ResMed Annual Report 2004

FY2004 Annual Report · ResMed

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Strong growth.
Unlimited potential.

RESMED FORM 10-K
22 00 00 44

Annual Report 2004
Contents

Annual Report Contents

FINANCIAL SUMMARY
CHAIRMAN(cid:146)S REPORT
BOARD OF DIRECTORS
GROWING MARKETS
GROWING AWARENESS
GROWING RELATIONSHIPS
GROWING TRUST
GROWING ASSETS
GROWING RETURNS
MEDICAL ADVISORY BOARD
RESMED BOARD COMMITTEES
CORPORATE GOVERNANCE
FINANCIAL REPORT CONTENTS
FINANCIAL REPORT
REFERENCES

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Statements in this Annual Report that are not historical facts are (cid:147)forward-looking(cid:148) statements under the US Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements regarding our future revenue, earnings, or expenses; new product development; and new markets for our products.
Foward-looking statements are subject to risks and uncertainties that could cause our actual results to materially differ from the results the forward-looking statements
project or imply. Some of those uncertainties are: our ability to compete successfully in our market; foreign currency exchange rate movements, tariffs, and other risks
that affect our global operations; the regulatory environment; and the willingness of third-party payers to reimburse for the sale of our products. The Annual Report on
the Form10-K for our most recent fiscal year discusses the risks and uncertainties. Other reports that we file with the US Securities & Exchange Commission also
discuss them. Those reports are available on our Web site.

ResMed(cid:146)s singular focus is the business of

sleep and, more specifically, sleep-disordered

breathing. The market remains vastly under

penetrated, which represents both a

tremendous business opportunity and a

serious public health problem. We aim to

educate physicians and the public about the

health risks of untreated sleep-disordered

breathing and to deliver the best therapy on

the market. We are committed to improving

patients(cid:146) lives by leading the industry in both

clinical education and product development.

By raising awareness about sleep-disordered

breathing and serving the needs of our

patients and customers, we will continue to

drive the long-term growth of our company

and the industry as a whole.

Financial

S u m m a r y

The quarter ending June 30, 2004

marked our 37th consecutive quarter

of growth. The fiscal year 2004

showed an increase in net income of

25%. Net revenue increased by 24% to
$339.3 million, and operating cash flow

increased 29% to $76.5 million. EPS

(on a diluted basis) increased by 23%.

The increase in net revenue was

attributable to an increase in unit sales

of our flow generators, masks, and

accessories. This growth primarily

reflects increased public and physician

awareness that treating sleep-

disordered breathing improves health

and quality of life.

Income from operations

Income before income taxes

Net income

4
5
8

7
4
8

Shareholders(cid:146) equity

2
4
4
5

Assets

2
7
6

1
7
6

3
7
5

6
4
5

2
1
5

5
5
4

3
4
4

7
5
4

5
7
3

9
9
2

2
2
2

6
9
5
4

2
6
7
3

5
1
6
3

1
8
8
2

4
6
8
2

9
2
9
1

6
5
1
1

0
4
9

4
0
0
1

2
4
1 3
3
3

INCOME
$M

ASSETS AND
SHAREHOLDERS(cid:146)
EQUITY
$M

3
9
3
3

6
3
7
2

1
4
0
2

2
5
5
1

6
5
1
1

5
6
7

3
9
5

3
6
1

3
3
1

0
1
1

9
8
0

9
6
0

6
5
3

5
9
2

3
0
2

NET REVENUE
$M

NET INCOME
(per common share
equivalent)
$

CASH FLOW FROM
OPERATIONS
$M

Chairman(cid:146)sR e p o r t

Once again, I am pleased to report

record performance from the company

on both top and bottom lines. The

dedication of our team has, once again,

allowed us to carry forward ResMed’s

legacy of outstanding financial

performance. In fiscal year 2004, we

grew our sales by 24 percent over the

prior year to reach $339.3 million in

revenues. Net income for the year rose

25 percent to $57.3 million, or 17

percent of our revenues. Earnings per

fully diluted share were $1.63, an

increase of 23 percent over the prior

year’s $1.33. Operating income was

$85.4 million, an increase of 27 percent

over the prior year.

Total operating cash flow for fiscal year 2004 was a record $76.5
million, an increase of 29 percent over the previous year. Cash and
cash equivalents and marketable securities were $140.9 million at
the end of fiscal year 2004, an increase of 16 percent over last
year. The strength of the balance sheet is also reflected in an
increase of 15 percent in total current assets to $277.8 million;
total assets were $554.2 million. Shareholders’ equity increased 26
percent to $361.5 million from $286.4 million in the prior year,
reflecting excellent growth in shareholder value.

Wall Street has taken notice of our financial performance and our
history of delivering growth to our shareholders. On June 30th,
2004, RMD closed at $50.96, a 30 percent increase over the prior
year. Earlier that month, we were recognized as one of
BusinessWeek’s 100 Hot Growth Companies based on our three-
year results in sales growth, earnings growth, and return on
invested capital. We have made BusinessWeek’s list in five of the
last six years. In addition, for the seventh consecutive year, Forbes
magazine named ResMed one of the 200 Best Small Companies
in America. As pleased as I am with the results we have achieved
so far, we must continue to deliver much more to patients, as well
as customers, shareholders, and employees. We will work to
educate physicians and the public about the serious health
consequences of undiagnosed sleep-disordered breathing (SDB).
We will continue to invest in research and development to deliver
the best products that we can to patients; we will also continue to
expand our global operations in order to drive international
market growth.

The SDB market is expected to grow from approximately $495
million in 2001 to over $1.1 billion worldwide in 2006 (Frost &
Sullivan, 2004), although we believe these estimates are on the
conservative side. I’m convinced that, even in the United States,
our most mature sleep market, we have only scratched the
surface of this opportunity. We believe that over 40 million
Americans have SDB, but only 10 percent of them have ever been
diagnosed. As the population ages, and as the average body mass
index continues to climb, the need to treat the disorder will only
increase. Research shows that the majority of people with drug-
resistant hypertension, atrial fibrillation, stroke, type 2 diabetes, and
congestive heart failure have SDB at a clinically significant level.
We are encouraged by the ever-growing body of clinical data on
the positive health impact of diagnosing and treating SDB.

Increasingly, scientific evidence supports not only the significant
health benefits to individuals of diagnosing and treating SDB and
obstructive sleep apnea (OSA), but the substantial economic and

Chairman(cid:146)sR e p o r t

societal benefits as well. A study by Drs. Alex
Sassani and Terry Davidson, a ResMed
Medical Advisory Board member, both of the
University of California, San Diego,
conservatively estimated that almost 1,000
lives could be saved annually in the US as well
as over $15.9 billion in direct costs (if one
includes medical expenses, lost productivity,
administrative costs, damage to vehicles, and
cost to employers) by more pervasive
treatment of SDB in drivers.

In a more clinical vein, Circulation, the main
journal of the American Heart Association,
published a study in July 2004 demonstrating
that people with atrial fibrillation, or an
irregular heart rhythm, are more likely to have
sleep apnea than other cardiology patients.
Virend K. Somers, MD, PhD, professor of
medicine in the division of cardiovascular
diseases at the Mayo Clinic, found that 49% of
the atrial fibrillation patients in this study were
identified as high risk for sleep apnea
compared with 32% of general cardiology
patients, a figure which, in and of itself, is
worryingly high. Apoor S. Gami, MD, also of
the division of cardiovascular diseases at the
Mayo Clinic, and lead author of the study,
predicts that atrial fibrillation will affect more
than 5 million people by the year 2050. More
importantly, Gami observed that the
association of OSA with atrial fibrillation was
greater than the association of sleep apnea
with traditional risk factors such as body mass
index, neck circumference, and hypertension.
The study suggests that there appears to be a
unique interaction between atrial fibrillation
and the physical responses to sleep apnea.
During an apnea, breathing is interrupted,
oxygen levels in the blood drop, carbon
dioxide levels in the blood increase, the
sympathetic nervous system is activated, and
forceful breathing efforts result in dramatic
pressure shifts across the cardiac chambers.
These untoward events, if left untreated over

time, are thought to predispose patients with
untreated SDB to atrial fibrillation.
These types of studies are an integral part of
the ongoing efforts to educate the medical
community, as well as the public at large,
about the dangers of undiagnosed and,
therefore, untreated SDB. In areas where we
have a dominant product offering, we have
targeted opportunities to educate physicians
about comorbidities associated with
SDB/OSA. We continue to gain traction with
our cardiology program, and we recently
launched a bariatric surgery initiative. On the
cardiology front, we are working with industry
leaders, in particular Guidant, to host joint
symposia at cardiology meetings across the
world. In addition, this year at the Annual
Meeting of the American Society for Bariatric
Surgery in San Diego, we launched an
initiative to educate bariatric surgeons on the
risks to patients of untreated SDB/OSA. Our
Mirage Activa(cid:153) Nasal Mask and AutoSet(cid:153)
devices are uniquely able to address the
dynamic and ongoing needs of this high-risk
and growing patient population. The Mirage
Activa Nasal Mask fits the changing contours
of the face as patients lose weight, while the
AutoSet Spirit(cid:153) algorithm tracks and adjusts
to patients’ pressure needs and measures
both treatment compliance and efficacy of
treatment. These products are ideal for the
bariatric surgery market as they are able to
respond automatically to meet changing
patient needs.

In addition to educating clinicians, we are
working to raise public awareness of SDB
across the world. Our programs cover the
gamut from working with the Automobile
Association in Germany, to initiating direct-to-
consumer advertising in Australia, to
launching a national public awareness
campaign in the US. After 15 years in this
space, ignorance on the part of both
physicians and patients still remains our

foremost competitor. But each day is an
important victory in this battle as more and
more people, including physicians, are
beginning to wake up to sleep.

Our commitment to continued innovation
has allowed us since inception to bring
superior products to patients, and this year
we introduced three new mask products and
two new devices to the market. We also
released our Boomerang(cid:153) software solutions,
which enable customers to enhance both
patient care and inventory management.
Importantly, we also recently introduced
ApneaLink(cid:153), a single-channel screening
device, that will allow physicians to rapidly
and easily identify patients who are likely to
have SDB. This device, developed by MAP,
our German subsidiary, has been successfully
marketed in Europe as the MicroMESAM(cid:153).
This tool will benefit patients who would not
otherwise be diagnosed and will allow
non-sleep-trained physicians to screen
patients for SDB/OSA, which will in turn drive
traffic through sleep labs. And, since nasal
CPAP is such a safe therapy, under the
guidance of sleep-trained personnel, patients
will undoubtedly go straight to treatment.

In the first half of fiscal year 2004, we
introduced our Ultra Mirage(cid:153) Full Face Mask
and the revolutionary Mirage Activa Nasal
Mask; the latter performs better than any
other mask we have produced. Subsequently,
at the Associated Professional Sleep Societies’
conference in June, we previewed our Mirage
Swift(cid:153) Nasal Pillows System, which rounds
out our top-quality line of patient interfaces.
The Mirage Swift nasal pillows sytem is being
released in the first half of fiscal 2005.

We also introduced the AutoSet Respond(cid:153)
this year into the price-sensitive US market, as
we continue to push for reimbursement
changes that would speed the US adoption of

the AutoSet Spirit, which, quite simply,
remains the best option for patient care. We
will continue to educate regulators, physicians,
and patients to bring this superior treatment
to more patients in the US. In addition, we
launched our new bilevel unit, the VPAP(cid:153) III,
which operates on the same platform as our
CPAP devices and offers enhanced features
for effective patient management. We are
proud of these new product offerings.

With the success of the ResMed Centers for
Healthy Sleep in Australia, we have continued
to expand our international presence through
new distribution channels such as pharmacies
and shop-fronts. We will open centers in
Barcelona, Stockholm, and the UK, with more
to come. This year we were also delighted to
occupy our new ResMed Campus in
northwest Sydney. The Norwest facility triples
our production capacity, and with new
prototyping technologies we recently
introduced, we have reduced the time
needed to create mask components literally
from days to hours.

In the last year, we have taken investment in
our employees to the next level. Our
proactive human resources department
formed the ResMed Learning Center to
provide leading edge, performance-based
learning programs and accelerated
development plans in customer service, selling
strategies, technical skills, executive leadership,
and management development.

We had some important personnel changes
over the last year as well.

Dr. Chris Roberts left the company to
become CEO of Cochlear Limited, and we
wish him well in his new role. We will miss his
leadership on the management team, but we
are pleased that he has chosen to remain on
our Board of Directors.

We recently named
Kieran Gallahue President
of ResMed Global. Kieran
has been President and
Chief Operating Officer
of the Americas since he
joined ResMed in
January 2003. He will
now be responsible for
global operations, new business
development, and product innovation.

We have assigned Paul Eisen responsibility
for sales and marketing for both Europe
and Asia Pacific, and we have asked
Dr. Klaus Schindhelm to take on technology
and business development in those regions.
Dr. Grant Carter joined us from General
Electric to head up our Compliance and
Channel Management efforts. Grant will be
responsible for implementing the Six Sigma(cid:153)
quality system that spans design and
manufacturing to customer service.

In the US, Keith Serzen will be providing
focused business leadership to our sales and
marketing organization as our new Senior
Vice President of Sales, Marketing, and Clinical
Education for the Americas. Keith comes to
us with extensive management experience at
Nellcor, Heart Stream, and, most recently,
Theracardia, where he was CEO. We
continue to build our field organization and
this year significantly expanded both our
clinical education and key accounts groups.
This reflects our continued commitment
to delivering high quality service to our
major customers and to educating physicians
about SDB.

We are also investing in corporate
communications, and in June we hired
Hillary Theakston to direct investor relations
and public relations. In large part, our past
performance has spoken for us. Increasingly,

we will be speaking to our strategies and
goals for the future.

I have said many times that we are in an
exciting business. We are very fortunate to
be in an industry where we can profoundly
impact patients’ lives. Patient testimonials in
the following pages of this annual report
demonstrate the success of our products.
More importantly, they represent our passion
for patient care. Delivering the best therapy
to patients has always been at the core of
our culture. SDB is still a largely unaddressed
medical need and, therefore, a major public
health problem that needs to be tackled
urgently. Our mission is to answer that need
with education and superior products. We
will continue on our mission of waking people
up to sleep.

PETER C FARRELL
Chairman and Chief Executive Officer, ResMed Inc.

Board of

D i r e c t o r s

PETER C FARRELL
Chairman and Chief Executive Officer,
ResMed Inc.

CHRISTOPHER A BARTLETT
Thomas D Casserly Professor Emeritus,
Harvard Business School

DONAGH MCCARTHY
Currently consulting with Pharmedium
Healthcare Inc., a privately held
pharmacy services business. Formerly
President and CEO, Protiveris Inc. and
President, Baxter Renal Division
North America.

GARY W PACE
Chairman, QRxPharma and
former CEO of a number of
bio-pharmaceutical research and
development companies

MICHAEL A QUINN
CEO of Innovation Capital and
formerly CEO of a medical device
company and co-founder of NYSE
listed environmental company

CHRISTOPHER G ROBERTS
CEO and President, Cochlear Limited

LOUIS A SIMPSON
President and CEO
Capital Operations, Geico Corporation

(From left to right)
CHRISTOPHER G ROBERTS
GARY W PACE
MICHAEL A QUINN
PETER C FARRELL
DONAGH MCCARTHY
CHRISTOPHER A BARTLETT

(Absent)
LOUIS A SIMPSON

Growing

M a r k e t s

Scientists estimate that in the United States

GROWING EVIDENCE

alone, 43 million people (20% of the

adult population) suffer from

obstructive sleep apnea (OSA),1 the most

common form of sleep-disordered

breathing. OSA has been linked with stroke

and heart failure, two of the three leading

causes of death in the developed world.

