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, 2000
[ ] 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
(State or other jurisdiction of incorporation or organization)
98-0152841
(IRS Employer Identification No)
14040 Danielson St
Poway CA 92064-6857
United States Of America
(Address of principal executive offices)
(858) 746 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, 2000, 31,160,224 shares of Common Stock ($0.004 par value)
were outstanding.
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RESMED INC AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as of 3
December 31, 2000 and June 30, 2000
Condensed Consolidated Statements of Income (unaudited) for 4
the Three Months Ended December 31, 2000 and 1999 and
the Six Months Ended December 31, 2000 and 1999
Unaudited Condensed Consolidated Statements of Cash Flows 5
for the Six Months Ended December 31, 2000 and 1999
Notes to Unaudited Condensed Consolidated Financial 6
Statements
Item 2 Management's Discussion and Analysis of Financial 13
Conditions and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 16
PART II OTHER INFORMATION
Item 1 . .Legal Proceedings 17
Item 2 . .Changes in Securities 17
Item 3 . .Defaults Upon Senior Securities 17
Item 4 . .Submission of Matters to a Vote of Security Holders 17
Item 5 . .Other Information 17
Item 6 . .Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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PART I - FINANCIAL INFORMATION Item 1
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in US$ thousands, except share data)
December 31, June 30,
2000 2000
----------- --------
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 16,857 18,250
Marketable securities - available for sale. . . . . . . . . . . 1,322 3,713
Accounts receivable, net of allowance for doubtful accounts of
$734 at December 31, 2000 and $833 at June 30, 2000 . . . . . 28,965 24,688
Inventories (note 3). . . . . . . . . . . . . . . . . . . . . . 19,70 15,802
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 2,40 2,361
Prepaid expenses and other current assets . . . . . . . . . . . 6,345 4,358
------------ ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 75,679 69,172
------------ ---------
Property, plant and equipment, net of accumulated amortization
of $16,415 at December 31, 2000 and $13,552 at June 30, 2000. 53,947 36,576
Patents, net of accumulated amortization of $911 at December
31, 2000 and $789 at June 30, 2000. . . . . . . . . . . . . . 1,352 1,342
Goodwill, net of accumulated amortization of $2,256 at
December 31, 2000 and $2,003 at June 30, 2000 . . . . . . . . 5,228 5,626
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,039 2,878
------------ ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140,245 115,594
============ =========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . $ 8,662 5,929
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . 12,233 9,224
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . 7,014 6,469
Short term debt . . . . . . . . . . . . . . . . . . . . . . . . 4,500 -
------------ --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 32,409 21,622
------------ --------
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,
250,000 shares authorized; none issued. . . . . . . . . . . . . - -
Common stock, $0.004 par value, 100,000,000 shares authorized;
Issued and outstanding 31,160,224 at December 31, 2000 and
30,593,921 at June 30, 2000 . . . . . . . . . . . . . . . . . . 125 122
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 46,029 41,495
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 78,985 65,507
Accumulated other comprehensive income (loss) (note 4) . . . . . (17,303) (13,152)
------------ ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 107,836 93,972
Commitments and contingencies (note 5) . . . . . . . . . . . . . - -
------------ ----------
$ 140,245 115,594
============ ==========
See accompanying notes to unaudited condensed consolidated financial statements.
