
RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (2) Summary of Significant Accounting Policies, Continued (l) Foreign Exchange Risk Management, Continued: Foreign currency option contracts have been purchased in part by the issue of put options to counterparts. As a result, should foreign exchange rates drop below a specified level, on a specific date, the Company is required to deliver certain funds to counterparts at contracted foreign exchange rates. As at December 31, 1997 put options issued by the Company are recognized at fair value of $1,573,000 and are included in accrued expenses. The Company is exposed to credit-related losses in the event of non-performance by counterparts to financial instruments, but it does not expect any counterparts to fail to meet their obligations given their high credit ratings. The credit exposure of foreign exchange options is represented by the fair value of options with a positive fair value at the reporting date. At December 31, 1997 the Company held foreign currency option contracts with notional amounts totaling $47,452,000 to hedge foreign currency items. These contracts mature at various dates prior to December 31, 1999. (m) Income Taxes: The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109). Statement 109 requires an asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (3) Inventories <TABLE> <CAPTION> Inventories were comprised of the following at December 31, 1997 and June 30, 1997: <S> <C> <C> December 31, June 30, 1997 1997 ----------- ---------- $ '000 $ '000 ---------- ---------- Raw materials $ 2,031 1,797 Work in progress 466 284 Finished goods 5,075 3,716 _______ _______ $ 7,572 5,797 ======= ======= </TABLE> - -9-
RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (4) Commitments and contingencies The Company is currently engaged in significant patent litigation relating to the enforcement and defense of certain of its patents. In January 1995, the Company filed a complaint for patent infringement in the United States against Respironics. The complaint seeks monetary damages from, and injunctive relief against Respironics resulting from its alleged infringement of three of the Company's patents. In February 1995, Respironics filed a complaint against the Company seeking a declaratory judgment that Respironics does not infringe claims of these patents and that the Company's patents are invalid and unenforceable. The two actions have been combined and will proceed in the United States District Court for the Western District of Pennsylvania. In June 1996 the Company initiated a further action in Pennsylvania against Respironics regarding alleged infringement of a fourth patent, granted June 4, 1996, related to the delay timer feature. This action was again consolidated with the ongoing case such that the two remaining actions are to proceed together. On July 1, 1997 the Court granted Respironics a motion for partial summary judgment in which Respironics alleged its accused products do not infringe one of the four patents in suit. Subsequently the court undertook a de novo review of the motion and on January 27, 1998 confirmed the initial ruling. It is ResMed's intention to appeal to the Patents Court of Appeal for the Federal Circuit once a final judgment has been rendered. On May 17, 1995, Respironics and its Australian distributor filed a Statement of Claim against the Company and Dr. Peter Farrell in the Federal Court of Australia. The Statement of Claim alleges that the Company engaged in unfair trade practices, including the misuse of the power afforded by its Australian patent and dominant market position in violation of the Australian Trade Practices Act. The Statement of Claim asserts damage claims in the aggregate amount of approximately $730,000, constituting lost profit on sales. While the Company intends to defend this action, there can be no assurance that the Company will be successful in defending such action or that the Company will not be required to make significant payments to the claimants. Furthermore, the Company expects to incur ongoing legal costs in defending such action. - -10-
RESMED INC. AND SUBSIDIARIES Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Net Revenue Net revenue increased for the three months ended December 31, 1997 to $16.1 million from $11.6 million for the three months ended December 31, 1996, an increase of $4.6 million or 39%. For the six month period ended December 31, 1997 net revenue increased to $30.1 million from $22.7 million in the six month period ended December 31, 1996, an increase of $7.4 million or 33%. Both the three month and six month increases in net revenue were attributable to an increase in unit sales of the Company's flow generators and accessories primarily in North America. In fiscal 1998 net revenue in North America increased to $8.3 million from $4.9 million for the quarter, and to $15.2 million from $9.3 million for the six month period ended December 31, respectively. In Europe net revenue increased to $5.5 million from $5.2 million for the quarter, and to $10.9 million from $10.6 million for the six month period ended December 31, respectively. Gross Profit Gross profit increased for the three months ended December 31, 1997 to $11.0 million from $6.9 million for the three months ended December 31, 1996, an increase of $4.1 million or 60%. Gross profit as a percentage of net revenue increased for the quarter ended December 31, 1997 to 68% from 59% for the quarter ended December 31, 1996. These increases resulted primarily from increased unit sales, a shift to higher margin products, and a significant devaluation of the Australian Dollar in which the Company's manufacturing activities are conducted. For the six month period ended December 31, 1997 gross profit increased to $19.5 million from $13.2 million in the