The growth in scientific evidence has

accelerated over the past year to point to

one conclusion(cid:151)sleep-disordered

breathing has a significant impact on a

person’s health. Hypertension, diabetes,

heart diseases, and stroke are all associated

with OSA. However, we believe that as

many as 90% of people in the US who

have OSA remain undiagnosed and

untreated. We are committed to working

with the medical community to increase

awareness of the dangers of OSA,

targeting the areas where improvements in

the rate of diagnosis can lead to the most

(cid:147)Obstructive sleep apnea is
associated with conditions that
account for the leading causes of
mortality in adults: hypertension,
cardiovascular, and cerebrovascular
diseases.(cid:148)2

(cid:147)Metabolic syndrome was nine times
more likely to be present in subjects
with OSA.(cid:148)3

(cid:147)There is a growing consensus that
OSA is an important risk factor for
hypertension(cid:133) even at the mild end
of the OSA severity spectrum.(cid:148)4

(cid:147)The most recent recommendations
published in 2003 have included
OSA as first on the list of identifiable
causes of hypertension.(cid:148)5

(cid:147)Obstructive SAHS [sleep apnea-
hypopnea syndrome] is a risk factor
for ischemic stroke, particularly for
strokes presenting at night.(cid:148)6

(cid:147)Sleep apnea is an independent risk
factor for increased insulin
resistance.(cid:148)7

(cid:147)This study adds to the growing
body of evidence linking sleep apnea
with vascular dysfunction in
older subjects.(cid:148)8

(cid:147)Obstructive sleep apnea is
commonly associated with obesity
and also is often present in patients
with established cardiac and
vascular disease.(cid:148)9

(cid:147)Treatment of OSA among patients
with CHF [congestive heart failure]
leads to improvement in cardiac
function, sympathetic activity, and
quality of life.(cid:148)12

(cid:147)Sleep is associated with adverse
hemodynamic changes in women
with preeclampsia. These changes
are minimized with the use of
continuous positive airway
pressure.(cid:148)13

(cid:147)Adaptive Servo Ventilation [ASV* ]
produces an improvement in
excessive daytime sleepiness in
patients with Cheyne-Stokes
breathing and chronic heart failure.(cid:148)14

(cid:147)We conclude that long-term
respiratory therapy with adaptive
servo-ventilation has sufficiently
suppressed CSR [Cheyne-Stokes
respiration] and improved cardiac
function in patients with congestive
heart failure.(cid:148)15

(cid:147)ASV* is well tolerated and improves
SDB and quality of life of patients
with heart failure with CSR.(cid:148)16

(cid:147)Men with moderate/severe OSA
have endothelial dysfunction and
treatment with nCPAP [nasal
continuous positive airway pressure]
could reverse the dysfunction.(cid:148)17

(cid:147)Nocturnal treatment of OSA is
accompanied by lower daytime
blood pressures.(cid:148)18

(cid:147)[E]vidence(cid:133)strongly suggests a
causal interaction between OSA and
several cardiovascular disease
conditions.(cid:148)10

(cid:147)Preliminary data suggest that
treatment of both OSA and CSA in
patients with heart failure may have
important beneficial effects.(cid:148)19

OSA is now a well-documented risk
factor in motor vehicle collisions:
(cid:147)Subjects with untreated OSAS
[obstructive sleep apnea syndrome]
perform as poorly on simulated
steering and psychomotor reaction
time tests as legally intoxicated
control subjects.(cid:148) "

(cid:147)The treatment of OSA in CAD
[coronary artery disease] patients is
associated with a decrease in the
occurrence of new cardiovascular
events, and an increase in the time
to such events.(cid:148)20

* Provided by ResMed(cid:146)s AutoSet CS(cid:153) 2 device.

effective treatment.

v
o

6 0 c ountries

o
t

s
e

b u t

R e s M e d d i s

OUR SOLUTIONS

We listen to clinicians and patients
and create devices to meet their
needs. We add to our product line
to simplify diagnosis and cater to
the growing number of patients
who can benefit from our devices.

Sleep apnea is a global problem(cid:151)
ResMed has a global response
The research comes from all around the world(cid:151)
UK, US, Germany, Japan, Spain, Hong Kong, Australia,
France, and Israel. ResMed is driving global research
and the global market with offices in 14 countries
and distributors in dozens more.

HEART DISEASE

STROKE

HYPERTENSION

DIABETES

RESPIRATORY
DISORDERS

As aa bbusiness ddevelopment

manager, II(cid:146)m wworking tto rraise

awareness aamong UUS ccardiologists

of tthe eenormity oof tthe iimpact oof

sleep aapnea, eencouraging tthem tto

diagnose aand eeffectively ttreat ttheir

patients ffor tthis pproblem (cid:148)

MALCOLM HEBBLEWHITE
Business Development
ResMed, San Diego

(cid:147)

Growing

A w a r e n e s s

ResMed is committed to waking people up to sleep.
By educating pphysicians aand tthe ggeneral ppublic, we increase awareness of the
health risks associated with untreated sleep-disordered breathing.
To provide the best products for treatment, we incorporate feedback ffrom
patients aand pphysicians into a continuous program of innovation.

CARDIOLOGY
We launched a new device to treat patients with congestive heart failure in Europe in late 2003. The AutoSet CS2 provides
adaptive servo-ventilation treatment that is safe and well tolerated by these very sick patients.1,2 It enhances their quality of
life, with increased compliance resulting from the improved comfort of the treatment. We also focus on educating physicians on
the benefits of continuous positive airway pressure (CPAP) treatment for patients with coronary artery disease and obstructive
sleep apnea.3 Specifically, we collaborate with Guidant and Medcath, two well-established cardiac companies, to educate
cardiologists by hosting educational symposia on the benefits of these therapies for their patients.

BARIATRICS
In June 2004, ResMed sponsored a symposium at the American Society for Bariatric Surgery annual meeting. This event
launched a program to educate physicians about the need to treat their bariatric (gastric bypass) patients for sleep-disordered
breathing (SDB). More than 70% of patients preparing for bariatric surgery suffer from sleep apnea. In these patients, sleep
apnea is associated with increased complications and higher hospital costs. Our Mirage Activa Nasal Mask and AutoSet
devices provide a unique treatment system for these patients, adapting to their changing needs as weight loss alters their body
shape and pressure requirements.

Ignorance is the public’s worst enemy when it comes to sleep.
We are working to raise public awareness of SDB across the globe. This
year we launched www.healthysleep.com, an educational Web site
that provides information and resources on SDB. In Germany, we are
working with the Automobile Association to raise awareness of the
increased risk of accidents among drivers with untreated sleep apnea. In
Australia, we have initiated a direct-to-consumer advertising campaign. In the
US, we have launched a national public awareness campaign in cooperation
with other industry participants.

(cid:147)

Addressing sleep disorders has serious
implications for public safety, the treatment of
disease, and quality of life

Harvard Medical School press release May 11, 2004

(cid:148)

Three endowed chairs in the field of Sleep Medicine were created at
Harvard Medical School in May 2004 to take awareness of SDB
right into the core of physician training and research. Two of the chairs
were funded by unrestricted gifts from other sleep therapy companies.
ResMed’s CEO Peter Farrell has personally funded the third chair(cid:151)the
Peter C. Farrell Professorship of Sleep Medicine(cid:151)and ResMed will provide
additional financial support.

The physicians and scientists on our Medical Advisory Board are respected
in their fields of SDB and cardiology and are committed to growing the field
of sleep medicine. We work with the Board to identify new
opportunities to develop our products to improve therapy and to extend
the use of sleep therapy into new areas.

Growing

R e l a t i o n s h i p s

ResMed has established a wide network

of relationships between our sales and

clinical teams, our distributors, and their

We’ve grown our virtual message, too, setting up MyResMed.com, a Web
site for our US and Canadian patients. This site provides educational resources
on sleep-disordered breathing (SDB), as well as practical information, such as
mask fitting and cleaning instructions. The site was launched in February 2004
and almost 4,000 hits were logged in the first two days.

local clinicians and specialists. This year

we expanded our direct relationships

with clinicians and patients in Australia

when two new sleep centers opened

on the east coast. As well as being retail

outlets, these are centers of excellence

for sleep-disordered breathing, providing

a range of services including monitoring

in the home. These centers also offer

clinical and administrative support to

our growing distribution network. Our

first center in Spain (Barcelona) and a

new shop in the UK are near

completion and will offer the same high

standard of service.

We also introduced the ApneaLink home screening system. The
ApneaLink is a boon to both patients and clinicians(cid:151)a tiny device that can be
used at home to gather information about breathing during sleep, tracking
events such as apneas and snoring. Physicians can use the ApneaLink to rapidly
and easily screen patients with suspected SDB.

We’re creating simpler ways of transferring information between
the patient and the clinician to get the most out of sleep therapy. We’ve created
products that help clinicians monitor the progress of their patients, such as the
ResLink(cid:153) that attaches to the flow generator and gathers information about a
patient’s treatment. When the clinician displays the data using ResMed
software, a detailed picture emerges of how effectively the patient is being
treated. The clinician can then customize treatment parameters to
maximize benefits.

Growing numbers of patients with COPD (long-term lung diseases such as
emphysema and chronic bronchitis) can now be treated without invasive tubes
and surgery by using devices such as the ResMed VPAP series. We(cid:146)re forming
relationships with a range of specialists so our devices can be used
in many parts of the hospital, not just in the sleep clinics. Patients
benefit from fewer complications and can even use the device at home, vastly
improving their mobility. This noninvasive therapy is part of the global
move to keep patients in their homes for as long as possible(cid:151)reducing
hospital costs and enhancing patients(cid:146) quality of life.

I(cid:146)m tthe llink

between ppatients aand

(cid:147)

the pproduct ddevelopment

teams. PPatients pprovide

feedback oon ttheir nneeds

and eexperiences, aand wwe

use tthis tto ccreate nnew

products aand iimprove

existing pproducts(cid:148)

TANIA RONCOLATO
Clinical Research
ResMed, Sydney

Growing

Tr u s t

NEW PRODUCTS DELIVER BETTER THERAPY

As we develop new products, we look for new ways to improve on
patient comfort because patients use comfortable treatment
consistently, making it more effective. Our continuous positive airway
pressure (CPAP) devices treat people who need a set treatment
pressure(cid:151)in 2004, we will launch the S8(cid:153) range, designed to be
compact and easily transported so travel is no obstacle. Our variable
positive airway pressure (VPAP) series of devices treat people with
respiratory disorders who benefit from having a variable treatment
pressure that automatically changes according to their own breathing
effort. This year we introduced the VPAP III series, with superior data
management capability and synchronization features. The
HumidAire 2i(cid:153) can be added to provide integrated humidification. The
Mirage Activa Nask Mask provides a high level of comfort, and its
unique cushioning decreases air leak(cid:151)two factors that help patients
get the most out of their therapy.

We also develop new products for the growing number of disease
states that respond to treatment with positive airway pressure devices.
Our AutoSet CS2 devices are being used in Europe as a new
treatment for patients with Cheyne-Stokes respiration or central sleep
apnea associated with congestive heart failure.

CONSTANT INNOVATION DELIVERS
IMPROVED PRODUCTS

Last year we promised (cid:147)continuous innovation to develop new
products and improve existing products(cid:148) and in 2004 we’ve delivered
on that promise. A new generation of flow generators, the S8 range,
and a whole new approach to masks, our nasal pillows system, the
Mirage Swift, are being launched in 2004 to give our customers a
lighter, more compact system. An integrated humidifier, the
HumidAire 3i(cid:153), completes the picture for easy, portable sleep therapy.

(cid:147)

My original ResMed Sullivan(cid:153) CPAP is

more than 10 years old (30,000

hours+). I thought you had built a

perpetual motion machine. It was and is

still working well at this writing, although

held in reserve now that I use the

AutoSet Spirit. The Spirit is a vast

improvement over the ResMed Sullivan.

It is silent and highly efficient. It is smaller

and lighter. Perhaps the best part about

the Spirit is knowing that it is made and

distributed by ResMed. I know, like the

original ResMed Sullivan, that it is of the

highest quality and dependable. The

second best thing is that I still have my

original ResMed Sullivan CPAP for a

backup.

March 16, 2004(cid:148)

JOHN BOHL

(cid:147)

. .. .. tthe bbest ppart

about tthe AAutoSet

Spirit iis kknowing

that iit iis mmade aand

distributed bby

ResMed

JOHN BOHL

Clarksburg, California

(cid:148)

WWee aaiimm ttoo ccoonnttiinnuuaallllyy iimmpprroovvee oouurr pprroodduuccttss,,
aanndd oouurr ccuussttoommeerrss aapppprreecciiaattee iitt.. IInn JJuunnee ooff tthhiiss
yyeeaarr DDaarrrreenn CCrroommeerr ((TTeerrrriittoorryy SSaalleess MMaannaaggeerr,,
IInnddiiaannaa,, UUSS)) rreecceeiivveedd tthhee ffoolllloowwiinngg lleetttteerr ffrroomm aa
ccuussttoommeerr hhee hhaadd rreecceennttllyy ffiitttteedd wwiitthh aa
MMiirraaggee AAccttiivvaa NNaassaall MMaasskk aatt tthhee llooccaall sslleeeepp
cclliinniicc::

(cid:147)

First I am aware of your efforts to get me the
Mirage Activa Nasal Mask, after you saw the
great need I had for it. You certainly went well
beyond the usual and customary path of delivery of
your product, and for that I am ever so grateful.

Now let me describe my feelings after the initial
usage of the Mirage Activa. Never have I been so
comfortable with a face mask after using more than
ten different models and types.

My daughter has a friend who uses CPAP and she
advised me before I started using it. Her warning was
to be sure that I was fitted correctly with the mask
and then I would be well satisfied and comfortable
with CPAP. Well, Mr Cromer, I now feel
that I have reached that goal, suggested to me by the
friend, and you and your product are the reason for
that feeling of satisfaction.

FRANK O HARPER
DDS
June 17, 2004

(cid:148)

TThhee MMiirraaggee AAccttiivvaa wwaass llaauunncchheedd iinn SSeepptteemmbbeerr
22000033.. DDeessiiggnneedd ttoo mmaaxxiimmiizzee ccoommffoorrtt aanndd
mmiinniimmiizzee aaiirr lleeaakk,, tthhee MMiirraaggee AAccttiivvaa hhaass aann
(cid:147)(cid:147)aaccttiivvee cceellll,,(cid:148)(cid:148) aann iinnffllaattaabbllee cchhaammbbeerr tthhaatt ssiittss
bbeettwweeeenn tthhee ppaattiieenntt’’ss ffaaccee aanndd tthhee mmaasskk.. TThhiiss
cchhaammbbeerr ccaann eexxppaanndd aanndd ccoonnttrraacctt wwiitthh tthhee
tthheerraappyy,, lliikkee aa ffoorrmm ooff iinnddeeppeennddeenntt ssuussppeennssiioonn,,
pprrootteeccttiinngg ddeelliiccaattee sskkiinn ffrroomm tthhee mmaasskk dduurriinngg tthhee
nnaattuurraall mmoovveemmeenntt tthhaatt ooccccuurrss iinn sslleeeepp..

Growing

A s s e t s

PRODUCTS

PRODUCTION

STAFF

RESEARCH

The result of our expanding market
is that we simply need more
product, so we built a bigger
production facility. Our new
ResMed campus in Australia, set on
30 acres of land, is a purpose-built
site, designed to meet our needs
into the future. It triples the size of
our production area and is
convenient to the growing suburbs
of northwest Sydney where many
of our staff members live.

The campus is being built in two
stages, with stage one housing
production and stage two housing
administration. Stage one was
completed on schedule in April
2004 and was immediately set up
for production. We purchased
extra equipment(cid:151)such as more
liquid silicone rubber molding
machines for manufacturing our
masks. Our capacity to grow has
also been enhanced by new
technology for creating mask
prototype components, cutting the
time from days to hours. By June,
we had already achieved a
significant increase in production.

The ResMed treatment system
works by delivering pressurized air
to the patient so that they can
breathe normally through the night.
We offer an entire system(cid:151)flow
generator, mask or nasal pillows,
and humidifier. We also help
clinicians monitor their patients(cid:146)
progress with data collection
products and supporting software.

