-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F4f321RcUz4Ifwn2iDRgf+9EXdLwrdVa2zRG+buTMAxrC3PXuccwyJal2ePtXHh/ VIGwqbH1ooBc+TJqb+vx+w== 0000943819-98-000002.txt : 19980518 0000943819-98-000002.hdr.sgml : 19980518 ACCESSION NUMBER: 0000943819-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESMED INC CENTRAL INDEX KEY: 0000943819 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 980152841 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26038 FILM NUMBER: 98622032 BUSINESS ADDRESS: STREET 1: 10121 CARROLL CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92131-1109 BUSINESS PHONE: 6196892400 MAIL ADDRESS: STREET 1: 10121 CARROLL CANYON RD CITY: SAN DIEGO STATE: CA ZIP: 92131-1109 10-Q 1 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 MARCH 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ___________ TO _____________ Commission file number: 0-26038 ResMed Inc. (Exact name of registrant as specified in its charter) Delaware 98-0152841 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 10121 Carroll Canyon Road San Diego, CA 92131-1109 United States Of America (Address of principal executive offices) 619 689 2400 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X___ No ______ As of March 31, 1998, there were 7,269,774 shares of Common Stock ($0.004 par value) outstanding. RESMED INC. AND SUBSIDIARIES INDEX
PART I FINANCIAL INFORMATION Page Item 1 Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited) and June 30, 1997 3 Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 and the Nine Months ended March 31, 1998 and 1997 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1998 and 1997 5 Notes to the Unaudited Condensed Consolidated Financial Statements 6 Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations 11
PART II OTHER INFORMATION Item 1 Legal Proceedings 14 Item 2 Changes in Securities 14 Item 3 Defaults Upon Senior Securities 14 Item 4 Submission of Matters to a Vote of Security Holders 14 Item 5 Other Information 14 Item 6 Exhibits and Reports on Form 8-K 14 SIGNATURES 15
- -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements
RESMED INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in US$ thousands, except per share data) March 31, June 30, ----------- --------- Assets 1998 1997 ----------- --------- Current assets: (unaudited) Cash and cash equivalents 11,843 9,077 Marketable securities - available for sale 7,973 18,908 Accounts receivable, net of allowance of $211 at March 31, 1998 and $277 at June 30, 1997 11,033 7,834 Government grants 390 391 Inventories 7,170 5,797 Deferred income taxes 950 999 Prepaid expenses and other current assets 1,834 1,385 ______ ______ Total current assets 41,193 44,391 ______ ______ Property, plant and equipment, net of accumulated depreciation of $4,953 at March 31, 1998 and $3,467 at June 30, 1997 10,598 4,916 Patents, net of accumulated amortization of $369 at March 31, 1998 and $325 at June 30, 1997 399 253 Deferred income taxes 157 157 Goodwill, net of amortization of $749 at March 31, 1998 and $433 at June 30, 1997 5,495 4,553 Other assets 919 625 ______ ______ Total assets 58,761 54,895 ====== ====== Liabilities and Stockholders' Equity Current liabilities: Accounts payable 2,115 2,641 Accrued expenses 5,610 3,537 Income taxes payable 1,697 3,544 Current portion of long-term debt 121 274 ______ ______ Total current liabilities 9,543 9,996 ______ ______ Long-term debt, less current portion 243 274 ______ ______ Total liabilities 9,786 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 $0.004 par value; 15,000,000 shares authorized; issued and outstanding 7,269,774 at March 31, 1998 and 7,202,413 at June 30, 1997 29 29 Additional paid-in capital 30,437 29,656 Retained earnings 24,162 16,568 Currency translation adjustment (5,653) (1,628) ______ ______ 48,975 44,625 ______ ______ Commitments and contingencies - - ______ ______ Total liabilities and stockholders' equity 58,761 54,895 ====== ====== See accompanying notes to condensed consolidated financial statements.