same period of fiscal 1997, an increase of $6.4 million or 48%. Gross profit as a percentage of net revenue increased for the six month period ended December 31, 1997 to 65% from 58% for the six months ended December 31, 1996. These increases also resulted from increased revenues, a swift to higher margin product sales and the devaluation noted above. Selling, General and Administrative Expenses Selling, general and administrative expenses increased for the three months ended December 31, 1997 to $5.0 million from $4.1 million for the three months ended December 31, 1996, an increase of $0.9 million or 22%. As a percentage of net revenue, selling, general and administrative expenses decreased to 31% for the quarter ended December 31, 1997 from 36% for the quarter ended December 31, 1996. The increase in selling, general and administrative expenses was primarily due to an increase from 91 to 124 in the number of sales and administrative personnel while legal costs associated with ongoing legal action (refer Note 4) marginally declined to $306,000 from $323,000 and other expenses rose in relation to the increase in Company sales. Selling, general and administrative expenses for the six months ended December 31, 1997 increased to $9.7 million from $8.1 million for the six months ended December 31, 1996, an increase of $1.6 million or 20%. As a percentage of net revenue selling, general and administration expenses declined to 32% for the six months ended December 31, 1997 from 35% in the six months ended December 31, 1996. - -11-
RESMED INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Research and Development Expenses Research and development expenses increased for the three months ended December 31, 1997 to $1.2 million from $891,000 for the three months ended December 31, 1996, an increase of $343,000 or 38%. As a percentage of net revenue, research and development expenses remained constant for the three months ended December 31, 1997 and for the period ended December 31, 1996 at 8% of net revenues. The increase in gross research and development expenses was due to an increased use of consultants as well as increased evaluation and testing procedures incurred to facilitate development of a number of new products. For the six month period ended December 31, 1997 research and development expenses increased to $2.5 million from $1.7 million for the same period in fiscal 1997, an increase of $817,000 or 49%. As a percentage of net revenue, research and development expenses increased for the six months ended December 31, 1997 to 8% from 7% for the six months ended December 31, 1996. The increase in gross research and development expenditure for the six months reflects additional costs relating to development and evaluation of new products. Other Income (Expense), Net Other Income (Expense), Net, declined for the three months ended December 31, 1997 to a loss of $1.2 million from a profit of $627,000 for the three months ended December 31, 1996, a decrease of $1.8 million. This decline was due primarily to net foreign exchange losses of $1.6 million arising from the devaluation of foreign currency option contracts associated with the significant decline in the value of the Australian Dollar. Government grants income increased for the three months ended December 31, 1997 to $191,000 from $89,000 for the three months ended December 31, 1996 reflecting the recognition of Australian Federal Government research grants. Other Income (Expense), Net also declined for the six months ended December 31, 1997 to a loss of $539,000, from a profit of $1.8 million for the six months ended December 31, 1996 a decrease of $2.3 million. The decline in Other Income (Expense), Net over the six month period from the corresponding period in fiscal 1997, primarily reflects losses incurred in foreign currency option contracts relating to the devaluation of the Australian Dollar. Income Taxes The Company's effective income tax rate for the three months ended December 31, 1997 increased to approximately 35% from approximately 32% for the three months ended December 31, 1996 and to 35% from 32% for the six month period then ended. The increased tax rate primarily relates to a relatively higher German effective corporate taxation rate. This effective tax rate increase is partially offset by an increase in Australian research and development expenses incurred in fiscal 1998 over fiscal 1997 for which the Company receives a 125% deduction under Australian tax law. - -12-
RESMED INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of December 31, 1997 and June 30, 1997, the Company had cash and cash equivalents and marketable securities available for sale of approximately $20.6 million and $28.0 million, respectively. The Company's working capital approximated $29.3 million and $34.4 million, at December 31, 1997 and June 30, 1997, respectively. The decline in working capital balances reflects primarily the purchase of a 173,000ft2 site for construction of a manufacturing and warehouse facility in Sydney, Australia. During the six months ended December 31, 1997, the Company's operations generated $1.3 million of cash from operations, primarily as a result of increased profit from operations, offset by increases in accounts receivable due to increased sales and inventory and the payment of $4.2 million of income taxes. During the six months ended December 31, 1996 approximately $4.6 million of cash was generated by operations primarily due to increased profit from operations. The Company's capital expenditures for the six month period ended December 31, 1997 and 1996 aggregated $6.0 million and $1.4 million respectively. The majority of the expenditures in the six month period ending December 31, 1997 related to the construction of a new manufacturing facility along with the purchase of