This year we launched the Mirage
Activa, AutoSet Respond, Ultra
Mirage Full Face Mask,
AutoSet CS2, and a range of
humidifiers and data management
products. The year has also seen
the development of a new
generation of products,
incorporating the reliability and
expertise from previous products
in a lighter, more compact package.

The S8 line of flow generators will
provide the same high standard of
sleep therapy in a tiny casing that is
easy to travel with and easy to use
in the home. Clinicians can collect
data from the S8 to monitor and
control the patient’s therapy,
using familiar ResMed products
and software.

The S8 can be teamed with the
Mirage Swift nasal pillows system to
make the lightest, most portable
system around. The Mirage Swift(cid:151)
a whole new market area for
ResMed(cid:151)is the lightest nasal
pillows system available. It’s flexible,
unobtrusive, and comfortable, while
retaining seal and stability.

We continue to invest over
7% of our net revenues in
research and product
development(cid:151)that’s a bigger
dollar figure every year,
demonstrating our commitment to
continue global leadership in sleep
medicine based on innovative
technology.

Our biggest asset is our staff. In a
global company like ResMed, we
expect peak performance from all
staff members whatever their role
or location. Our direct
employees and distributors
are spread over 60
countries, so we maintain a
balance between autonomy and
adherence to company
objectives(cid:151)this lets our staff work
to their best capacity while
retaining focus and efficiency. From
the evidence of sales, product
research and development, and
production levels, it is a strategy
that continues to work.

The ResMed brand is one of our biggest assets. We
protect it, and the names of our products, with a
strong legal team. ResMed’s investment in R&D is
protected globally by over 1000 patents and
designs granted and pending by June 30, 2004.

Growing

R e t u r n s

The qquarter eending JJune 330 mmarked oour 337th cconsecutive
quarter oof ggrowth. We’ve maintained a growth rate in excess of 25% per
year in both revenues and net income since listing in June 1995. (This excludes

2001 MAP acquisition costs and 2003 SARS-related product sales.)

And our growth hasn’t gone unnoticed. We’ve been named again (for the fifth time

in six years) to the BusinessWeek list of 100 Hot Growth Companies. Forbes

magazine ranked ResMed at #35 on their list of 200 Best Small Companies in

America(cid:151)our 7th consecutive year on the list.

Our markets are growing globally, particularly
our four biggest(cid:151)US, Germany, France, and
Japan as well as our home base in Australia(cid:151)because we
help people. We help people obtain a diagnosis, and we listen
to their needs. We provide reliable products that give relief,
improve long-term health, and restore quality of life.

We’re increasing our efficiency to respond rapidly
to market needs with Six Sigma, Lean, and World Class
Manufacturing objectives.

We continue to grow with a focused and committed
Board of Directors. Our Medical Advisory Board provides us
with considerable insight into technological advancements in
the field of sleep medicine and ensures that we place a high
value on innovation that can continue to meet the growing
needs of the medical world.

We provide reliable products that give
relief, improve long-term health, and
restore quality of life.

h
e

q
u
a
r
t
e
r

u
t
i
v
e

o
u
r

arte r o f g ro

And our
customers return. . .

(cid:147)

I am writing to tell you how much I am
enjoying the Mirage Activa mask, and now
the Mirage Swift nasal pillows. I have not
slept this well in almost two years. Most
important, if you do not know it already,
you are fortunate to have such an
outstanding, dedicated employee as Iris
Fink.

I have sleep apnea. Without the use of
CPAP, I would never have a night’s rest. I
have used CPAP masks for years. For the
past six to eight months, for whatever
reason, I was no longer comfortable in any
of my CPAP masks and could not achieve a
good night’s sleep. I was ready to return to
my pulmonary consultant when Iris sent me
a Mirage Activa to try. It is undoubtedly the
most comfortable mask I have ever worn. It
requires almost no adjusting and allowed
me more freedom of movement than any
other mask. It remains in place all night,
does not leak, is quiet, and most
importantly, I was sleeping again!

I thought this was as good as it gets until I
used the Mirage Swift nasal pillows device.
It is a totally different experience than the
nasal pillows I have tried in the past. The
Swift is easy to adjust, very quiet, remains in
place, does not limit my sleep positions or
come off during my sleep, requires almost
no adjusting, fits in place instantaneously,
and allows me to keep my glasses on for
reading, television, etc, prior to falling
asleep. Now I am hooked on the Swift and
will never use another device. I think you
have an instant winner in both of these
instruments. I have informed my Pulmonary
Physician, and I tell my patients to specify
ResMed products when they are diagnosed
with a sleep disorder requiring CPAP.

Sincerely,

VICTOR E SILVERMAN
MD, FACP, FACE
August 5, 2004

(cid:148)

Medical A d v i s o r y B o a r d

ResMed(cid:146)s international Medical Advisory Board (MAB) consists of physicians and scientists specializing in the
fields of SDB and cardiology. MAB members consult with management on various projects.

TERENCE M
DAVIDSON, MD,
FACS, is Professor of
Surgery in the Division
of Otolaryngology(cid:151)
Head and Neck
Surgery at the
University of
California, San Diego
School of Medicine.
He is Section Chief of
Head and Neck
Surgery at the
Veterans
Administration, San
Diego Healthcare
System, and Associate
Dean for Continuing
Medical Education at
the University of
California, San Diego.
He is also Director of
the UCSD Head and
Neck Surgery Sleep
Clinic in La Jolla, CA.

CLAUDIO
BASSETTI, MD, is a
neurologist with
expertise in general
neurology, stroke, and
sleep medicine. He is a
leader in studying the
implications of SDB on
stroke and is Head of
the Neurology
Outpatient Clinics and
Vice-Chairman of the
Neurology
Department at the
University Hospital,
Zurich. Dr. Bassetti is a
board member of the
European Neurological
Society, and of the
Swiss Societies of
Neurology,
Neuroscience, and
Sleep and sits on the
editorial boards of the
Journal of Sleep
Research, Sleep
Medicine, and Swiss
Archives of Neurology
and Psychiatry. Dr.
Bassetti has produced
over 100 publications.

MICHAEL
COPPOLA, MD, is a
leading pulmonary,
critical care, and sleep
disorders physician and
is President of
Springfield Medical
Associates, a multi-
specialty medical group
in Springfield,
Massachusetts. He is
an attending physician
at Baystate Medical
Center and Mercy
Hospital and a Fellow
of the American
College of Chest
Physicians. Dr. Coppola
is also the Medical
Director of Sleep Ave
LLC, a sleep-
disordered breathing
specialty company with
sites in Massachusetts,
Louisiana, and Texas,
and Associate Clinical
Professor of Medicine
at Tufts University
School of Medicine.

ANTHONY N
DEMARIA, MD, is
Professor of Medicine
and Chief, Division of
Cardiology at the
University of
California, San Diego,
specializing in cardiac
imaging techniques,
particularly
echocardiography. He
is a Diplomat on the
American Board of
Internal Medicine and
is board certified by
the Subspecialty Board
in cardiovascular
disease. He is past
President of both the
American College of
Cardiology and the
American Society of
Echocardiography. Dr.
DeMaria is currently
Editor-in-Chief of the
Journal of the American
College of Cardiology
and has authored or
co-authored over 400
articles for medical
journals.

NEIL J DOUGLAS,
MD, DSc, FRCP, is
Chairman of the MAB
and Professor of
Respiratory and Sleep
Medicine, University of
Edinburgh, an
Honorary Consultant
Physician, Royal
Infirmary of Edinburgh,
and Director of the
Scottish National Sleep
Laboratory. He is
President of the Royal
College of Physicians
of Edinburgh, past
Chairman of the
British Sleep Society,
and past Secretary of
the British Thoracic
Society. Dr. Douglas
has published over 200
papers on breathing
during sleep.

J WOODROW
WEISS, MD, is
Associate Professor of
Medicine and Co-
Chairman of the
Division of Sleep
Medicine at Harvard
Medical School, as well
as Chief, Pulmonary,
Critical Care, and
Sleep Medicine, Beth
Israel Deaconess
Medical Center,
Boston, MA. He is an
internationally
recognized researcher
in sleep disorders
medicine.

HELMUT
TESCHLER, MD, is
Professor of Medicine
and Head of the
Department of
Respiratory Medicine,
High Dependency
Unit, and Center of
Sleep Medicine at the
Ruhrlandklinik, Medical
Faculty, University of
Essen, Germany. He is
a Fellow of each of
the following
associations: German
Pneumology Society,
American Thoracic
Society, European
Respiratory Society,
and American Sleep
Disorders Association.

B TUCKER
WOODSON, MD,
FACS, is Professor of
Otolaryngology and
Communication
Sciences at the
Medical College of
Wisconsin, a Diplomat
of the American
Academy of Sleep
Medicine, and a Fellow
of the American
Academy of
Otolaryngology(cid:151)
Head and Neck
Surgery and the
American College of
Surgeons. He is the
Director of the
Medical College of
Wisconsin/Froedert
Memorial Lutheran
Hospital Center for
Sleep. Dr. Woodson
also sits on multiple
committees for the
American Academy of
Sleep Medicine and
American Academy of
Otolaryngology.

NICHOLAS HILL,
MD, is Professor of
Medicine at Tufts
University School of
Medicine and Chief,
Pulmonary, Critical
Care, and Sleep
Division, Tufts(cid:150)New
England Medical
Center in Boston. He
is a Fellow and Chair
of the Home Care
Network as well as a
member of the
Network Steering
Committee for the
American College of
Chest Physicians. For
the American
Thoracic Society,
Dr. Hill is Chair of the
Program Committee
for the Critical Care
Assembly as well as a
member of the
Planning Committee.
Dr. Hill’s main research
interests are in the
acute and chronic
applications of
noninvasive positive
pressure ventilation
(NPPV) for treating
lung disease as well as
the pathogenesis and
therapy of pulmonary
hypertension.

BARRY J MAKE,
MD, is Director,
Emphysema Center
and Pulmonary
Rehabilitation National
Jewish Medical and
Research Center, and
Professor of
Pulmonary Sciences
and Critical Care
Medicine of the
University of
Colorado School of
Medicine. He has
served on numerous
national and
international
committees for
respiratory diseases.
Dr. Make’s research
and clinical
investigations have
resulted in a large
number of
publications on
mechanisms,
treatment, and
rehabilitation of
chronic respiratory
disorders. His areas of
focus are long-term
noninvasive ventilation
and chronic
obstructive pulmonary
diseases including
emphysema.

BARBARA
PHILLIPS, MD,
MSPH, FCCP, is
Professor of
Pulmonary, Critical
Care, and Sleep
Medicine at the
University of Kentucky
College of Medicine.
She directs the Sleep
Center, Sleep Clinics,
and Sleep Fellowship
at the Samaritan Sleep
Center in Kentucky.
Dr. Phillips serves as a
board member of the
National Sleep
Foundation, on the
Health and Science
Policy Committee of
the American College
of Chest Physicians,
and on the Clinical
Practice Committee of
the American
Thoracic Society. She
has been a recipient of
a Sleep Academic
Award from the
National Institutes of
Health, President of
the American Board
of Sleep Medicine, and
a member of the
Advisory Board to the
National Center of
Sleep Disorders
Research. Her
research interests are
the epidemiology of
sleep-disordered
breathing and sleep
disorders in the aged.

ResMed Board

C o m m i t t e e s

ResMed(cid:146)s BBoard oof DDirectors hhas eestablished tthe ffollowing ccommittees.

AUDIT COMMITTEE: Chaired by
Michael A. Quinn, with members
Donagh McCarthy and Louis A. Simpson,
the Audit Committee(cid:146)s primary purpose is
to assist the Board in fulfilling its
responsibilities for overseeing
management(cid:146)s conduct of ResMed(cid:146)s
financial reporting processes. The
Committee reviews the annual and
quarterly financial statements with
management and the company(cid:146)s
independent auditor. It also reviews
quarterly earnings announcements and
discusses them with management and the
auditor before they are released. It is
directly responsible for the appointment,
compensation, and review of the work of
the independent auditor. The Audit
Committee also reviews any major
changes to accounting principles
and practices.

NOMINATING AND CORPORATE
GOVERNANCE COMMITTEE:
Chaired by Gary W. Pace, with members
Donagh McCarthy, Christopher A. Barlett,
Michael A. Quinn, and Louis A. Simpson,
the Nominating and Corporate
Governance Committee(cid:146)s goal is to ensure
that the composition, practices, and
operation of the Board contribute to
value creation and effective representation
of ResMed stockholders. The Committee
provides assistance to the Board and to
the Chairman and CEO in the areas of
membership selection, committee
selection and rotation practices, evaluation
of the overall effectiveness of the Board,
and review and consideration of
developments in corporate governance
practices.

COMPENSATION COMMITTEE:
Chaired by Christopher A. Barlett, with
members Donagh McCarthy and
Gary W. Pace, the Compensation
Committee assists the board in evaluating
and approving the policies governing
compensation of ResMed(cid:146)s executive
officers, its incentive compensation
programs, and director compensation. It
also assists the board in evaluating and
developing candidates for executive
positions.

CorporateG o v e r n a n c e

ResMed is committed to effective corporate governance. At the
core of corporate governance lies the Board of Directors. We
have always had a strong and independent board. Only one of its
seven members is an employee. Our board members do not
hesitate to speak their minds, and they aren(cid:146)t afraid to stand up
and be counted. They ensure that we continue to manage the
business for the long-range interests of our shareholders.

Our board has three core committees(cid:151)the audit committee, the
nominating and corporate governance committee, and the
compensation committee. Each is composed entirely of
independent directors. Their roles are discussed more specifically
above, but each works hard to review, approve, and monitor the
major financial and business activities of the company.

We stay abreast of and comply with all the latest regulations of
the US Securities and Exchanges Commission, the New York
Stock Exchange, and the Australian Stock Exchange. We have
strong accounting supervision and principles.

But in the end, fundamentals count. And all the structures and
procedures in the world cannot substitute for character. There can
be no compromise when it comes to ethics and integrity. There is
no alternative in the long run in business (or any pursuit for that
matter) to being ethical and having integrity. It is the sine qua
non(cid:151)the indispensable element of any business. Our people are
committed to these values, and we put them into action every day.
We believe it(cid:146)s good for our business, good for our shareholders,
and good for all of us.

Financial Report

Contents

Financial Report Contents

REPORT OF MANAGEMENT

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS

FIVE(cid:150)YEAR COMPARISON OF SELECTED FINANCIAL DATA

BUSINESS ACQUISITIONS

TAX EXPENSE

LIQUIDITY AND CAPITAL RESOURCES

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS(cid:146) EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

BOARD OF DIRECTORS

SENIOR EXECUTIVE OFFICERS

SHAREHOLDERS(cid:146) INFORMATION

Report ofM a n a g e m e n t

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS

This section should be read in conjunction with the following selected financial data and Consolidated Financial Statements and notes. All dollar figures are in $US.

ResMed designs, manufactures and markets equipment for the diagnosis and treatment of sleep-disordered breathing (SDB) conditions,
including obstructive sleep apnea (OSA). Our net revenues are generated from the sale and rental of our various flow generator
devices, mask systems, accessories and other products, and to a lesser extent from royalties and sales of custom motors.

We have invested significant resources in research and development and product enhancement. Since 1989, we have developed
several innovations to the original CPAP device to increase patient comfort and to improve ease of product use. We have been
developing products for automated treatment, titration and monitoring of OSA, such as the AutoSet T(cid:153) and AutoSet Spirit flow
generators.

OVERVIEW
ResMed is a leading developer, manufacturer and distributor of medical equipment for treating, diagnosing, and managing SDB. SDB
includes OSA and other respiratory disorders that occur during sleep. When we were formed in 1989, our primary purpose was to
commercialize a treatment for OSA developed by Professor Colin Sullivan. This treatment, nasal Continuous Positive Airway Pressure,
or nCPAP, was the first successful noninvasive treatment for OSA. CPAP systems deliver pressurized air, typically through a nasal mask,
to prevent collapse of the upper airway during sleep.