- -3- RESMED INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income (in US$ thousands, except per share data) Three Months Ended Nine Months Ended March 31 March 31, ------------------- ------------------ 1998 1997 1998 1997 ----------- -------- -------- ------- Net revenue 17,113 12,468 47,237 35,196 Cost of sales 6,098 5,120 16,697 14,685 ______ ______ ______ ______ Gross profit 11,015 7,348 30,540 20,511 ______ ______ ______ ______ Operating expenses Selling, general and administrative expenses 5,300 4,064 14,994 12,120 Research and development expenses 1,290 1,065 3,789 2,747 ______ ______ ______ ______ Total operating expenses 6,590 5,129 18,783 14,867 ______ ______ ______ ______ Income from operations 4,425 2,219 11,757 5,644 ______ ______ ______ ______ Other income (expenses), net: Interest income, net 201 307 755 851 Government grants 128 41 476 219 Other income (expenses), net 47 266 (1,394) 1,299 ______ ______ ______ ______ Total other income (expenses), net 376 614 (163) 2,369 ______ ______ ______ ______ Income before income taxes 4,801 2,833 11,594 8,013 Income taxes 1,655 935 4,000 2,593 ______ ______ ______ ______ Net income 3,146 1,898 7,594 5,420 ====== ====== ====== ====== Basic earnings per share $ 0.43 $ 0.26 $ 1.05 $ 0.75 Diluted earnings per share $ 0.42 $ 0.26 $ 1.02 $ 0.74 See accompanying notes to condensed consolidated financial statements.
- -4- RESMED INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows (in US$ thousands) Nine Months Ended March 31, ------------------ 1998 1997 ---------- -------- Cash flows from operating activities: Net income 7,594 5,420 ______ ______ Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,831 1,786 Provision for service warranties 80 63 Deferred income taxes - 2 Foreign currency options revaluations 1,669 (935) Changes in operating assets and liabilities: Accounts receivable, net (3,271) (1,586) Government grants (41) 139 Inventories (1744) 577 Prepaid expenses and other current assets (547) (1,139) Accounts payable, accrued expenses and other liabilities (3,572) 2,354 ______ ______ Net cash provided by operating activities 2,999 6,681 ______ ______ Cash flows from investing activities: Purchases of property, plant and equipment (8,319) (2,594) Purchases of patents (261) (105) Purchase of investments (389) (44) Proceeds from sale of investments - 1,243 Loans receivable - (225) Deferred payments - business acquisitions (1,699) (991) Purchases of marketable securities - available for sale (24,879) (40,794) Proceeds from sale of marketable securities - available for sale 35,638 40,148 ______ ______ Net cash from (used in) investing activities 91 (3,362) ______ ______ Cash flows from financing activities: Proceeds from issuance of common stock 781 143 Repayment of long term debt (124) (146) ______ ______ Net cash from by (used in) financing activities 657 (3) ______ ______ Effect of exchange rate changes on cash (981) (191) ______ ______ Net increase in cash and cash equivalents 2,766 3,125 ______ ______ Cash and cash equivalents at beginning of period 9,077 5,510 ______ ______ Cash and cash equivalents at end of period 11,843 8,635 ====== ====== Supplemental disclosure of cash flow information: Income taxes paid 5,528 1,755 Interest paid - - See accompany notes to condensed consolidated financial statements.