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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(in US$ thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
------------------ ----------------
Net revenue . . . . . . . . . . . . $ 34,366 28,135 65,448 54,080
Cost of sales . . . . . . . . . . . 11,345 8,604 21,340 16,828
-------------------- ----------------
Gross profit. . . . . . . . . . . . 23,021 19,531 44,108 37,252
-------------------- ----------------
Operating expenses
Selling, general and administrative 10,724 8,995 20,315 17,405
Research and development. . . . . . 2,505 1,971 4,894 3,861
-------------------- -----------------
Total operating expenses. . . . . . 13,229 10,967 25,209 21,266
-------------------- -----------------
Income from operations. . . . . . . 9,792 8,564 18,899 15,986
-------------------- -----------------
Other income (expense), net:
Interest income, net. . . . . . . . 105 203 103 337
Government grants . . . . . . . . . 72 139 72 279
Other, net. . . . . . . . . . . . . 498 (644) 1,381 (913)
-------------------- -----------------
Total other income (expense), net . 675 (302) 1,556 (297)
-------------------- -----------------
Income before income taxes. . . . . 10,467 8,262 20,455 15,689
Income taxes. . . . . . . . . . . . (3,569) (2,900) (6,977) (5,492)
-------------------- -----------------
Net income. . . . . . . . . . . . . $ 6,898 5,362 13,478 10,197
==================== =================
Basic earnings per share. . . . . . $0.22 0.18 0.44 0.34
Diluted earnings per share. . . . . $0.21 0.17 0.41 0.32
Basic shares outstanding. . . . . . 31,037 29,896 30,923 29,794
Diluted shares outstanding. . . . . 33,222 31,746 33,150 31,526
See accompanying notes to unaudited condensed consolidated financial statements.
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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(in US$ thousands)
Six Months Ended
December 31,
2000 1999
---------- ---------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,478 $ 10,197
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 3,743 2,938
Provision for service warranties . . . . . . . . . . . . . . . . 50 103
Foreign currency options revaluations. . . . . . . . . . . . . . 463 641
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . (4,550) (2,497)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,352) (5,388)
Prepaid expenses and other current assets. . . . . . . . . . . . (1,729) (930)
Accounts payable, accrued expenses and other liabilities . . . . 4,932 1,939
---------- ---------
Net cash provided by operating activities. . . . . . . . . . . . 12,035 7,003
---------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . . (22,335) (5,608)
Patents costs. . . . . . . . . . . . . . . . . . . . . . . . . . (267) (332)
Purchase of non-trading investments. . . . . . . . . . . . . . . (1,704) (1,049)
Purchases of marketable securities - available for sale. . . . . (17,263) (12,370)
Proceeds from sale of marketable securities - available for sale 19,654 10,286
---------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . (21,915) (9,073)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . . . . . 4,537 2,649
Proceeds from short-term debt. . . . . . . . . . . . . . . . . . 10,000 -
Repayment of short-term debt . . . . . . . . . . . . . . . . . . (5,500) -
---------- ---------
Net cash provided by financing activities. . . . . . . . . . . . 9,037 2,649
---------- ---------
Effect of exchange rate changes on cash. . . . . . . . . . . . . (550) (144)
---------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . (1,393) 435
Cash and cash equivalents at beginning of period . . . . . . . . 18,250 11,108
---------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 16,857 $ 11,543
========== =========
Supplemental disclosure of cash flow information:
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . 5,837 6,039
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . 285 -
See accompanying notes to unaudited condensed consolidated financial statements.
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PART I - FINANCIAL INFORMATION Item 1
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RESMED INC AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12
(1) Organization and Basis of Presentation
------------------------------------------
ResMed Inc (the Company), is a Delaware Corporation formed in March 1994 as
a holding company for the ResMed Group. The Company designs, manufactures and
markets devices for the evaluation and treatment of sleep disordered breathing,
primarily obstructive sleep apnea. The Company's principal manufacturing
operations are located in Australia. Other principal distribution and sales
sites are located in the United States, the United Kingdom, Singapore and
Europe.
The accompanying unaudited condensed 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, 2000
and the six months ended December 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2001.
(2) Summary of Significant Accounting Policies
----------------------------------------------
(a) Basis of Consolidation
------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
(b) Revenue Recognition
--------------------
Revenue on product sales is recorded at the time of shipment. Royalty
revenue from license agreements is recorded when earned. Service revenue
received in advance from service contracts is initially deferred and recognized
as revenue over the life of the service contract. Revenue from sale of
marketing and distribution rights is initially deferred and 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 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 condensed consolidated statements of cash
flows.