Since the development of nasal CPAP, we have developed a number of innovative products for SDB, including airflow generators,
diagnostic products, mask systems, headgear, and other accessories. Our growth has been fuelled by geographic expansion, increased
awareness of SDB as a significant health concern among physicians and patients, and our research and product development effort.

We employ 1,520 people and sell our products in over 60 countries through a combination of wholly owned subsidiaries and
independent distributors.

Our Web site address is www.resmed.com. We make our periodic reports, together with any amendments, available on our Web site,
free of charge, as soon as reasonably practicable after we electronically file or furnish the reports with the Securities and Exchange
Commission.

CORPORATE HISTORY
ResMed Inc., a Delaware corporation, was formed in March 1994 as the ultimate holding company for our domestic, Australian and
European operating subsidiaries. On June 1, 1995, we completed an initial public offering of common stock and on June 2, 1995 our
common stock commenced trading on the NASDAQ National Market. On September 30, 1999 we transferred our principal public
listing to the New York Stock Exchange (NYSE), trading under the ticker symbol RMD. On November 25, 1999, we established a
secondary listing of our shares via Chess Depositary Instruments, or CDIs, on the Australian Stock Exchange (ASX), also under the
symbol RMD. Ten CDIs on the ASX represent one share of our common stock on the NYSE. On July 1, 2002, we converted our ASX
listing status from a foreign exempt listing to a full listing.

Our Australian subsidiary, ResMed Holdings Limited, was originally organized in 1989 by Dr. Peter Farrell to acquire from Baxter
Center for Medical Research Pty Limited, or Baxter, the rights to certain technology relating to CPAP treatment as well as Baxter(cid:146)s
existing CPAP device business. Baxter had sold CPAP devices in Australia since 1988, having acquired the rights to the technology in
1987.

Since formation we have acquired a number of operating businesses including Servo Magnetics Inc, Labhardt AG, MAP Medizin
Technologie GmbH, Dieter W. Priess Medtechnik, Premium Medical SARL, Innovmedics Pte Ltd and EINAR Egnell AB on May 14,
2002; November 15, 2001; February 16, 2001; February 7, 1996; June 12, 1996; November 1, 1997; and January 31, 2000 respectively.
During the 1999 fiscal year we made an equity investment in Medcare Flaga hf (Medcare), based in Iceland. We now market Medcare(cid:146)s
polysomnographic products under the Emblaﬁ and Emblettaﬁ label in selected countries.

FIVE(cid:150)YEAR COMPARISON OF SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data for, and as of the end of, each of the fiscal years in the five-
year period ended June 30, 2004. The data set forth below should be read in conjunction with the Consolidated Financial Statements
and related notes included elsewhere in this Report.

CONSOLIDATED STATEMENT OF INCOME DATA: YEARS ENDED JUNE 30
(In thousands, except per share data)

22000044

22000033

22000022

22000011

22000000

$339,338

$273,570

$204,076

$155,156

$115,615

Net revenues

Cost of sales

GGrroossss pprrooffiitt

Selling, general, and administrative expenses

Research and development expenses

In-process research and development write-off

Donations to Research Foundations

Provision for restructure

TToottaall ooppeerraattiinngg eexxppeennsseess

IInnccoommee ffrroomm ooppeerraattiioonnss

OOtthheerr iinnccoommee ((eexxppeennsseess))::

70,827

50,377

113333,,224499

110044,,777799

122,602

221166,,773366

104,706

26,169

(cid:151)

500

(cid:151)

100,483

117733,,008877

85,313

20,534

(cid:151)

113311,,337755

110055,,884477

8855,,336611

6677,,224400

64,481

14,910

350

2,349

(cid:151)

8822,,009900

5511,,115599

Interest income (expense), net

(1,683)

(2,549)

(3,224)

Government grants

Other, net

Gain on extinguishment of debt

TToottaall ootthheerr iinnccoommee ((eexxppeennsseess))

Income before income taxes

Income taxes

NNeett iinnccoommee

Basic earnings per share

Diluted earnings per share

Basic shares outstanding

Diluted shares outstanding

(cid:151)

990

(cid:151)

((669933))

84,668

27,384

5577,,228844

$1.70

$1.63

33,694

35,125

(cid:151)

1,907

529

((111133))

67,127

21,398

4455,,772299

$1.38

$1.33

33,054

34,439

(cid:151)

108

6,549

33,,443333

54,592

17,086

3377,,550066

$1.17

$1.10

32,174

34,080

36,991

7788,,662244

36,987

8,499

(cid:151)

4455,,448866

3333,,113388

801

279

(52)

(cid:151)

11,,002288

34,166

11,940

2222,,222266

$0.74

$0.69

30,153

32,303

49,364

11,146

17,677

(cid:151)

550

7788,,773377

2266,,004422

(762)

1,962

(cid:151)

11,,227722

27,314

15,684

1111,,663300

$0.37

$0.35

31,129

33,484

CONSOLIDATED BALANCE SHEET DATA: AS OF JUNE 30
(In thousands)

22000044

22000033

22000022

22000011

22000000

Working capital

TToottaall aasssseettss

Long-term debt, less current maturities

$217,238

$191,322

$142,809

$144,272

$47,550

554444,,115599

113,250

445599,,559955

113,250

337766,,119911

123,250

228888,,009900

111155,,559944

150,000

—

TToottaall ssttoocckkhhoollddeerrss(cid:146)(cid:146) eeqquuiittyy

$$336611,,449999

$$228866,,443333

$$119922,,993300

$$110000,,336666

$$9933,,997722

FISCAL YEAR ENDED JUNE 30, 2004, COMPARED TO FISCAL YEAR ENDED JUNE 30, 2003

NNEETT RREEVVEENNUUEESS.. Net revenue increased for the year ended June 30, 2004 to $339.3 million from $273.6 million for the year ended
June 30, 2003, an increase of $65.7 million or 24%.

The increase in net revenue was attributable to an increase in unit sales of our flow generators, masks and accessories. Sales also
benefited from an appreciation of international currencies against the US dollar (increasing sales by approximately $18.6 million). Net
revenue in North and Latin America increased to $166.1 million from $130.7 million for the years ended June 30, 2004 and 2003
respectively. This growth primarily reflects increased public and physician awareness of SDB. Net revenue in international markets
increased to $173.2 million from $142.8 million for the years ended June 30, 2004 and 2003 respectively. International sales growth for
the year ended June 30, 2004 reflects organic growth in the overall SDB market and appreciation of international currencies against the
US dollar. Sales for the previous year ended June 30, 2003 included non-recurring SARS-related sales to China of approximately $5.0
million. Excluding the impact of these sales, international sales grew by 26%. Excluding both the impacts of the appreciation of
international currencies against the U.S. dollar and SARS-related sales, international sales grew by 12%.
Sales of flow generators for the year ended June 30, 2004 increased by 18% compared to the year ended June 30, 2004 including
increases of 20% in North and Latin America and 16% elsewhere. Sales of mask systems, motors and other accessories increased by
31% including increases of 33% in North and Latin America and 29% elsewhere, for the year ended June 30, 2004 compared to the
year ended June 30, 2003. These increases primarily reflect growth in the overall SDB market and appreciation of international
currencies against the US dollar.

GGRROOSSSS PPRROOFFIITT.. Gross profit increased for the year ended June 30, 2004 to $216.7 million from $173.1 million for the year ended
June 30, 2003, an increase of $43.6 million or 25%. Gross profit as a percentage of net revenue increased for the year ended June 30,
2004 to 64% from 63% for the year ended June 30, 2003. The small improvement in gross margin reflects a more favorable product
mix due to increased sales of higher margin products, partially offset by the impact of higher manufacturing costs resulting from a
stronger Australian dollar against the US dollar, as the majority of manufacturing labor and overhead costs are incurred in Australia.

SSEELLLLIINNGG,, GGEENNEERRAALL AANNDD AADDMMIINNIISSTTRRAATTIIVVEE EEXXPPEENNSSEESS.. Selling, general and administrative expenses increased for the year ended
June 30, 2004 to $104.7 million from $85.3 million for the year ended June 30, 2003, an increase of $19.4 million or 23%. As a
percentage of net revenue, selling, general and administrative expenses for the year ended June 30, 2004 was 31%, consistent with the
year ended June 30, 2003. 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 our sales. The increase in selling, general and
administrative expenses was also attributable to appreciation of international currencies against the US dollar which added
approximately $8.1 million to our expenses as reported in US dollars.

DDOONNAATTIIOONNSS TTOO FFOOUUNNDDAATTIIOONNSS.. In the year ended June 30, 2004 we donated $0.5 million to the ResMed Sleep Disordered
Breathing Foundation. The Foundation(cid:146)s overall mission is to educate both the public and physicians about the inherent dangers of
untreated SDB/OSA, particularly as it relates to cerebrovascular and cardiovascular disease.

RREESSEEAARRCCHH AANNDD DDEEVVEELLOOPPMMEENNTT EEXXPPEENNSSEESS.. Research and development expenses increased for the year ended June 30, 2004 to
$26.2 million from $20.5 million for the year ended June 30, 2003, an increase of $5.7 million or 28%. As a percentage of net revenue,
research and development expenses were 7.7% for the year ended June 30, 2004 compared to 7.5% for the year ended June 30, 2003.
The increase in 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. The
increase also reflects an appreciation of the Australian dollar against the US dollar, as the majority of research and development costs
are incurred in Australian dollars. The appreciation of international currencies against the US dollar added approximately $3.8 million
to our research and development expenses as reported in US dollars.

OOTTHHEERR IINNCCOOMMEE ((EEXXPPEENNSSEESS)),, NNEETT.. Other income (expenses), net increased for the year ended June 30, 2004 to net expense of
$0.7 million from net expense of $0.1 million for the year ended June 30, 2003. The increase in other expense was attributable to no
gains on extinguishment of debt this year compared to $0.5 million for the year ended June 30, 2003 and lower net foreign currency
exchange gains, partially offset by lower interest expense due to the reduction in convertible note debt.

IINNCCOOMMEE TTAAXXEESS.. Our effective income tax rate increased to 32.3% for the year ended June 30, 2004 from 31.9% for the year ended
June 30, 2003. The marginally higher tax rate was primarily due to the geographical mix of taxable income. We continue to benefit
from the Australian corporate tax rate of 30%, because we generate a majority of our taxable income in Australia.

FISCAL YEAR ENDED JUNE 30, 2003, COMPARED TO FISCAL YEAR ENDED JUNE 30, 2002

NNEETT RREEVVEENNUUEESS.. Net revenue increased for the year ended June 30, 2003 to $273.6 million from $204.1 million for the year ended
June 30, 2002, an increase of $69.5 million or 34%.

The increase in net revenue was attributable to an increase in unit sales of our flow generators and accessories. Sales also benefited
from an appreciation of international currencies against the US dollar (increasing sales by approximately $16.8 million) and inclusion of
sales of $6.5 million from Servo Magnetics Inc. (SMI), the subsidiary we acquired in May 2002. Net revenue in North and Latin America
increased to $130.7 million from $100.9 million for the years ended June 30, 2003 and 2002 respectively. This growth primarily reflects
increased public and physician awareness of SDB. Net revenue in international markets increased to $142.8 million from $103.1 million
for the years ended June 30, 2003 and 2002 respectively. International sales growth for the year ended June 30, 2003 reflects organic
growth in the overall SDB market, appreciation of international currencies against the US dollar, and SARS-related sales to China of
approximately $5.0 million.

Sales of flow generators for the year ended June 30, 2003 increased by 29% compared to the year ended June 30, 2002 including
increases of 23% in North and Latin America and 33% elsewhere. Sales of mask systems, motors, and other accessories increased by
40% including increases of 35% in North and Latin America and 47% elsewhere, for the year ended June 30, 2003 compared to the
year ended June 30, 2002. These increases primarily reflect growth in the overall SDB market, appreciation of international currencies
against the US dollar, and our acquisition of SMI.

GGRROOSSSS PPRROOFFIITT.. Gross profit increased for the year ended June 30, 2003 to $173.1 million from $133.2 million for the year ended
June 30, 2002, an increase of $39.9 million or 30%. Gross profit as a percentage of net revenue decreased for the year ended June 30,
2003 to 63% from 65% for the year ended June 30, 2002, reflecting the impact of higher manufacturing costs resulting from a stronger
Australian dollar against the US dollar, as the majority of manufacturing labor and overhead costs are incurred in Australia and, to a
lesser extent, the inclusion of SMI(cid:146)s motor sales which achieve lower margins compared to our overall gross margin.

SSEELLLLIINNGG,, GGEENNEERRAALL AANNDD AADDMMIINNIISSTTRRAATTIIVVEE EEXXPPEENNSSEESS.. Selling, general and administrative expenses increased for the year ended
June 30, 2003 to $85.3 million from $64.5 million for the year ended June 30, 2002, an increase of $20.8 million or 32%. As a
percentage of net revenue, selling, general and administrative expenses for the year ended June 30, 2003 decreased to 31% compared
to 32% for the year ended June 30, 2002. 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 our sales. The increase in selling,
general and administrative expenses was also attributable to appreciation of international currencies against the US dollar (adding
approximately $6.0 million), the inclusion of $2.6 million from SMI(cid:146)s operations, and $2.2 million in litigation costs associated with
outstanding patent infringement lawsuits against competitors.

RREESSEEAARRCCHH AANNDD DDEEVVEELLOOPPMMEENNTT EEXXPPEENNSSEESS.. Research and development expenses increased for the year ended June 30, 2003 to
$20.5 million from $14.9 million for the year ended June 30, 2002, an increase of $5.6 million or 38%. As a percentage of net revenue,
research and development expenses were 7.5% for the year ended June 30, 2003 compared to 7.3% for the year ended June 30, 2002.
The increase in 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. The
increase also reflects an appreciation of the Australian dollar against the US dollar, as the majority of research and development costs are
incurred in Australian dollars. In constant currency terms, research and development expenses for the year ended June 30, 2003
increased by $3.1 million, or 17%, compared to the year ended June 30, 2002.

OOTTHHEERR IINNCCOOMMEE ((EEXXPPEENNSSEESS)),, NNEETT.. Other income (expenses), net decreased for the year ended June 30, 2003 to net expense of
$0.1 million from net income of $3.4 million for the year ended June 30, 2002. The decrease in other income was attributable to lower
gains on extinguishment of debt partially offset by increased net foreign currency exchange gains, and lower interest expense due to the
reduction in convertible note debt.

IINNCCOOMMEE TTAAXXEESS.. Our effective income tax rate increased to 31.9% for the year ended June 30, 2003 from 31.3% for the year ended
June 30, 2002. The marginally higher tax rate was primarily due to the geographical mix of taxable income. We continue to benefit
from the Australian corporate tax rate of 30%, because we generate a majority of our taxable income in Australia.

BUSINESS ACQUISITIONS
FISCAL YEAR ENDED JUNE 30, 2004
RREESSPPRROO MMEEDDIICCAALL CCOOMMPPAANNYY LLIIMMIITTEEDD.. On July 2, 2003 we acquired the assets of Respro Medical Company Limited (Respro), our
Hong Kong distributor for total consideration of $184,000 in cash. The acquisition has been accounted for as a purchase and
accordingly, the results of operations of Respro have been included within our Consolidated Financial Statements from July 2, 2003. An
amount of $89,000, representing the excess of the purchase price over the fair value of net identifiable assets acquired of $95,000, has
been recorded as goodwill.

FISCAL YEAR ENDED JUNE 30, 2003
JJOOHHNN SSTTAARRKK AANNDD AASSSSOOCCIIAATTEESS.. On July 24, 2002 we acquired the business of John Stark and Associates, our Texas representative,
for total consideration of $300,000 in cash. The acquisition has been accounted for as a purchase and accordingly, the results of
operations of John Stark and Associates were included within our Consolidated Financial Statements from July 24, 2002. An amount of
$300,000, representing the excess of the purchase price over the fair value of net identifiable assets acquired of $nil, has been
recorded as goodwill.