computer hardware and production tooling. As a result of these capital expenditures, the Company's December 31, 1997 balance sheet reflects net property plant and equipment of approximately $9.1 million at December 31, 1997 compared to $4.9 million at June 30, 1997. In addition, during the six month period ended December 31, 1997 the Company paid $1.1 million in deferred business acquisition payments with regards to the acquisition of Priess in February 1996. The results of the Company's international operations are affected by changes in exchange rates between currencies. Changes in exchange rates may negatively affect the Company's consolidated net revenue and gross profit margins from international operations. As approximately 2% of the Company's net revenues are generated in South East Asia, the Company is not anticipated to be significantly impacted by the recent Asian economic crisis. The Company does however have a substantial exposure to fluctuations in the Australian Dollar with respect to its manufacturing and research activities. The Company's Australian Dollar exposure is managed through foreign currency option contracts. In May 1993, the Australian Federal Government agreed to lend the Company up to $870,000 over a six year term. Such a loan bears no interest for the first three years but bears interest at a rate of 3.8% thereafter until maturity. The outstanding principal balance of such loan was $358,000 and $548,000 at December 31, 1997 and June 30, 1997, respectively. - -13-
RESMED INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings Refer Note 4 to the Condensed Consolidated Financial Statements Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on November 10, 1997. The holders of 6,248,502 shares of the Company's stock (approximately 86% of the outstanding shares) were presented at the meeting in person or by proxy. The only matters voted upon at the meeting were (i) the election of two persons to serve as directors for a three year term expiring at the annual meeting of shareholders in 2000, (ii) the approval of 1997 Equity Participation Plan, and (iii) the ratification of the selection of KPMG Peat Marwick LLP as independent public accountants to audit the financial statements of the Company for the fiscal year ending June 30, 1998. (i) Dr Peter C Farrell and Dr Gary W Pace, the nominees of the Company's Board of Directors, were elected to serve until 2000. There were no other nominees. <TABLE> <CAPTION> Shares were voted as follows: <S> <C> <C> Name For Withholding Vote For - ------------------ ----------------------------- -------------------- Dr Peter C Farrell 6,243,275 5,227 Dr Gary C Pace 6,245,275 3,227 </TABLE> (ii) Approval of the 1997 Equity Participation Plan was ratified: affirmative votes, 2,992,867 shares; negative votes, 2,066,980 shares. (iii) the selection of KPMG Peat Marwick LLP as independent public accountants for the 1998 fiscal year was ratified: affirmative votes, 6,232,600 shares; negative votes, 5,700 shares. Item 5. Other Information None Item 6. Exhibits and Report on Form 8K Exhibits. The following exhibits are filed as a part of this report: 11.1 Statement re: Computation of Earnings of Share 27.1 Financial Data Schedule - -14-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ResMed Inc. /S/ PETER C FARRELL Peter C Farrell President and Chief Executive Officer /S/ ADRIAN M SMITH Adrian M Smith Vice President Finance and Chief Financial Officer - -15-
Exhibit 11.1 <TABLE> <CAPTION> RESMED INC AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended Six Months Ended ------------------- ----------------- <S> <C> <C> <C> <C> December 31, December 31, December 31, December 31, ------------------- ----------------- ------------- ------------- 1997 1996 1997 1996 ------------------- ----------------- ------------- ------------- BASIC EARNINGS Net income $ 2,292 1,682 4,449 3,522 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 7,247 7,189 7,238 7,183 Basic earnings per share: $ 0.32 $ 0.23 $ 0.61 $ 0.49 ======= ======= ======= ======= DILUTED EARNINGS Net Income $ 2,292 1,682 4,449 3,522 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 7,247 7,189 7,238 7,183 Additional shares assuming conversion of stock options under treasury stock method 236 184 219 129 _______ _______ _______ _______ Weighted average number of common and common equivalent shares outstanding as adjusted 7,483 7,373 7,457 7,312 ======= ======= ======= ======= Diluted earnings per share: $ 0.31 $ 0.23 $ 0.60 $ 0.48 ======= ======= ======= ======= </TABLE> - -16-
Exhibit 27.1 <TABLE> <CAPTION> ARTICLE. 5 FDS FOR 2ND QUARTER 10-Q This schedule contains summary financial information extracted from ResMed Inc's second quarter December 31, 1997 financial report and is qualified in its entirety by reference to such financial statements. CURRENCY USD $CURRENCY <S> <C> <C> PERIOD-TYPE 6-MOS 6-MOS FISCAL-YEAR-END JUN-30-1998 JUN-30-1997 PERIOD-END DEC-31-1997 DEC 31-1996 EXCHANGE-RATE 1 1 CASH 7,581,000 8,612,000 SECURITIES 13,027,000 17,629,000 RECEIVABLES 9,365 6,895,000 ALLOWANCES 270,000 175,000 INVENTORY 7,572,000 5,685,000 CURRENT-ASSETS 40,981,000 41,622,000 PP&E 9,098,000 3,903,000 DEPRECIATION 0 0 TOTAL-ASSETS 57,044,000 52,270,000 CURRENT-LIABILITIES 11,678,000 9,274,000 BONDS 0 0 PREFERRED-MANDATORY 0 0 PREFERRED 0 0 COMMON 29,000 29,000 OTHER-SE 30,187,000 29,530,000 TOTAL-LIABILITY-AND-EQUITY 57,044,000 52,270,000 SALES 30,124,000 22,728,000 TOTAL-REVENUES 30,124,000 22,728,000 CGS 10,598,000 9,565,000 TOTAL-COSTS 0 0 OTHER-EXPENSES 0 0 LOSS-PROVISION 0 0 INTEREST-EXPENSE 0 0 INCOME-PRETAX 6,794,000 5,180,000 INCOME-TAX 2,345,000 1,658,000 INCOME-CONTINUING 4,449,000 3,522,000 DISCONTINUED 0 0 EXTRAORDINARY 0 0 CHANGES 0 0 NET-INCOME 4,449,000 3,522,000 EPS-BASIC $ 0.61 $ 0.49 EPS-DILUTED $ 0.60 $ 0.48 </TABLE> - -17-