(d) Inventories
-----------
Inventories are stated at the lower of cost, determined principally by the
first-in, first-out method, or net realizable value.
- -6-
(2) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
(e) Property, Plant and Equipment
--------------------------------
Property, plant and equipment is recorded at cost. Depreciation expense is
computed using the straight-line method over the estimated useful lives of the
assets, generally two to ten years. Straight-line and accelerated methods of
depreciation are used for tax purposes. Maintenance and repairs are charged to
expense as incurred.
(f) Patents
-------
The registration costs for new patents are capitalized and amortized over
the estimated useful life of the patent, generally five years. In the event of
a patent being superseded, the unamortized costs are written off immediately.
(g) Goodwill
--------
Goodwill arising from business acquisitions is amortized on a straight-line
basis over periods ranging from three to 15 years. The Company carries goodwill
at cost net of amortization. The Company reviews its goodwill carrying value
when events indicate that an impairment may have occurred in goodwill. If,
based on the undiscounted cash flows, management determines goodwill is not
recoverable, goodwill is written down to its discounted cash flow value and the
amortization period is re-assessed.
(h) Government Grants
------------------
Government grants revenue is recognized when earned. Grants have been
obtained by the Company from the Australian Federal Government to support
continued development and export of the Company's proprietary positive airway
pressure technology and to assist development of export markets. Grants of
$72,000 and $139,000 have been recognized for the three-month periods ended
December 31, 2000 and 1999, respectively and $72,000 and $279,000 for the
six-month periods ended December 31, 2000 and 1999, respectively.
(i) 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, and revenue and
expense transactions are translated at average exchange rates for the period.
Cumulative translation adjustments are recognized as part of "Other
comprehensive income (loss)", as described in Note 4, and are included in
"Accumulated other comprehensive income (loss)" on the Condensed Consolidated
Balance Sheets until such time as the subsidiary is sold or substantially or
completely liquidated. Gains and losses on transactions, denominated in other
than the functional currency of the entity, are reflected in operations.
- -7-
(2) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
(j) Research and Development
--------------------------
All research and development costs are expensed in the period incurred.
(k) Earnings per Share
--------------------
The weighted average shares used to calculate basic earnings per share was
31,037,000 and 29,896,000 for the quarters ended December 31, 2000 and 1999,
respectively, and 30,923,000 and 29,794,000 for the six month periods ended
December 31, 2000 and 1999, respectively. The difference between basic earnings
per share and diluted earnings per share is attributable to the impact of
outstanding stock options during the periods presented. Stock options had the
effect of increasing the number of shares used in the calculation (by
application of the treasury stock method) by 2,185,000 and 1,850,000 for the
quarters ended December 31, 2000 and 1999, respectively, and by 2,227,000 and
1,732,000 for the six month periods ended December 31, 2000 and 1999,
respectively.
(l) Financial Instruments
----------------------
The carrying value of financial instruments, such as cash and cash
equivalents, marketable securities - available for sale, accounts receivable,
government grants, foreign currency option contracts and accounts payable
approximate their fair value. The Company does not hold or issue financial
instruments for trading purposes.
The fair value of financial instruments is defined as the amount at which
the instrument could be exchanged in a current transaction between willing
parties.
(m) Foreign Exchange Risk Management
-----------------------------------
The Company enters into call foreign currency options in managing its foreign
exchange risk.
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
principally in Australian dollars and Euros. The terms of such foreign currency
option contracts generally do not exceed three years.
Unrealized gains or losses are recognized as incurred on the condensed
consolidated balance sheets as either other assets or other liabilities and are
recorded within other income, net on the Company's condensed consolidated
statements of income. Unrealized gains and losses on currency derivatives are
determined based on dealer quoted prices.
- -8-
(2) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
(m) Foreign Exchange Risk Management, Continued
-----------------------------------------------
As of July 1, 2000 the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, which standardizes the accounting for
derivative instruments. Under the restrictive definition of hedge effectiveness
contained in SFAS 133, the Company's hedging contracts do not have hedge
effectiveness and are therefore marked to market with resulting gains or losses
being recognized in earnings in the period of change.