- -5- RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) Organization and Basis of Presentation ResMed Inc. (the Company), is a Delaware corporation formed in March 1994 as a holding company for 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 March 31, 1998 and the nine months ended March 31, 1998 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 10 years. Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease. Straight-line and accelerated methods of depreciation are used for tax purposes. Maintenance and repairs are charged to expense as incurred. (f) Patents: The registration costs for new patents are capitalized and amortized over the estimated useful life of the patent, generally five years. In the event of a patent being superseded, the unamortized costs are written off immediately. (g) 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 $128,000 and $41,000 for the three month period ended March 31, 1998 and 1997, respectively and $476,000 and $219,000 for the nine month periods ended March 31, 1998 and 1997, respectively. (h) Foreign Currency: The consolidated financial statements of the Company's non-U.S. subsidiaries are translated into U.S. dollars for financial reporting purposes. Assets and liabilities of non-U.S. subsidiaries whose functional currencies are other than the U.S. dollar are translated at period end exchange rates, revenue and expense transactions are translated at average exchange rates for the period. Cumulative translation adjustments are 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 7,258,000 and 7,193,000 for the quarters ended March 31, 1998 and 1997, respectively, and 7,245,000 and 7,186,000 for the nine month periods ended March 31, 1998 and 1997, respectively. The difference between basic earnings per share and diluted earnings per share is attributable to the impact of outstanding stock options during the periods presented. Stock options had the effect of increasing the number of shares used in the calculation (by application of the treasury stock method) by 293,000 and 171,000 for the quarters ended March 31, 1998 and 1997, respectively, and by 236,000 and 141,000 for the nine month periods ended March 31, 1998 and 1997, 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 terms 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 March 31, 1998 unamortized premiums amounted to $457,000. - -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: Unrealized gains or losses are recognized as incurred in the Consolidated Balance Sheet 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. 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 March 31, 1998 no put options issued by the Company were outstanding. 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 March 31, 1998 the Company held foreign currency option contracts with notional amounts totaling $35,049,000 to hedge foreign currency items. These contracts mature at various dates prior to March 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. - -9- RESMED INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) Inventories Inventories were comprised of the following at March 31, 1998 and June 30, 1997: March 31, June 30, 1998 1997 ---------- --------- $ '000 $ '000 Raw materials $ 2,692 $ 1,797 Work in progress 753 284 Finished goods 3,725 3,716 ______ ______ $ 7,170 $ 5,797 ====== ======
(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 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 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Revenue Net revenue increased for the three months ended March 31, 1998 to $17.1 million from $12.5 million for the three months ended March 31, 1997, an increase of $4.6 million or 37%. For the nine month period ended March 31, 1998 net revenue increased to $47.2 million from $35.2 million in the nine month period ended March 31, 1997 an increase of $12.0 million or 34%. Both the three month and nine month increases in net revenue were attributable to an increase in unit sales of the Company's flow generators and accessories in North America and to a lesser extent Europe. In fiscal 1998 net revenue in North America increased to $8.4 million from $5.4 million for the quarter, and to $23.5 million from $14.7 million for the nine month period ended March 31. In Europe net revenue increased to $6.3 million from $5.2 million for the quarter, and to $17.2 million from $15.8 million for the nine month period ended March 31, respectively. Gross Profit Gross profit increased for the three months ended March 31, 1998 to $11.0 million from $7.3 million for the three months ended March 31, 1997, an increase of $3.7 million or 50%. Gross profit as a percentage of net revenue increased for the quarter ended March 31, 1998 to 64% from 59% in