FISCAL YEAR ENDED JUNE 30, 2002
LLAABBHHAARRDDTT AACCQQUUIISSIITTIIOONN.. On November 15, 2001, we acquired all the common stock of Labhardt AG, our Swiss distributor, for total
cash consideration, including acquisition costs, of $5.5 million.

The acquisition has been accounted for as a purchase and accordingly, the results of operations of Labhardt AG have been included in
our Consolidated Financial Statements from November 15, 2001. An amount of $4.2 million, representing the excess of the purchase
price over the fair value of the net identifiable assets acquired of $1.3 million, has been recorded as goodwill.

SSMMII AACCQQUUIISSIITTIIOONN.. On May 14, 2002, we acquired all of the common stock of Servo Magnetics Incorporated (SMI) through a
merger with our wholly owned subsidiary, Servo Magnetics Acquisitions Inc., for total consideration, including acquisition costs, of $32.6
million. Consideration included the issue of 853,448 shares for fair value of $24.8 million with the balance of the acquisition price paid
in cash. Upon consummation of the merger, the surviving corporation, Servo Magnetics Acquisitions Inc., changed its name to Servo
Magnetics Inc.

The acquisition has been accounted for as a purchase and accordingly, the results of operations of SMI have been included in our
consolidated financial statements from May 14, 2002. An amount of $30.7 million, representing the excess of the purchase price over
the fair value of the net identifiable assets acquired of $1.9 million, has been recorded as goodwill.

Purchased in-process research and development of $0.4 million was expensed upon acquisition of SMI because technological feasibility
of the products under development had not been established and no further alternative uses existed. The value of in-process
technology was calculated by identifying research projects in areas for which technological feasibility had not been established,
estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net
cash flows from such products, discounting the net cash flows to present value, and applying the reduced percentage completion of the
projects thereto. The discount rate used in the analysis was 19% and was based on the risk profile of the acquired assets.

Purchased research and development projects related to electrical motor systems used in our flow generator devices and other
medical and data storage equipment. Key assumptions used in the analysis included gross margins of 34%. The majority of the new
motor systems for use in medical applications have been completed and have performed in line with expectations at the time of
acquisition.

TAX EXPENSE
Our income tax rate is governed by the laws of the regions in which our income is recognized. To date, a substantial portion of our income
has been subject to income tax in Australia where the statutory rate was 30% in fiscal 2004, 2003 and 2002. During fiscal 2004, 2003 and
2002, our effective tax rate has fluctuated between approximately 31% and approximately 33%. These fluctuations have resulted from, and
future effective tax rates will depend upon, numerous factors, including the amount of research and development expenditures for which a
125% Australian tax deduction is available, the level of non-deductible expenses, and the use of available net operating loss carryforward
deductions and other tax credits or benefits available to us under applicable tax laws.

We account 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.

LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2004 and June 30, 2003, we had cash and cash equivalents and marketable securities available-for-sale of $140.9 million and $121.0
million respectively. Working capital was $217.2 million and $191.3 million at June 30, 2004 and June 30, 2003 respectively.

Inventories at June 30, 2004 increased by $6.4 million or 13% to $55.8 million compared to June 30, 2003 inventories of $49.4 million. The
percentage increase in inventories was less than the 24% incremental increase in revenues in the year ended June 30, 2004 compared to
the year ended June 30, 2003. The lower inventory growth reflects the impact of the relocation of manufacturing to our new facility at
Norwest, Sydney in the fourth quarter of fiscal year 2004 which temporarily lowered production volumes and consequently inventory
balances at June 30, 2004. Accounts receivable at June 30, 2004 were $67.2 million, an increase of $10.5 million or 19% over the June 30,
2003 accounts receivable balance of $56.7 million. This increase was modestly lower than the 24% incremental increase in revenues for the
year ended June 30, 2004 compared to the year ended June 30, 2003. Accounts receivable days outstanding increased to 64 days for the
quarter ended June 30, 2004, compared to 62 days for the quarter ended June 30, 2003. The increase reflected, in part, SARS-related sales
to China of $5.0 million in the quarter ended June 30, 2003, which were collected prior to June 30, 2003. Our allowance for doubtful
accounts as a percentage of total accounts receivable at June 30, 2004 and 2003 was 4.5% and 4.2%, respectively. The credit quality of our
customers remains consistent with our past experience.

During the year ended June 30, 2004, we generated cash of $76.5 million from operations, primarily as a result of increased profit and
improved working capital management, particularly in respect of inventories and accounts payable. During the year ended June 30,
2003 approximately $59.3 million of cash was generated by operations.

Capital expenditures for the years ended June 30, 2004 and 2003 aggregated $57.2 million and $25.6 million respectively. For the year
ended June 30, 2004, $40.9 million of the expenditure related to the construction of our new manufacturing facility. Capital
expenditure was also incurred for the acquisition of computer hardware and software and purchase of production tooling and
equipment. The capital expenditures in the year ended June 30, 2003 primarily reflected the construction of our new manufacturing
facility, acquisition of computer hardware and software including a disaster recovery system, and purchase of production tooling
equipment. As a result of these capital expenditures, our balance sheet reflects net property, plant, and equipment of approximately
$147.3 million at June 30, 2004 compared to $104.7 million at June 30, 2003.

During the year ended June 30, 2004, we did not repurchase any convertible subordinated notes.

For the year ended June 30, 2003 we repurchased $10.0 million face value of our outstanding convertible subordinated notes. The total
purchase price of the notes was $9.4 million, including $0.2 million in accrued interest. We recognized a gain of $0.3 million, net of tax of
$0.2 million, on these transactions. At June 30, 2004, we had convertible subordinated notes outstanding of $113.2 million.

We may from time to time seek to retire our convertible subordinated notes through cash purchases and/or exchanges for equity
securities in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend
on prevailing market conditions, our liquidity requirements, and our current or future contractual obligations, if any, that may directly or
indirectly apply to such transactions.

On April 26, 2002, we settled our purchase of a 30-acre site at Norwest Business Park, located northwest of Sydney, Australia. The
acquisition cost was $23.6 million, including deferred payments of $5.7 million paid in October 2002 and $5.7 million paid in April 2003.
We completed the first building, a manufacturing facility on this site in May 2004. New research and development and office facilities are
expected to be completed in May 2006. We estimate that the additional building costs for the new research and development and office
facilities will be approximately $54 million. We expect to fund the project through a combination of cash on hand and cash generated
from operations.

On June 6, 2002, the Board of Directors authorized us to repurchase up to 4.0 million shares of our outstanding common stock. For the
years ended June 30, 2004 and 2003, we repurchased 471,000 and 125,000 shares at a cost of $19.0 million and $3.5 million respectively.
As at June 30, 2004, we have repurchased a total of 886,000 shares at a cost of $30.4 million. We may continue to repurchase shares of
our common stock for cash in the open market, or in negotiated or block transactions, from time to time as market and business
conditions warrant.

DETAILS OF CONTRACTUAL OBLIGATIONS AT JUNE 30, 2004 ARE AS FOLLOWS:
(In thousands)

Total

Less than 1 year

4(cid:150)5 years After 5 years

Payments DDue bby PPeriod
1(cid:150)3 years

Long-term Debt

Operating Leases

Capital Leases

Unconditional Purchase Obligations

TToottaall CCoonnttrraaccttuuaall CCaasshh OObblliiggaattiioonnss

$113,250

(cid:151)

$113,250

11,223

(cid:151)

4,820

4,947

(cid:151)

4,820

5,178

(cid:151)

1,098

(cid:151)

$$112299,,229933

$$99,,776677

$$111188,,442288

$$11,,009988

(cid:151)

(cid:151)(cid:151)

DETAILS OF OTHER COMMERCIAL COMMITMENTS AT JUNE 30, 2004 ARE AS FOLLOWS:
(In thousands)

Amount oof CCommitment EExpiration PPer PPeriod

Lines of Credit

Standby Letters of Credit

Guarantees*

Standby Repurchase Obligations

Other Commercial Commitments

TToottaall CCoommmmeerrcciiaall CCoommmmiittmmeennttss

Total
Amounts
Committed

Less than
1 year

(cid:151)

1,761

(cid:151)

$$11,,776611

(cid:151)

(cid:151)(cid:151)

1(cid:150)3 years

4(cid:150)5 years Over 5 years

(cid:151)

886

(cid:151)

349

(cid:151)

526

(cid:151)

$$888866

$$334499

$$552266

*The above guarantees relate to guarantees required by statutory authorities as a pre-requisite to developing our site at Norwest and requirements under contractual obligations with

insurance companies transacting with our German subsidiaries.

The results of our international operations are affected by changes in exchange rates between currencies. Changes in exchange rates
may negatively affect our consolidated net revenue and gross profit margins from international operations. We are exposed to the risk
that the dollar value equivalent of anticipated cash flows would be adversely affected by changes in foreign currency exchange rates.
We manage this risk through foreign currency option contracts.

We expect to satisfy all of our short-term and long-term liquidity requirements through a combination of cash on hand, cash
generated from operations and a $15.0 million undrawn revolving line of credit with Union Bank of California.

CRITICAL ACCOUNTING PRINCIPLES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to
allowance for doubtful accounts, inventory reserves, warranty obligations, goodwill, impaired assets, intangible assets, income taxes, and
contingencies.

We state these accounting policies in the notes to the financial statements and at relevant sections in this discussion and analysis. The
estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of
our financial statements:

((11)) AALLLLOOWWAANNCCEE FFOORR DDOOUUBBTTFFUULL AACCCCOOUUNNTTSS.. We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments, which results in bad debt expense. We determine the adequacy of this
allowance by continually evaluating individual customer receivables, considering a customer(cid:146)s financial condition, credit history and
current economic conditions. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.

((22)) IINNVVEENNTTOORRYY AADDJJUUSSTTMMEENNTTSS.. Inventories are stated at lower of cost or market and are determined by the first-in, first-out method.
We review the components of inventory on a regular basis for excess, obsolete and impaired inventory based on estimated future usage
and sales. The likelihood of any material inventory write-downs is dependent on changes in competitive conditions, new product
introductions by us or our competitors, or rapid changes in customer demand.

((33)) VVAALLUUAATTIIOONN OOFF GGOOOODDWWIILLLL,, IINNTTAANNGGIIBBLLEE AANNDD OOTTHHEERR LLOONNGG-LLIIVVEEDD AASSSSEETTSS.. We use assumptions in establishing the carrying
value, fair value and estimated lives of our long-lived assets and goodwill. The criteria used for these evaluations include management(cid:146)s
estimate of the asset(cid:146)s continuing ability to generate positive income from operations and positive cash flow in future periods compared to
the carrying value of the asset, as well as the strategic significance of any identifiable intangible asset in our business objectives. If assets are
considered to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the
assets. Useful lives and related amortization or depreciation expense are based on our estimate of the period that the assets will generate
revenues or otherwise be used by us.

Factors that would influence the likelihood of a material change in our reported results include significant changes in the asset(cid:146)s ability
to generate positive cash flow, loss of legal ownership or title to the asset, a significant decline in the economic and competitive
environment on which the asset depends, significant changes in our strategic business objectives, utilization of the asset, and a significant
change in the economic and/or political conditions in certain countries.

((44)) VVAALLUUAATTIIOONN OOFF DDEEFFEERRRREEDD IINNCCOOMMEE TTAAXXEESS.. Valuation allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. The likelihood of a material change in our expected realization of these assets is dependent on future
taxable income, our ability to deduct tax loss carryforwards against future taxable income, the effectiveness of our tax planning and
strategies among the various tax jurisdictions that we operate in, and any significant changes in the tax treatment received on our business
combinations.

((55)) PPRROOVVIISSIIOONN FFOORR WWAARRRRAANNTTYY.. We provide for the estimated cost of product warranties at the time the related revenue is
recognized. The amount of this provision is determined by using a financial model, which takes into consideration actual, historical expenses
and potential risks associated with our different products. This financial model is then used to calculate the future probable expenses related
to warranty and the required level of the warranty provision. Although we engage in product improvement programs and processes, our
warranty obligation is affected by product failure rates and costs incurred to correct those product failures. Should actual product failure
rates or estimated costs to repair those product failures differ from our estimates, revisions to our estimated warranty provision would be
required.

((66)) RREEVVEENNUUEE RREECCOOGGNNIITTIIOONN.. Revenue on product sales is recorded at the time of shipment, at which time title transfers to the
customer. Revenue on product sales which require customer acceptance is not recorded until acceptance is received. Royalty revenue from
license agreements is recorded when earned. Service revenue received in advance from service contracts is initially deferred and recognized
ratably over the life of the service contract. Revenue received in advance from rental unit contracts is initially deferred and recognized
ratably over the life of the rental contract. Revenue from sale of marketing and distribution rights is initially deferred and recognized ratably
as revenue over the life of the contract. Freight charges billed to customers are included in revenue. All freight-related expenses are charged
to cost of sales.

We do not offer a right of return or other recourse with respect to the sale of our products or similarly offer variable sale prices for
subsequent events or activities. However, as part of our sales processes we may provide upfront discounts for large orders, one time
special pricing to support new product introductions, sales rebates for centralized purchasing entities or price-breaks for regular order
volumes. The costs of all such programs are recorded as an adjustment to revenue. In our domestic sales activities we use a number of
manufacturer representatives to sell our products. These representatives are paid a direct commission on sales and act as an integral
component of our domestic sales force. We do not sell our products to these representatives, and do not recognize revenue on such
shipments. Our products are predominantly therapy-based equipment and require no installation. As such, we have no significant
installation obligations.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104, (cid:147)Revenue Recognition(cid:148) which codifies, revises, and rescinds
certain sections of SAB No. 101, (cid:147)Revenue Recognition(cid:148), in order to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and regulations. The changes noted in SAB No. 104 did not have a
material effect on our consolidated results of operations, consolidated financial position or consolidated cash flows.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 150,(cid:147)Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and Equity(cid:148). SFAS 150 requires that certain financial instruments,
which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected
include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that can be settled with shares of stock.

SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 effective July 1, 2003. The adoption of SFAS 150 did not
have a material impact on our consolidated financial position or results of operation.

In April 2003, the FASB issued SFAS 149, Amendment of SFAS 133 on Derivative Instruments and Hedging Activities, which amends and
clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts
and for hedging activities under SFAS 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on our results of operations, financial position or liquidity.

In January 2003, the FASB issued Interpretation No. (FIN) 46, Consolidation of Variable Interest Entities, which addresses the consolidation
of certain entities (variable interest entities) in which an enterprise has a controlling financial interest through other than voting interests. FIN
46 requires that a variable interest entity be consolidated by the holder of the majority of the expected risks and rewards associated with
the activities of the variable interest entity. FIN 46 was effective for variable interest entities entered into prior to February 1, 2003 in
periods beginning after June 15, 2003. The adoption of FIN 46 did not have a material impact on our financial condition or results of
operations. In December 2003, the FASB issued a revision to FIN 46, to clarify some requirements and add new scope exceptions. The
revised guidance is effective for the first reporting period beginning after December 15, 2003. The adoption of the provisions of FIN 46R
did not have a material impact on our financial condition or results of operations.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-21 (cid:147)Accounting for Revenue Arrangements with
Multiple Deliverables(cid:148). EITF Issue No. 00-21 addresses how to determine whether a revenue arrangement involving multiple deliverables
contains more than one unit of accounting for the purposes of revenue recognition and how the revenue arrangement consideration
should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 applies to revenue arrangements entered into
after June 15, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.