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 December 31, 2000 was $2,164,000 which represents the fair
value of options held by the Company.
The Company held foreign currency option contracts with notional amounts
totaling $250,347,000 and $171,530,000 at December 31, 2000 and June 30, 2000,
respectively to hedge foreign currency items. These contracts mature at various
dates prior to July 31, 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 December 31, 2000 and June 30, 2000, the Company's investments in
debt securities were classified on the Condensed consolidated balance sheets as
marketable securities-available for sale. These investments are diversified
among high credit quality securities in accordance with the Company's investment
policy.
- -9-
(2) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
(o) Marketable Securities, Continued
----------------------------------
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 costs related to products are accrued 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 undiscounted 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.
(3) Inventories
-----------
Inventories were comprised of the following at December 31, 2000
and June 30, 2000:
(In $US thousands) December 31, June 30,
2000 2000
------------- --------
Raw materials. . . $ 6,554 4,826
Work in progress . 765 297
Finished goods . . 12,471 10,679
------------- --------
$ 19,790 15,802
============= ========
(4) Comprehensive Income
---------------------
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which established standards
for the reporting and display of comprehensive income and its components in the
financial statements. The only component of comprehensive income that impacts
the Company is foreign currency translation adjustments.
- -10-
(4) Comprehensive Income, Continued
---------------------------------
The net gain associated with the foreign currency translation adjustments
for the three months ended December 31, 2000 was $2,669,000 compared to a net
loss of $281,000 for the three months ended December 31, 1999. The net loss
associated with the foreign currency translation adjustments for the six months
ended December 31, 2000 was $4,151,000 compared to a net loss of $896,000 for
the six months ended December 31, 1999.
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 December 31, 2000 and June 30, 2000 consisted of foreign currency
translation adjustments with debit balances of $17,303,000 and $13,152,000
respectively.
(5) Commitments and Contingencies
-------------------------------
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.
While the Company is prosecuting the above actions, there can be no assurance
that the Company will be successful.
- -11-
(5) Commitments and Contingencies, Continued
-------------------------------------------
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.
In September 2000, the Company was named as a defendant in a qui tam proceeding
filed in the United States District Court for the Northern District of Georgia,
brought by a private citizen, alleging that the Company violated federal
healthcare laws. The Federal Government has declined to intervene in the
action, and the Company intends to vigorously defend its position.
- -12-
PART I - FINANCIAL INFORMATION Item 2
- --------------------------------------------------------------------------------
RESMED INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATION
Net Revenue
Net revenue increased for the three months ended December 31, 2000 to $34.4
million from $28.1 million, for the three months ended December 31, 1999, an
increase of $6.3 million or 22%. For the six month period ended December 31,
2000 net revenue increased to $65.4 million from $54.1 million for the six month
period ended December 31, 1999, an increase of $11.3 million or 21%. 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 in both
domestic and international markets. Net revenue in North and Latin America
increased to $18.9 million from $14.9 million for the quarter, and to $36.3
million from $29.7 million for the six month periods ended December 31, 2000 and
1999 respectively. Net revenue in international markets increased to $15.5
million from $13.2 million for the quarter, and to $29.1 million from $24.4
million for the six month periods ended December 31, 2000 and 1999,
respectively.
Gross Profit
Gross profit increased for the three months ended December 31, 2000 to $23.0
million from $19.5 million for the three months ended December 31, 1999, an
increase of $3.5 million or 18%. Gross profit as a percentage of net revenue
decreased for the quarter ended December 31, 2000 to 67% from 69% for the
quarter ended December 31, 1999 reflecting a modest shift in the geographical
sales mix.