three months ended March 31, 1997. These increases resulted primarily from increased unit sales of higher margin products and a devaluation of the Australian dollar in which the Company's manufacturing activities are denominated. For the nine month period ended March 31, 1998 gross profit also increased to $30.5 million from $20.5 million in the same period of fiscal 1997 an increase of $10.0 million or 49%. Gross profit as a percentage of net revenue increased for the nine month period ended March 31, 1998 to 65% from 58% achieved for the nine months ended March 31, 1997. These increases also resulted from increased unit sales of higher margin products and the devaluation of the Australian dollar. Selling, General and Administrative Expenses Selling, general and administrative expenses increased for the three months ended March 31, 1998 to $5.3 million from $4.1 million for the three months ended March 31, 1997, an increase of $1.2 million or 30%. This increase was primarily due to an increase from 103 to 136 in the number of sales and administrative personnel. As a percentage of net revenue, selling, general and administrative expenses declined to 31% for the quarter ended March 31, 1998 from 33% for the three months ended March 31, 1997. This decrease was a result of increased efficiencies resulting from higher revenues and a marginal decrease in legal costs associated with ongoing legal action (refer Note 4) marginally declined to $307,000 from $331,000. Selling, general and administrative expenses for the nine months ended March 31, 1998 also increased to $15.0 million from $12.1 million for the nine months ended March 31, 1997, an increase of $2.9 million or 24%. As a percentage of net revenue, selling, general and administration expenses declined to 32% for the nine months ended March 31, 1998 from 34% in the nine months ended March 31, 1997. - -11- RESMED INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Research and Development Expenses Research and development expenses increased for the three months ended March 31, 1998 to $1.3 million from $1.1 for the three months ended March 31, 1997, an increase of $225,000 or 21%. The increase 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. As a percentage of net revenue, research and development expenses for the three months ended March 31, 1998 declined to 8% from 9% for the period ended March 31, 1997. For the nine month period ended March 31, 1998 research and development expenses increased to $3.8 million from $2.7 million for the corresponding period in fiscal 1997, an increase of $1.1 million or 38%. The increase was due to additional costs relating to development and evaluation of new products. As a percentage of net revenue, research and development expenses remained static for the nine months ended March 31, 1998 at 8 %. Other Income (Expenses), Net Other income (expenses), net declined for the three months ended March 31, 1998 to $376,000 from $614,000 for the three months ended March 31, 1997, a decrease of $238,000 or 39%. The decline in other income (expenses), net reflects the net impact of losses associated with the Company's foreign exchange position, costs incurred in relation to the transfer of Australian manufacturing activities offset by receipt of $1,250,000 in relation to the granting of licenses to three of the Company's Patents to Invacare Corporation. Other income (expenses), net declined for the nine months ended March 31, 1998 to a loss of $163,000, from net income of $2.4 million for the nine months ended March 31, 1997 a decline of $2.5 million. The decline in other income (expense), net over the nine month period for the corresponding period in fiscal 1997, primarily reflects foreign currency losses associated with the marked devaluation of the Australian dollar, partially offset by the receipt of licensing fees from Invacare. Income Taxes The Company's effective income tax rate for the three months ended March 31, 1998 marginally increased to 34.5% of income from 33% for the three months ended March 31, 1997 and to 34.5% from 32.4% for the nine month period then ended. The increase in effective tax rates reflects a decline in Research and Development deductions in Australia and increase profitability in the Company's European operations on which higher tax rates are incurred. - -12- RESMED INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources As of March 31, 1998 and June 30, 1997, the Company had cash and cash equivalents and marketable securities available for sale of approximately $19.8 million and $28.0 million, respectively. The Company's working capital approximated $31.7 million and $34.4 million, at March 31, 1998 and June 30, 1997, respectively. The decline in working capital balances