Consolidated
Financial Statements

a n d s u p p l e m e n t a r y d a t a

SELECTED QUARTERLY FINANCIAL INFORMATION
Quarterly Financial Information (unaudited)(cid:151)the quarterly results for the years ended June 30, 2004 and 2003 are summarized below
(in thousands, except per share amounts):

22000044

Net revenues

Gross profit

Net income

Basic earnings per share

Diluted earnings per share

22000033

Net revenues

Gross profit

Net income

Basic earnings per share

Diluted earnings per share

FFIIRRSSTT

FFOOUURRTTHH
QQUUAARRTTEERR QQUUAARRTTEERR QQUUAARRTTEERR QQUUAARRTTEERR

SSEECCOONNDD

TTHHIIRRDD

FFIISSCCAALL
YYEEAARR

$72,878

$82,292

$91,277

$92,891

$339,338

47,158

12,249

0.36

$0.35

52,424

14,151

0.42

$0.40

57,550

15,029

0.45

$0.43

59,604

15,855

0.47

$0.45

FFIIRRSSTT

FFOOUURRTTHH
QQUUAARRTTEERR QQUUAARRTTEERR QQUUAARRTTEERR QQUUAARRTTEERR

SSEECCOONNDD

TTHHIIRRDD

216,736

57,284

1.70

$1.63

FFIISSCCAALL
YYEEAARR

$58,586

$65,293

$68,996

$80,695

$273,570

37,697

9,571

0.29

$0.28

41,839

10,384

0.31

$0.30

43,187

12,250

0.37

$0.35

50,364

13,524

0.41

$0.39

173,087

45,729

1.38

$1.33

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

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
TTHHEE BBOOAARRDD OOFF DDIIRREECCTTOORRSS AANNDD SSTTOOCCKKHHOOLLDDEERRSS

RREESSMMEEDD IINNCC..::

We have audited the accompanying consolidated balance sheets of ResMed Inc. and subsidiaries as of June 30, 2004 and 2003, and the
related consolidated statements of income, stockholders(cid:146) equity, and cash flows for each of the years in the three-year period ended
June 30, 2004. These consolidated financial statements are the responsibility of the Company(cid:146)s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
ResMed Inc. and subsidiaries as of June 30, 2004 and 2003, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 30, 2004, in conformity with US generally accepted accounting principles.

As discussed in Note 8 to the consolidated financial statements, the Company has adopted the provisions of SFAS No. 142
(cid:147)Accounting for Goodwill and Other Intangible Assets(cid:148) and changed its method of accounting for goodwill in 2002 accordingly.

KPMG LLP
San Diego, California

August 13, 2004

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2004 AND 2003
(In thousands, except share and per share data)

AASSSSEETTSS

Current assets:

Cash and cash equivalents

Marketable securities available for sale (note 4)

Accounts receivable, net of allowance for doubtful accounts of $3,197 and $2,474 at
June 30, 2004 and 2003, respectively

Inventories, net (note 5)

Deferred income taxes (note 13)

Prepaid expenses and other current assets

TToottaall ccuurrrreenntt aasssseettss

Property, plant and equipment, net of accumulated depreciation of $60,330
and $45,379 at June 30, 2004 and 2003 respectively (note 7)

Patents, net of accumulated amortization of $4,961 and $3,437
at June 30, 2004 and 2003, respectively

Goodwill (note 8)

Other assets

TToottaall nnoonn-ccuurrrreenntt aasssseettss

TToottaall aasssseettss

JJUUNNEE 3300,,
22000044

JJUUNNEE 3300,,
22000033

$128,907

$114,491

12,021

6,533

67,242

55,797

7,041

6,821

56,694

49,386

8,301

6,500

227777,,882299

224411,,990055

147,268

104,687

4,814

3,745

106,075

102,160

8,173

7,098

226666,,333300

221177,,669900

$$554444,,115599

$$445599,,559955

JUNE 30, 2004 AND 2003
(In thousands, except share and per share data)

LLIIAABBIILLIITTIIEESS AANNDD SSTTOOCCKKHHOOLLDDEERRSS(cid:146)(cid:146) EEQQUUIITTYY

CCuurrrreenntt lliiaabbiilliittiieess::

Accounts payable

Accrued expenses (note 9)

Deferred revenue

Income taxes payable

Current portion of deferred profit on sale-leaseback

TToottaall ccuurrrreenntt lliiaabbiilliittiieess

NNoonn-ccuurrrreenntt lliiaabbiilliittiieess::

Deferred revenue

Convertible subordinated notes (note 10)

Deferred profit on sale-leaseback

TToottaall nnoonn-ccuurrrreenntt lliiaabbiilliittiieess

TToottaall lliiaabbiilliittiieess

Commitments and contingencies (notes 16 and 18)

Stockholders(cid:146) equity: (note 11)

Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued

Series A Junior Participating preferred stock, $0.01 par value,
250,000 shares authorized; none issued

Common stock, $.004 par value, 100,000,000 shares authorized;

Issued and outstanding 33,858,272 at June 30, 2004 and 33,370,885 at June 30, 2003
(excluding 886,369 and 415,365 shares held as Treasury Stock respectively)

Additional paid-in capital

Retained earnings

Treasury stock

Accumulated other comprehensive income

TToottaall ssttoocckkhhoollddeerrss(cid:146)(cid:146) eeqquuiittyy

TToottaall lliiaabbiilliittiieess aanndd ssttoocckkhhoollddeerrss(cid:146)(cid:146) eeqquuiittyy

See accompanying notes to consolidated financial statements.

JJUUNNEE 3300,,
22000044

JJUUNNEE 3300,,
22000033

$18,574

$19,368

22,591

19,140

8,759

8,470

2,197

6,355

3,408

2,312

6600,,559911

5500,,558833

8,819

7,210

113,250

(cid:151)

2,119

112222,,006699

112222,,557799

118822,,666600

117733,,116622

(cid:151)

135

134

132,875

107,432

217,656

160,372

(30,440)

(11,415)

41,273

29,910

336611,,449999

228866,,443333

$$554444,,115599

$$445599,,559955

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(In thousands, except share and per share data)

Net revenues

Cost of sales

GGrroossss pprrooffiitt

OOppeerraattiinngg eexxppeennsseess::

Selling, general, and administrative

Research and development

Donations to Research Foundations

In-process research and development write-off (note 19)

TToottaall ooppeerraattiinngg eexxppeennsseess

IInnccoommee ffrroomm ooppeerraattiioonnss

OOtthheerr iinnccoommee ((eexxppeennsseess))::

Gain on extinguishment of debt

Interest income (expense), net

Other, net (note 12)

TToottaall ootthheerr iinnccoommee ((eexxppeennsseess)),, nneett

Income before income taxes

Income taxes (note 13)

NNeett iinnccoommee

Basic earnings per share

Diluted earnings per share

Basic shares outstanding

Diluted shares outstanding

See accompanying notes to consolidated financial statements.

JJUUNNEE 3300,,
22000044

JJUUNNEE 3300,,
22000033

JJUUNNEE 3300,,
22000022

$339,338

$273,570

$204,076

122,602

221166,,773366

100,483

70,827

117733,,008877

113333,,224499

104,706

26,169

500

(cid:151)

85,313

20,534

(cid:151)

113311,,337755

110055,,884477

8855,,336611

6677,,224400

64,481

14,910

2,349

350

8822,,009900

5511,,115599

(cid:151)

529

6,549

(1,683)

(2,549)

(3,224)

990

((669933))

84,668

27,384

1,907

((111133))

67,127

21,398

108

33,,443333

54,592

17,086

$$5577,,228844

$$4455,,772299

$$3377,,550066

$1.70

$1.63

33,694

35,125

$1.38

$1.33

33,054

34,439

$1.17

$1.10

32,174

34,080

CONSOLIDATED STATEMENTS OF STOCKHOLDERS(cid:146) EQUITY

YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(In thousands)

Common SStock

Amount

31,479
776
853

$126
3
3

Additional
Paid-in
Capital

$52,675
9,778
24,781

(cid:151)

6,919

Treasury SStock

(cid:151)
(cid:151)
(cid:151)
(290)
(cid:151)

Amount

(cid:151)
(cid:151)

(7,873)
(cid:151)

Accumulated
Other
Retained Comprehensive
Income (loss)
Earnings

$77,137
(cid:151)

(cid:151)

($29,572)
(cid:151)
(cid:151)
(cid:151)
(cid:151)

Total

Comprehensive
Income

$100,366
9,781
24,784
(7,873)
6,919

37,506

(cid:151)

37,506

33,108
678

132
2

94,153
9,029

4,250

(290)

(7,873)

114,643

(8,125)

(125)

(3,542)

21,342
105

5588,,995533

21,342
105

192,930
9,031
(3,542)
4,250

45,729

33,786
958

134
3
(2)

107,432
20,338

5,105

(415)

(11,415)

160,372

29,910

(471)

(19,025)

38,131
(96)

8833,,776644

38,131
(96)

286,433
20,341
(19,027)
5,105

3344,,774444

$$113355

$$113322,,887755

((888866))

(($$3300,,444400))

$$221177,,665566

$$4411,,227733

$$336611,,449999

57,284

11,366
(3)

6688,,664477

BBAALLAANNCCEE,, JJUUNNEE 3300,, 22000011
Common stock issued on exercise of options (note 11)
Common stock issued for acquisitions
Treasury stock purchases
Tax benefit from exercise of options
CCoommpprreehheennssiivvee iinnccoommee::
Net income
Other comprehensive income
Foreign currency translation adjustments
Unrealized gains on marketable securities

CCoommpprreehheennssiivvee iinnccoommee//((lloossss))
BBAALLAANNCCEE,, JJUUNNEE 3300,, 22000022
Common stock issued on exercise of options (note 11)
Treasury stock purchases
Tax benefit from exercise of options
CCoommpprreehheennssiivvee iinnccoommee::
Net income
Other comprehensive income
Foreign currency translation adjustments
Unrealized losses on marketable securities

CCoommpprreehheennssiivvee iinnccoommee//((lloossss))
BBAALLAANNCCEE,, JJUUNNEE 3300,, 22000033
Common stock issued on exercise of options (note 11)
Treasury stock purchases
Tax benefit from exercise of options
CCoommpprreehheennssiivvee iinnccoommee::
Net income
Other comprehensive income
Foreign currency translation adjustments
Unrealized losses on marketable securities

CCoommpprreehheennssiivvee iinnccoommee//((lloossss))
BBaallaannccee,, JJuunnee 3300,, 22000044

See accompanying notes to consolidated financial statements.

3
8

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(In thousands)

CCaasshh fflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess::

Net income

AAddjjuussttmmeennttss ttoo rreeccoonncciillee nneett iinnccoommee ttoo nneett ccaasshh pprroovviiddeedd bbyy ooppeerraattiinngg aaccttiivviittiieess::

Depreciation and amortization

Provision for service warranties

Deferred income taxes

Foreign currency options revaluation

Deferred borrowing costs

Tax benefit from stock options exercised

Gain on extinguishment of debt

Release of profit on sale of building

Other, net

Purchased in-process research and development write-off

CChhaannggeess iinn ooppeerraattiinngg aasssseettss aanndd lliiaabbiilliittiieess,, nneett ooff eeffffeecctt ooff aaccqquuiissiittiioonnss::

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Accounts payable, accrued expenses and other liabilities

NNeett ccaasshh pprroovviiddeedd bbyy ooppeerraattiinngg aaccttiivviittiieess

CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess::

Purchases of property, plant and equipment

Purchases of marketable securities(cid:151)available-for-sale

Proceeds from sale of marketable securities(cid:151)available-for-sale

Patent registration costs

Business acquisitions, net of cash acquired

Purchases of non-trading investments

Proceeds from sale of non-trading investments

Proceeds from sale-leaseback

JJUUNNEE 3300,,
22000044

JJUUNNEE 3300,,
22000033

JJUUNNEE 3300,,
22000022

$57,284

$45,729

$37,506

17,867

12,583

213

1,259

982

804

5,105

(cid:151)

332

2,002

(2,117)

834

4,250

(529)

(2,440)

(2,012)

(cid:151)

(13,129)

(6,722)

15,303

7766,,554411

(cid:151)

(6,102)

(2,988)

(2,333)

9,635

5599,,228844

9,972

(85)

(6,153)

767

1,254

6,919

(6,549)

(cid:151)

(162)

350

(9,765)

(7,063)

4,785

3,864

3355,,664400

(57,246)

(25,635)

(28,185)

(78,890)

(13,544)

(393,072)

73,376

(2,358)

(184)

(1,535)

(cid:151)

26,845

435,871

(1,560)

(1,720)

(300)

(13,871)

(1,625)

(3,987)

3,936

(cid:151)

18,500

NNeett ccaasshh pprroovviiddeedd bbyy ((uusseedd iinn)) iinnvveessttiinngg aaccttiivviittiieess

(($$6666,,883377))

(($$1111,,888833))

$$1133,,553366

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 2004, 2003 AND 2002
(In thousands)

JJUUNNEE 3300,,
22000044

JJUUNNEE 3300,,
22000033

JJUUNNEE 3300,,
22000022

CCaasshh fflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess::

Proceeds from issuance of common stock, net

Repayment of borrowings

Proceeds from borrowings, net of borrowing costs

Redemption of borrowings, convertible note

Purchases of treasury stock

Installment payment for property purchase

NNeett ccaasshh pprroovviiddeedd bbyy ((uusseedd iinn)) ffiinnaanncciinngg aaccttiivviittiieess

EEffffeecctt ooff eexxcchhaannggee rraattee cchhaannggeess oonn ccaasshh

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt eenndd ooff tthhee yyeeaarr

SSUUPPPPLLEEMMEENNTTAALL DDIISSCCLLOOSSUURREE OOFF CCAASSHH FFLLOOWW IINNFFOORRMMAATTIIOONN::

Income taxes paid

Interest paid

Fair value of assets acquired in acquisitions

Liabilities assumed

Goodwill on acquisition

Fair value of shares issued for acquisitions

CCaasshh ppaaiidd ffoorr aaccqquuiissiittiioonn,, iinncclluuddiinngg aaccqquuiissiittiioonn ccoossttss

See accompanying notes to consolidated financial statements.

$20,341

$9,031

$9,781

(3,022)

28,402

(cid:151)

(9,217)

(48,454)

(cid:151)

(19,027)

(3,542)

(7,873)

(cid:151)

(12,609)

(cid:151)

11,,331144

33,,339988

14,416

114,491

((1166,,333377))

((2211,,116666))

1100,,556677

41,631

72,860

44,,771144

32,724

40,136

$$112288,,990077

$$111144,,449911

$$7722,,886600

15,141

4,530

21,308

4,530

18,328

6,557

(cid:151)

300

(cid:151)

9,060

(5,872)

36,279

(24,784)

$$118844

$$330000

$$1144,,668833

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003

((11)) OORRGGAANNIIZZAATTIIOONN AANNDD BBAASSIISS OOFF PPRREESSEENNTTAATTIIOONN

ResMed Inc. ((cid:147)the Company(cid:148)) is a Delaware corporation formed in March 1994 as a holding company for the ResMed Group.
Through our subsidiaries, we design, manufacture, and market devices for the evaluation and treatment of SDB, primarily obstructive
sleep apnea. Our manufacturing operations are located in Australia, Germany, and the United States of America. Major distribution and
sales sites are located in the United States of America, Germany, France, United Kingdom, Switzerland, Australia, and Sweden.

((22)) SSUUMMMMAARRYY OOFF SSIIGGNNIIFFIICCAANNTT AACCCCOOUUNNTTIINNGG PPOOLLIICCIIEESS

(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.

The preparation of financial statements in conformity with US generally accepted accounting principles requires management estimates
and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from
management(cid:146)s estimates.

(b) Revenue Recognition
Revenue on product sales is generally recorded upon shipment, at which time title transfers to the customer. Revenue on product sales
which require customer acceptance is not recorded until acceptance is received. Royalty revenue from license agreements is recorded
when earned. Service revenue received in advance from service contracts is initially deferred and recognized ratably over the life of the
service contract. Revenue received in advance from rental unit contracts is initially deferred and recognized ratably over the life of the
rental contract. Revenue from sale of marketing or distribution rights is initially deferred and recognized ratably as revenue over the life
of the contract. Freight charges billed to customers are included in revenue. All freight-related expenses are charged to cost of sales.