For the six month period ended December 31, 2000 gross profit increased to $44.1
million from $37.3 million in the same period of fiscal 2000, an increase of
$6.8 million or 18%. Gross profit as a percentage of net revenue decreased for
the six month period ended December 31, 2000 to 67% from 69% for the six months
ended December 31, 1999. This decline also resulted from a modest shift in the
geographical sales mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased for the three months
ended December 31, 2000 to $10.7 million from $9.0 million for the three months
ended December 31, 1999, an increase of $1.7 million or 19%. As a percentage of
net revenue, selling, general and administrative expenses for the three months
ended December 31, 2000 declined to 31.2% from 32.0% for the three months ended
December 31, 1999. The increase in selling, general and administrative expenses
was primarily due to an increase in the number of sales and administrative
personnel and other expenses related to the increase in Company sales.
Selling, general and administrative expenses for the six months ended December
31, 2000 increased to $20.3 million from $17.4 million for the six months ended
December 31, 1999, an increase of $2.9 million or 17%. As a percentage of net
revenue selling, general and administration expenses declined to 31.0% for the
six months ended December 31, 2000 from 32.2% in the six months ended December
31, 1999.
- -13-
Research and Development Expenses
Research and development expenses increased for the three months ended December
31, 2000 to $2.5 million from $2.0 million for the three months ended December
31, 1999, an increase of $534,000 or 27%. As a percentage of net revenue,
research and development expenses increased to 7.3% for the three months ended
December 31, 2000 compared to 7.0% for the three months ended December 31, 1999.
The increase in gross research and development expenses was due to increased
salaries associated with an increase in personnel and increased charges for
consulting fees, clinical trials and technical assessments incurred to
facilitate development of new products.
For the six month period ended December 31, 2000 research and development
expenses increased to $4.9 million from $3.9 million for the same period in
fiscal 2000, an increase of $1.0 million or 27%. As a percentage of net
revenue, research and development expenses was 7.5% for the six months ended
December 31, 2000 compared to 7.1% for the six months ended December 31, 1999.
The increase in gross research and development expenses was due to increased
salaries associated with an increase in personnel and increased charges for
consulting fees, clinical trials and technical assessments incurred to
facilitate development of new products.
Other Income (Expense), Net
Other income, net, increased for the three months ended December 31, 2000 to
$675,000 from a loss of $302,000 for the three months ended December 31, 1999,
an improvement of $977,000. The increase in other income was due primarily to
higher net foreign currency exchange gains.
Other income, net improved for the six months ended December 31, 2000 to
$1,556,000 from a loss of $297,000 for the six months ended December 31, 1999.
The increase in other income was attributable to higher net foreign currency
exchange gains.
Income Taxes
The Company's effective income tax rate declined to approximately 34.1% for the
three months ended December 31, 2000 from approximately 35.1% for the three
months ended December 31, 1999 and for the six month period ended December 31,
2000 declined to 34.1% from 35.0% for the six month period ended December 31,
1999. The lower tax rate was primarily due to the lowering of the corporate tax
rate in Australia from 36% to 34% effective from July 1, 2000.
- -14-
Liquidity and Capital Resources
As of December 31, 2000 and June 30, 2000, the Company had cash and cash
equivalents and marketable securities available for sale of approximately $18.2
million and $22.0 million, respectively. The Company's working capital
approximated $43.3 million and $47.6 million, at December 31, 2000 and June 30,
2000, respectively.
During the six months ended December 31, 2000, the Company generated cash of
$12.0 million from operations, primarily as a result of increased profit from
operations offset by increases in inventory and accounts receivable balances.
During the six months ended December 31, 1999 approximately $7.0 million of cash
was generated by operations.
The Company's capital expenditures for the six month periods ended December 31,
2000 and 1999 aggregated $22.3 million and $5.6 million respectively. The
majority of the expenditures in the six month period ended December 31, 2000
related to the purchase of land and buildings and, to a lesser extent, computer
equipment, furniture and fixtures and production tooling and equipment. The
increase in expenditures in the six month period ended December 31, 2000
compared to the six months ended December 31, 1999 reflects the capital
expenditure of $17.2 million on the company's US headquarters in Poway,
California in July 2000. As a result of these capital expenditures, the
Company's December 31, 2000 balance sheet reflects net property plant and
equipment of approximately $53.9 million at December 31, 2000 compared to $36.6
million at June 30, 2000.