reflects the construction of a new Australian manufacturing facility partially offset by cash generated from operations. During the nine months ended March 31, 1998, the Company's operations generated $3.0 million of cash from operations, primarily as a result of increased profit from operations, offset partially by increases in accounts receivable and inventory due to increased sales. During the nine months ended March 31, 1997 approximately $6.7 million of cash was generated by operations. The Company's capital expenditures for the nine month period ended March 31, 1998 and 1997 aggregated $8.6 million and $2.7 million, respectively. The majority of the expenditures in the nine month period ending March 31, 1998 relate to purchase of land and associated construction costs, with respect to a new Australian manufacturing facility and to a lessor extent purchases of computer software and hardware, production tooling and equipment, office furniture and research and development equipment. As a result of these capital expenditures, the Company's March 31, 1998 balance sheet reflects net property plant and equipment of approximately $10.6 million, compared to $4.9 million at June 30, 1997. In addition, during the nine month period ended March 31, 1998 the Company paid $1.7 million in business acquisition payments in relation to the acquisition of Priess, the liquid silicone moulding operations of TQR Pty Limited and its Singapore distributor. The company anticipates to expend approximately $9.0 million in relation to the construction of its new manufacturing facility and computer systems over the next twelve months. These payments are to be funded through cash flows from operations and existing cash resources. 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 however 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. 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 $364,000 and $548,000 at March 31, 1998 and June 30, 1997, respectively. - -13- PART II OTHER INFORMATION Item 1. Legal Proceedings Refer Note 4 to Condensed Consolidated Financial Statements Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Report on Form 8K Exhibits The following exhibits are filed as part of this report Exhibit 11.1 Statement re: Computation of Earnings of Share Exhibit 27.1 Financial Data Schedule Report on Form 8-K None - -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
RESMED INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended Nine Months Ended ------------------- ------------------ March 31, March 31, March 31, March 31, --------------- ------------- ---------- ---------- 1998 1997 1998 1997 --------------- ------------- ---------- ---------- BASIC EARNINGS Net income 3,146 1,898 7,594 5,420 ====== ====== ====== ====== Shares Weighted average number of common shares outstanding 7,258 7,193 7,245 7,186 ====== ====== ====== ====== Basic earnings per share: $ 0.43 $ 0.26 $ 1.05 $ 0.75 ====== ====== ====== ====== DILUTED EARNINGS Net Income 3,146 1,898 7,594 5,420 ====== ====== ====== ====== Shares Weighted average number of common shares outstanding 7,258 7,193 7,245 7,186 Additional shares assuming conversion of stock options under treasury stock method 293 171 236 141 ______ ______ ______ ______ Weighted average number of common and common equivalent shares outstanding as adjusted 7,551 7,364 7,481 7,327 ====== ====== ====== ====== Diluted earnings per share: $ 0.42 $ 0.26 $ 1.02 $ 0.74 ====== ====== ====== ======
- -16- Exhibit 27.1
ARTICLE. 5 FDS FOR 3RD QUARTER 10-Q This schedule contains summary financial information extracted from ResMed Inc's third quarter March 31, 1998 financial report and is qualified in its entirety by reference to such financial statements. CURRENCY USD $ CURRENCY PERIOD-TYPE 9-MOS 9-MOS FISCAL-YEAR-END JUN-30-1998 JUN-30-1997 PERIOD-END MAR-31-1998 MAR-31-1997 EXCHANGE-RATE 1 1 CASH 11,843,000 8,635,000 SECURITIES 7,973,000 18,667,000 RECEIVABLES 11,033,000 7,794,000 ALLOWANCES 211,000 188,000 INVENTORY 7,170,000 5,165,000 CURRENT-ASSETS 41,193,000 43,154,000 PP&E 10,598,000 4,407,000 DEPRECIATION 00 0 TOTAL-ASSETS 58,761,000 53,643,000 CURRENT-LIABILITIES 9,543,000 9,641,000 BONDS 0 0 PREFERRED-MANDATORY 0 0 PREFERRED 0 0 COMMON 29,000 29,000 OTHER-SE 30,437,000 29,551,000 TOTAL-LIABILITY-AND-EQUITY 58,761,000 53,643,000 SALES 47,237,000 35,196,000 TOTAL-REVENUES 47,237,000 35,196,000 CGS 16,697,000 14,685,000 TOTAL-COSTS 0 0 OTHER-EXPENSES 0 0 LOSS-PROVISION 0 0 INTEREST-EXPENSE 0 0 INCOME-PRETAX 11,594,000 8,013,000 INCOME-TAX 4,000,000 2,593,000 INCOME-CONTINUING 7,594,000 5,420,000 DISCONTINUED 0 0 EXTRAORDINARY 0 0 CHANGES 0 0 NET-INCOME 7,594,000 5,420,000 EPS-BASIC $ 1.05 $ 0.75 EPS-DILUTED $ 1.02 $ 0.74
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