We do not offer a right of return or other recourse with respect to the sale of our products, other than returns for product defects
or other warranty claims, nor do we offer variable sale prices for subsequent events or activities. However, as part of our sales
processes we may provide upfront discounts for large orders, one time special pricing to support new product introductions, sales
rebates for centralized purchasing entities, or price-breaks for regular order volumes. The costs of all such programs are recorded as an
adjustment to revenue. In our US sales activities we use a number of manufacturer representatives to sell our products. These
representatives are paid a direct commission on sales and act as an integral component of our US sales force. We do not sell our
products to these representatives and do not recognize revenue on such shipments. Our products are predominantly therapy-based
equipment and require no installation. As such, we have no significant installation obligations.

(c) Cash and Cash Equivalents
Cash equivalents including certificates of deposit, commercial paper, and other highly liquid investments are stated at cost, which
approximates market. Investments with original maturities of 90 days or less are considered to be cash equivalents for purposes of the
consolidated statements of cash flows.

(d) Inventories
Inventories are stated at the lower of cost, determined principally by the first-in, first-out method, or net realizable value. We review
and provide for any product obsolescence in our manufacturing and distribution operations with assessments of individual products
and components (based on estimated future usage and sales) being performed throughout the year.

(e) Property, Plant, and Equipment
Property, plant and equipment, including rental 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 except for buildings which are depreciated over an
estimated useful life of 40 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
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 142,
Goodwill and Other Intangible Assets. As allowed under the Standard, we adopted SFAS 142 effective July 1, 2001. SFAS 142 requires
goodwill and intangible assets with indefinite useful lives to no longer be amortized, but instead be tested for impairment at least
annually.

With the adoption of SFAS 142, we reassessed the useful lives and residual values of all acquired intangible assets to make any
necessary amortization period adjustments. Based on that assessment only, goodwill was determined to have an indefinite useful life
and no adjustments were made to the amortization period or residual values of other intangible assets.

We conducted our annual review for goodwill impairment in July 2004. In conducting our review of goodwill impairment, we identified
reporting units, being components of our operating segment, as each of the entities acquired and giving rise to the goodwill. The fair
value for each reporting unit was determined based on discounted cash flows and involved a two step process as follows:

Step 1(cid:151)Compare the fair value for each reporting unit to its carrying value, including goodwill. For each reporting unit where the
carrying value, including goodwill, exceeds the reporting unit(cid:146)s fair value, move on to Step 2. If a reporting unit(cid:146)s fair value exceeds the
carrying value, no further work is performed and no impairment charge is necessary.

Step 2(cid:151)Allocate the fair value of the reporting unit to its identifiable tangible and non-goodwill intangible assets and liabilities. This will
derive an implied fair value for the goodwill. Then, compare the implied fair value of the reporting unit(cid:146)s goodwill with the carrying
amount of the reporting unit(cid:146)s goodwill. If the carrying amount of the reporting unit(cid:146)s goodwill is greater than the implied fair value of
its goodwill, an impairment loss must be recognized for the excess.

The results of the review indicated that no impaired goodwill exists.

(h) Foreign Currency
The consolidated financial statements of our non-US subsidiaries, whose functional currencies are other than US dollars, 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 comprehensive income, as described in Note 6, and
are included in accumulated other comprehensive income in the consolidated balance sheet until such time as the subsidiary is sold or
substantially or completely liquidated. Gains and losses on transactions denominated in other than the functional currency of the entity
are reflected in operations.

(i) Research and Development
Research and development costs are expensed in the period incurred.

(j) Earnings Per Share
The weighted average shares used to calculate basic earnings per share were 33,694,000, 33,054,000, and 32,174,000 for the years
ended June 30, 2004, 2003 and 2002, 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 1,431,000, 1,385,000 and 1,906,000 for the
years ended June 30, 2004, 2003 and 2002, respectively.

Stock options of 751,000, 1,408,000 and 726,000 for the years ended June 30, 2004, 2003 and 2002 respectively, were not included in
the computation of diluted earnings per share as the effect of exercising these options would have been anti-dilutive.

(k) Financial Instruments
The carrying value of financial instruments, such as cash and cash equivalents, marketable securities available-for-sale, accounts
receivable and accounts payable approximate their fair value because of their short-term nature. The estimated fair value of the
Company(cid:146)s long-term debt at June 30, 2004 approximates $119.9 million compared with the carrying value of $113.3 million. Foreign
currency option contracts are marked to market and therefore reflect their fair value. We do 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
We enter into various types of foreign exchange contracts in managing our foreign exchange risk, including derivative financial
instruments encompassing forward exchange contracts and foreign currency options.

The purpose of our foreign currency hedging activities is to protect us from adverse exchange rate fluctuations with respect to net
cash movements resulting from the sales of products to foreign customers and Australian manufacturing activities. We enter into
foreign currency option contracts to hedge anticipated sales and manufacturing costs, principally denominated in Australian dollars and
Euros. The terms of such foreign currency option contracts generally do not exceed three years.

Our foreign currency derivatives portfolio represents a cash flow hedge program against the net cash flow of our international
manufacturing operations. We have determined our hedge program to be a non-effective hedge as defined under SFAS 133. The
foreign currency derivatives portfolio is recorded in the consolidated balance sheets at fair value and included in other assets or other
liabilities.

All movements in the fair value of the foreign currency derivatives are recorded within other income, net on our consolidated
statements of income.

We are exposed to credit-related losses in the event of non-performance by counter parties to financial instruments. The credit
exposure of foreign exchange options at June 30, 2004 and June 30, 2003 was $2.0 million and $2.6 million respectively, which
represents the positive fair value of options held by us.

We held foreign currency option contracts with notional amounts totaling $140.6 million and $124.5 million at June 30, 2004 and
2003, respectively to hedge foreign currency items. These contracts mature at various dates prior to July 2006.

(m) Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities 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.

(n) Marketable Securities
Management determines the appropriate classification of our 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 we do 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.

At June 30, 2004 and 2003, the investments in debt securities were classified on the accompanying consolidated balance sheet as
marketable securities(cid:151)available-for-sale. These investments are diversified among high credit quality securities in accordance with our
investment policy.

AS AT JUNE 30, 2004 AND 2003, contractual maturities of marketable securities(cid:151)available-for-sale were (in thousands):

Due less than one year

Due one to less than three years

Due more than three years

TToottaall

22000044

22000033

$11,025

$6,533

(cid:151)

996

(cid:151)

$$1122,,002211

$$66,,553333

(o) Warranty
Estimated future warranty costs related to certain products are charged to operations in the period in which the related revenue is
recognized.

(p) Impairment of Long-Lived Assets
We periodically evaluate the carrying value of long-lived assets to be held and used, including certain identifiable intangible assets, when
events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.

(q) Cost-Method Investments
The aggregate carrying amount of our cost-method investments at June 30, 2004 was $5.3 million. At June 30, 2004, we reviewed the
carrying value of these investments and determined that the fair value of the investments exceeded the carrying values and no
unrealised losses existed.

(r) Capitalized Software Production Costs
Software development costs have been capitalized and are being amortized to the cost of product revenues over the estimated
economic lives (generally three to five years) of the products that include such software. Total net capitalized software production
costs were $1.2 million and $1.6 million at June 30, 2004 and 2003 respectively.

(s) Stock-based Employee Compensation
We have granted stock options to personnel, including officers and directors, under both our 1995 Option Plan and our 1997 Equity
Participation Plan. These options have expiration dates of ten years from the date of grant and vest over three or four years. We
granted these options with the exercise price equal to the market value as determined at the date of grant.

We apply APB Opinion No. 25 in accounting for our equity plans and as all stock options are issued at market price on date of issue,
no compensation cost has been recognized for the grant of stock options. The following table illustrates the effect on net income and
earnings per share if we had applied the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation (in thousands except per share data):

STOCK-BASED EMPLOYEE COMPENSATION

YEARS ENDED JUNE 30

Net income, as reported

Deduct: Total stock-based employee compensation expense determined
under fair-value based method for all awards, net of related tax effects.

PPrroo ffoorrmmaa nneett iinnccoommee

EEaarrnniinnggss ppeerr sshhaarree::

Basic(cid:151)as reported

Basic(cid:151)pro forma

Diluted(cid:151)as reported

Diluted(cid:151)pro forma

22000044

22000033

22000022

$57,284

$45,729

$37,506

9,394

14,102

18,975

4477,,889900

3311,,662277

1188,,553311

1.70

1.42

1.63

1.38

0.96

1.33

1.17

0.58

1.10

$1.36

$0.92

$0.54

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: weighted average risk-free interest rates of 2.9%, 2.8% and 4.8% for the years ended June 30, 2004, 2003 and
2002 respectively; no dividend yield; expected option lives of 3.7 and 3.3 and 5.5 years for the years ended June 30, 2004, 2003 and
2002 respectively, and volatility of 43%, 63% and 60% for the years ended June 30, 2004, 2003 and 2002 respectively.

The following table illustrates the fair value of compensation costs as determined under the provisions of SFAS 123 by year of option
grant (in thousands, except per share data):

FISCAL YEAR OF GRANT

1999

2000

2001

2002

2003

2004

CCoommppeennssaattiioonn CCoosstt

TTaaxx EEffffeecctteedd

((33)) NNEEWW AACCCCOOUUNNTTIINNGG PPRROONNOOUUNNCCEEMMEENNTTSS

JJUUNNEE 3300

22000044

22000033

22000022

(cid:151)

348

3,658

4,466

4,223

1122,,669955

$$99,,339944

(cid:151)

2,664

9,942

9,035

(cid:151)

971

7,142

21,074

(cid:151)

2211,,669966

2299,,119922

$$1144,,110022

$$1188,,997755

Average
Exercise
Price

$11.93

14.14

27.71

50.18

26.54

40.60

Fair Value
at Date
of Grant

$5.27

6.56

13.41

26.21

12.22

14.89

In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104, (cid:147)Revenue Recognition(cid:148) (SAB No. 104), which codifies,
revises and rescinds certain sections of SAB No. 101, (cid:147)Revenue Recognition(cid:148), in order to make this interpretive guidance consistent
with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes noted in SAB No. 104 did not
have a material effect on our consolidated results of operations, consolidated financial position or consolidated cash flows.

In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 requires that certain financial
instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial
instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy
back some of their shares in exchange for cash or other assets, and certain obligations that can be settled with shares of stock. SFAS
150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. We adopted SFAS 150 effective July 1, 2003. The adoption of SFAS 150 did not
have a material impact on our consolidated financial position or results of operation.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which
amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS 133. SFAS 149 is effective for contracts entered into or modified after June 30,
2003. The adoption of SFAS 149 did not have a material impact on our results of operations, financial position or liquidity.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation of
certain entities (variable interest entities) in which an enterprise has a controlling financial interest through other than voting interests.
FIN No. 46 requires that a variable interest entity be consolidated by the holder of the majority of the expected risks and rewards
associated with the activities of the variable interest entity. FIN 46 was effective for VIEs entered into prior to February 1, 2003 in
periods beginning after June 15, 2003. The adoption of FIN 46 did not have a material impact on our financial condition or results of
operation. In December 2003, the FASB issued a revision to FIN 46, to clarify some requirements and add new scope exceptions. The
revised guidance is effective for the first reporting period beginning after December 15, 2003. The adoption of the provisions of FIN
46R is not expected to have a material impact on our financial condition or results of operations.

In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No. 00-21 (cid:147)Accounting for Revenue Arrangements with
Multiple Deliverables(cid:148). EITF Issue No. 00-21 addresses how to determine whether a revenue arrangement involving multiple
deliverables contains more than one unit of accounting for the purposes of revenue recognition and how the revenue arrangement
consideration should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 applies to revenue
arrangements entered into after June 15, 2003. The adoption of this statement did not have a material impact on our financial
condition or results of operations.

((44)) MMAARRKKEETTAABBLLEE SSEECCUURRIITTIIEESS

The estimated fair value of marketable securities available-for-sale as of June 30, 2004 and 2003, was $12.0 million and $6.5 million
respectively.

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

((55)) IINNVVEENNTTOORRIIEESS

Inventories, net were comprised of the following:

AS OF JUNE 30, 2004 AND 2003
(in thousands):

Raw materials

Work in progress

Finished goods

((66)) CCOOMMPPRREEHHEENNSSIIVVEE IINNCCOOMMEE
The table below presents other comprehensive income (in thousands):

22000044

22000033

$15,277

$13,712

2,254

38,266

2,288

33,386

$$5555,,779977

$$4499,,338866

Beginning balance, July 1, 2003

Current period change

EEnnddiinngg bbaallaannccee,, JJuunnee 3300,, 22000044

Foreign
Currency Items

$29,901

11,366

$$4411,,226677

Unrealized
Gains on
Securities

Accumulated
Other
Comprehensive
Income

Accumulated
Retained Comprehensive
Income
Earnings

(3)

$$66

$29,910

$160,372

$190,282

11,363

57,284

68,647

$$4411,,227733

$$221177,,665566

$$225588,,992299

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 income at June 30, 2004 and June 30, 2003
consisted of foreign currency translation adjustments with net credit balances of $41.3 million and $29.9 million, respectively and
unrealized gains on securities with net credit balance of $6,000 (net of tax $2,000) and $9,000 (net of tax $6,000), respectively.

((77)) PPRROOPPEERRTTYY,, PPLLAANNTT AANNDD EEQQUUIIPPMMEENNTT

Property, plant and equipment is comprised of the following as of June 30, 2004 and 2003 (in thousands):

Machinery and equipment

Computer equipment

Furniture and fixtures

Vehicles

Clinical, demonstration, and rental equipment

Leasehold improvements

Land

Buildings

Construction in progress

Accumulated depreciation and amortization

22000044

22000033

$33,605

$25,278

33,542

13,613

2,015

21,763

1,346

32,990

68,249

475

28,487

11,528

1,749

18,056

1,213

31,913

19,231

12,611

207,598

150,066

(60,330)

(45,379)

$$114477,,226688

$$110044,,668877

((88)) GGOOOODDWWIILLLL AANNDD OOTTHHEERR IINNTTAANNGGIIBBLLEE AASSSSEETTSS

The Company adopted SFAS 142 on July 1, 2001. Under SFAS 142, goodwill amortization expense has not been recorded for the
years ended June 30, 2004, 2003, and 2002.

Changes in the carrying amount of goodwill for the year ended June 30, 2004, were as follows:
(in thousands):

Balance at June 30, 2003

Foreign currency translation adjustments

Goodwill on acquisition of the assets of Respro Medical Company Limited (our Hong Kong distributor)

BBaallaannccee aatt JJuunnee 3300,, 22000044

22000044

$102,160

3,826

$$110066,,007755

Other intangible assets amounted to $4.8 million (net of accumulated amortization of $5.0 million) and $3.7 million (net of
accumulated amortization of $3.4 million) at June 30, 2004 and 2003, respectively. These intangible assets consist of patents and are
amortized over the estimated useful life of the patent, generally five years. There are no expected residual values related to these
intangible assets.

((99)) AACCCCRRUUEEDD EEXXPPEENNSSEESS AATT JJUUNNEE 3300,, 22000044 AANNDD 22000033 CCOONNSSIISSTT OOFF TTHHEE FFOOLLLLOOWWIINNGG ::
(in thousands):

Service warranties

Consulting and professional fees

Value added taxes and other taxes due

Employee related costs

Research foundation grants

Convertible note interest

Promotional programs

Other

((1100)) LLOONNGG-TTEERRMM DDEEBBTT

22000044

22000033

$1,557

$1,304

1,275

1,877

14,349

(cid:151)

126

1,157

2,250

2,001

1,173

9,849

899

126

1,426

2,362

$$2222,,559911

$$1199,,114400

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

During the year ended June 30, 2004, we did not repurchase any of our convertible subordinated notes.

During the year ended June 30, 2003, we repurchased $10.0 million face value of our convertible subordinated notes. The total
purchase price of the notes was $9.4 million, including $0.2 million in accrued interest. We recognized a gain of $0.3 million, net of tax
of $0.2 million, on these transactions.

During the year ended June 30, 2002, we repurchased $56.8 million face value of our convertible subordinated notes. The total
purchase price of the notes was $49.1 million, including $0.6 million in accrued interest. We recognized a gain of $4.0 million, net of
tax of $2.5 million on these transactions.