The results of the Company's international operations are affected by changes in
exchange rates between currencies. Changes in exchange rates may negatively
affect the Company's consolidated net revenue and gross profit margins from
international operations. The Company is exposed to the risk that the dollar
value equivalent of anticipated cash flows will be adversely affected by changes
in foreign currency exchange rates. The Company manages this risk through
foreign currency option contracts.
The Company expects to satisfy all of its short-term liquidity requirements
through a combination of cash on hand, cash generated from operations and its
$20 million revolving loan facility with the Union Bank of California, of which
$15.5 million is available at December 31, 2000.
- -15-
PART I - FINANCIAL INFORMATION Item 3
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RESMED INC AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Market Risk
The Company's functional currency is the US dollar although the Company
transacts business in various foreign currencies including a number of major
European currencies as well as the Australian dollar. The Company has
significant foreign currency exposure through both its Australian manufacturing
activities and international sales operations.
The Company has established a foreign currency hedging program using purchased
currency options to hedge foreign-currency-denominated financial assets,
liabilities and manufacturing expenditure. The goal of this hedging program is
to economically guarantee or lock in the exchange rates on the Company's foreign
currency exposures denominated in the Euros and Australian dollar. Under this
program, increases or decreases in the Company's foreign-currency-denominated
financial assets, liabilities, and firm commitments are partially offset by
gains and losses on the hedging instruments.
The table below provides information about the Company's foreign currency
derivative financial instruments, by functional currency and presents such
information in US dollar equivalents. The table summarizes information on
instruments and transactions that are sensitive to foreign currency exchange
rates, including foreign currency call options held at December 31, 2000. The
table presents the notional amounts and weighted average exchange rates by
expected (contractual) maturity dates for the Company's foreign currency
derivative financial instruments. These notional amounts generally are used to
calculate payments to be exchanged under contracts.
Fiscal Year
(In US$thousands). . . . . . . . . 2001 2002 2003 Total
----------------- ----------------- -------------------- -------------------
Foreign Exchange Call Options
(Receive AUS$/Pay US$)
Option amount. . . . . . . . . . . $90,000 $142,000 - $232,000
Average contractual exchange rate. AUS$1 = USD 0.633 AUS$1 = USD 0.620 AUS $1 = USD 0.627
(Receive AUS$/Pay Euro)
Option amount. . . . . . . . . . . $7,707 $10,221 $419 $18,347
Average contractual exchange rate. AUS$1 = Euro0.657 AUS$1 = Euro0.659 AUS $1 = Euro 0.667 AUS $1 = Euro 0.659
(In US$thousands). . . . . . . . . Fair Value
Assets/(Liabilities)
--------------------
Foreign Exchange Call Options
(Receive AUS$/Pay US$)
Option amount. . . . . . . . . . . $2,036
Average contractual exchange rate
(Receive AUS$/Pay Euro)
Option amount. . . . . . . . . . . $128
Average contractual exchange rate
- -16-
PART II - OTHER INFORMATION Items 1-6
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RESMED INC AND SUBSIDIARIES
Item 1 Legal Proceedings
See Note 5 to the Condensed Consolidated Financial Statements
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Report on Form 8K
On January 23, 2001 ResMed Inc filed a Form 8-K reporting a second
amendment to the Rights Agreement between ResMed Inc and American
Stock Transfer and Trust dated April 23, 1997.
- -17-
PART II - OTHER INFORMATION Signatures
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RESMED INC AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ResMed Inc
/S/ PETER C FARRELL
________________________________________________________
Peter C Farrell
President and Chief Executive Officer
/S/ ADRIAN M SMITH
________________________________________________________
Adrian M Smith
Vice President Finance and Chief Financial Officer
- -18-