As at June 30, 2004, we had convertible subordinated notes outstanding of $113.3 million.

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

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

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

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

((1111)) SSTTOOCCKKHHOOLLDDEERRSS(cid:146)(cid:146) EEQQUUIITTYY

SSttoocckk OOppttiioonnss.. The Company has granted stock options to personnel, including officers and directors in accordance with both the
1995 Option Plan and the 1997 Equity Participation Plan (collectively (cid:147)the Plans(cid:148)). These options have expiration dates of ten years
from the date of grant and vest over three or four years. The Company granted these options with the exercise price equal to the
market value as determined at the date of grant.

The following table summarizes option activity:

Weighted
Average
Exercise
Price

2004

Weighted
Average
Exercise
Price

2003

Weighted
Average
Exercise
Price

2002

Outstanding at beginning of year

4,745,178

$29.04

4,200,998

$27.94

3,852,818

$17.14

Granted

Exercised

Forfeited

OOuuttssttaannddiinngg aatt eenndd ooff yyeeaarr

910,237

(958,391)

(280,668)

44,,441166,,335566

41.32

21.23

40.56

3322..5533

1,470,675

(678,400)

(248,095)

44,,774455,,117788

I26.54

1,328,600

13.31

38.85

2299..0044

(775,803)

(204,617)

44,,220000,,999988

50.18

12.61

26.75

2277..9944

Price range of granted options

$39.19(cid:150)51.56

$25.42(cid:150)37.40

$33.15(cid:150)52.20

Options exercisable at end of year

2,406,581

$28.70

2,192,309

$23.32

1,631,044

$13.76

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

The following table summarizes information about stock options outstanding at June 30, 2004.

Exercise PPrices

$ 0(cid:150)10

$11(cid:150)20

$21(cid:150)30

$31(cid:150)40

$41(cid:150)50

$51(cid:150)60

Number
Outstanding aat
June 330, 22004

WWeighted AAverage
Remaining
Contractual LLife

234,125

482,293

1,449,802

452,652

853,837

943,647

44,,441166,,335566

2.66

4.72

7.48

7.87

9.46

7.12

77..2277

Number
EExercisable aat
June 330, 22004

234,125

482,293

795,539

256,126

16,733

621,765

22,,440066,,558811

The following table summarizes in-the-money and out-of-the-money options as at June 30, 2004.

Exercisable

Unexercisable

Total

Wtd. Avg.
Exer. Price

In-the-Money

Out-of-the-Money(1)

2,353,914

$28.17

1,983,442

$36.58

4,337,356

52,667

52.20

26,333

52.20

79,000

TToottaall OOppttiioonnss OOuuttssttaannddiinngg

2,406,581

$28.70

2,009,775

$36.79

4,416,356

$32.03

52.20

$32.38

(1) Out-of-the-money options are those options with an exercise price equal to or above the closing sales price of the Company(cid:146)s common stock on the New York Stock Exchange

on June 30, 2004 ($50.96 per share).

The following table summarizes outstanding stock option plan balances as at June 30, 2004.

Plan CCategory

Number oof ssecurities
to bbe iissued uupon
exercise oof
outstanding ooptions

Weighted-aaverage
exercise pprice oof
outstanding ooptions

1997 Equity participation plan approved by security holders

4,416,356

Employee stock purchase plan approved by security holders

Equity compensation plans not approved by security holders

TToottaall

(cid:151)

44,,441166,,335566

$32.38

(cid:151)

$$3322..3388

Number oof ssecurities
remaining aavailable
for ffuture iissuance
uunder eequity
compensation pplans

30,265(1)

3,250,000

(cid:151)

33,,228800,,226655

(1) The total number of authorized shares of common stock under the 1997 Equity Participation Plan increases at the beginning of each fiscal year by an amount equal to 4% of the

outstanding common stock on the last day of the preceding fiscal year.

STOCK OPTIONS BY RECIPIENT
The following table summarizes stock option grants by recipient, with executive officers (as defined in Exchange Act Rule 3b-7)
separately disclosed. As at June 30, 2004, the Company had seven executive officers.

Non-Executive Directors

Executive Officers

Staff

GGrroossss OOppttiioonnss IIssssuueedd

Employees

AAvveerraaggee OOppttiioonnss ppeerr EEmmppllooyyeeee

JJUUNNEE 3300

22000033

22000022

60,000

73,000

278,500

167,000

22000044

60,000

91,000

759,237

1,132,175

1,088,600

991100,,223377

11,,447700,,667755

11,,332288,,660000

1,520

559999

1,464

11,,000055

1,250

11,,006633

The following table discloses employee and executive option grants as a percentage of total options.

Net grants during the period as % of outstanding shares (%)

Grants to executive officers during the period as % of total options granted (%)

Grants to executive officers during the period as % of outstanding shares (%)

Cumulative options held by executive officers as % of total options outstanding (%)

22000044

22000033

22000022

(cid:151)

Options granted to executive officers during the fiscal year ended June 30, 2004 are as noted below.

Individual GGrants

Number of
Securities
Underlying
Options Per
Grant

Percent of
Total
Options
Granted to
Employees (%)

60,000

15,000

6,000

10,000

9911,,000000

7.1%

1.8%

0.7%

1.2%

1100..88%%

Peter Farrell

Paul Eisen

David Pendarvis

Adrian Smith

TToottaall

Potential RRealizable
Value aat AAssumed
Annual RRates oof
Stock PPrice AAppreciation
for OOption TTerm(1)(2)

10%

Exercise
Price
($/Share)

Expiration
Date

$41.49 Dec18, 2013

$1,372,476

$3,380,475

41.49 Dec18, 2013

343,119

845,119

41.49 Dec18, 2013

137,248

338,047

41.49 Dec18, 2013

228,746

563,412

(1) Represents options granted under our 1997 Equity Participation Plan, which typically are exercisable starting 12 months after the grant date, with 33% of the shares covered
thereby becoming exercisable at that time and an additional 33% of the option shares becoming exercisable on each successive anniversary date, with all option shares exercisable

beginning on either the third or fourth anniversary date. Under the terms of the 1997 Plan, this exercise schedule may be accelerated in certain specific situations. In addition, we have

the right to require the surrender of outstanding options upon the grant of lower priced options to the same individual.

(2) Assumed annual rates of stock appreciation for illustrative purposes only. Actual stock prices will vary from time to time based upon market factors and our financial performance.
No assurance can be given that such rates will be achieved.

The following table summarizes option exercises and remaining holdings of executive officers during the year ended June 30, 2004.

Peter Farrell

Kieran Gallahue

David Pendarvis

Paul Eisen

Adrian Smith

No. oof SSecurities UUnderlying
All UUnexercised OOptions
Exercisable

Unexercisable

Value oof UUnexercised
In-tthe MMoney OOptions(1)
Exercisable

Unexercisable

Shares
Acquired on
Exercise

Value
Realized

74,374

$1,848,622

180,593

126,667

$4,560,328

$1,600,733

(cid:151)

19,000

$796,362

16,666

10,000

2,000

53,333

133,334

$316,487

$2,532,013

26,000

19,000

$184,450

$425,720

$51,080

$244,210

21,667

$1,512,250

$267,025

(1) Represents the amount by which the closing sales price of our common stock on the New York Stock Exchange on June 30, 2004 ($50.96 per share) multiplied by the number of
shares to which the options apply exceeded the aggregate exercise price of such options.

EEMMPPLLOOYYEEEE SSTTOOCCKK PPUURRCCHHAASSEE PPLLAANN ((EESSPPPP)).. The ESPP was approved by our shareholders at the Annual General Meeting in
November 2003. Under the ESPP, participants are offered the right to purchase shares of our common stock at a discount during
successive offering periods. Each offering period under the ESPP will be for a period of time determined by the Board of Directors(cid:146)
Compensation Committee of no less than 3 months and no more than 27 months. The purchase price for our common stock under
the ESPP will be the lower of 85% of the fair market value of our common stock on the date of grant or 85% of the fair market value
of our common stock on the date of purchase. An individual participant cannot subscribe for more than $25,000 in common stock
during any calendar year. There is a maximum of 3,250,000 shares of our common stock authorized for sale under the ESPP.

PPRREEFFEERRRREEDD SSTTOOCCKK.. In April 1997, the Board of Directors authorized 2,000,000 shares of $0.01 par value preferred stock. No such
shares were issued or outstanding at June 30, 2004.

SSTTOOCCKK PPUURRCCHHAASSEE RRIIGGHHTTSS.. In April 1997, the Company implemented a plan to protect stockholders(cid:146) rights in the event of a
proposed takeover of the Company. Under the plan, each share of the Company(cid:146)s outstanding common stock carries one right to
purchase Series A Junior Participating Preferred Stock (the (cid:147)Right(cid:148)). The Right enables the holder, under certain circumstances, to
purchase common stock of the Company or of the acquiring person or group at a substantially discounted price ten days after a
person or group publicly announces it has acquired or has tendered an offer for 20% or more of the Company(cid:146)s outstanding common
stock. The Rights are redeemable at $0.01 per Right and expire in 2007.

CCOOMMMMOONN SSTTOOCCKK.. On June 6, 2002, the Board of Directors authorized the Company to repurchase up to 4.0 million shares of
outstanding common stock. During fiscal year 2004 and 2003, the Company repurchased 471,000 and 125,000 shares at a cost of
$19.0 million and $3.5 million respectively. Shares that are repurchased are classified as treasury stock pending future use and reduce
the number of shares outstanding used in calculating earnings per share.

((1122)) OOTTHHEERR,, NNEETT

Other, net is comprised of the following
AT JUNE 30, 2004, 2003 AND 2002 (in thousands):

Gain/(loss) on foreign currency hedging position

Gain/(loss) on foreign currency transactions

Realized gain (loss) on sale of marketable securities

Other

22000044

$(982)

1,637

(11)

346

$$999900

22000033

$2,117

(562)

115

237

22000022

$(767)

182

301

392

$$11,,990077

$$110088

((1133)) IINNCCOOMMEE TTAAXXEESS

Income before income taxes for the
YEARS ENDED JUNE 30, 2004, 2003, AND 2002 taxed under the following jurisdictions (in thousands):

Non-US

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

CCuurrrreenntt::

Federal

State

Non-US

DDeeffeerrrreedd::

Federal

State

Non-US

22000044

$1,290

83,378

22000033

$3,061

64,066

22000022

$418

54,174

$$8844,,666688

$$6677,,112277

$$5544,,559922

22000044

22000033

22000022

$3,567

$1,303

$4,962

372

22,186

2266,,112255

1,293

(84)

11,,225599

18,079

1199,,339966

892

325

785

22,,000022

752

17,525

2233,,223399

(3,494)

(568)

(2,091)

((66,,115533))

PPrroovviissiioonn ffoorr iinnccoommee ttaaxxeess

$$2277,,338844

$$2211,,339988

$$1177,,008866

The provision for income taxes differs from the amount of income tax determined by applying the applicable US federal income tax
rate of 35% to pretax income as a result of the following (in thousands):

Taxes computed at statutory US rate

INCREASE ((DECREASE) IIN IINCOME TTAXES RRESULTING FFROM:

State income taxes, net of US tax benefit

Non-deductible expenses

Research and development credit

Tax effect of intercompany dividends

Write-off of net operating losses due to business cessation

Change in valuation allowance

Effect of non-US tax rates

In-process research and development write-off

Foreign tax credits

Other

The components of the Company(cid:146)s deferred tax assets and liabilities
AT JUNE 30, 2004 AND 2003 (in thousands) are as follows:

DDeeffeerrrreedd ttaaxx aasssseettss::

Employee benefit obligations

Inventory

Provision for service warranties

Provision for doubtful debts

Net operating loss carryforwards

Foreign tax credits

AMT tax credit

Accrual for legal costs

Intercompany profit in inventories

Capitalized software

Deferred gain on sale-leaseback

Other

Less valuation allowance

DDeeffeerrrreedd ttaaxx aasssseettss

22000044

22000033

22000022

$28,787

$23,495

$19,108

254

312

274

243

(2,582)

(1,690)

129

(cid:151)

5,074

(2,930)

(cid:151)

(772)

(888)

(cid:151)

457

(2,498)

(cid:151)

1,117

363

116

(888)

2,577

1,046

(2,614)

(3,379)

123

(cid:151)

634

$$2277,,338844

$$2211,,339988

$$1177,,008866

22000044

22000033

$1,732

735

419

867

723

8,836

634

8,958

308

659

1,821

25,756

(8,459)

$1,208

1,068

343

768

1,277

7,288

1,667

307

6,013

472

1,329

2,112

23,852

(3,385)

$$1177,,229977

$$2200,,446677

The components of the Company(cid:146)s deferred tax assets and liabilities
AT JUNE 30, 2004 AND 2003 (in thousands) are as follows:

DDeeffeerrrreedd ttaaxx lliiaabbiilliittiieess::

Patents

Unrealized gain on foreign currency options

Unrealized foreign exchange gains

Property, plant and equipment

Undistributed German income

Deferred tax deductible goodwill amortization

Other

DDeeffeerrrreedd ttaaxx lliiaabbiilliittiieess

NNeett ddeeffeerrrreedd ttaaxx aasssseett

22000044

22000033

(91)

(599)

(1,472)

(2,885)

(cid:151)

(4,780)

(429)

(93)

(773)

(1,678)

(2,244)

(3,448)

(3,634)

(296)

((1100,,225566))

((1122,,116666))

$$77,,004411

$$88,,330011

As of June 30, 2004, the Company had $2,669,000 and $1,771,000 of US state and non-US net operating loss carryforwards,
respectively, which expire in various years through 2024 or carryforward indefinitely. The Company also had foreign tax credit
carryforwards of $8,836,000 and alternative minimum tax credit carryforwards of $634,000. The foreign tax credit carryforwards have
expiration dates through 2009.

The valuation allowance at June 30, 2004, primarily relates to a provision for uncertainty as to the utilization of foreign tax credits of
$8,033,000 and net operating loss carryforwards of $426,000 for Malaysia and Austria.

The Company has not provided US income taxes on undistributed earnings of certain of its non-US subsidiaries. The total amount of
these undistributed earnings at June 30, 2004 amounted to approximately $150,829,000.

((1144)) EEMMPPLLOOYYEEEE RREETTIIRREEMMEENNTT PPLLAANNSS

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

(1) Australia
The Company contributes to defined contribution pension plans for each employee resident in Australia. All Australian employees
after serving a qualifying period, are entitled to benefits on retirement, disability or death. Employees may contribute additional funds to
the plans. From July 1, 2002 the Company contributes to the plans at the rate of 9% of the salaries of all Australian employees. Prior to
July 2002, the Company contributed 8% for all qualified employees. Total Company contributions to the plans for the years ended
June 30, 2004, 2003, and 2002 were $2,410,000, $1,663,391, and $968,000, respectively.

(2) United Kingdom
The Company contributes to a defined contribution plan for each permanent United Kingdom employee. All employees, after serving a
three-month qualifying period, are entitled to benefit on retirement, disability or death. Employees may contribute additional funds to
the plan. The Company contributes to the plans at the rate of 5% of the salaries. Prior to January 2002, the Company contributed 3%
for all qualified employees. Total Company contributions to the plan were $33,000, $23,000, and $16,000 in fiscal 2004, 2003, and 2002
respectively.

(3) United States
The Company sponsors a defined contribution pension plan available to substantially all domestic employees. Company contributions
to this plan are based on a percentage of employee contributions to a maximum of 3% of employee salaries. The cost of this plan to
the Company was $362,000, $326,000, and $245,000 in fiscal 2004, 2003, and 2002 respectively.

(4) Switzerland
The Company sponsors a fixed return defined contribution fund for each permanent Swiss employee. As part of the Company(cid:146)s
contribution to the fund the company guarantees a fixed 3% net return on accumulated contributions per annum. The Company
contributes to the plans at variable rates which have averaged 10% of salaries over the last three years. Total Company contributions
to the plan were $139,000, $133,000, and $94,000 in fiscal 2004, 2003, and 2002 respectively.

((1155)) SSEEGGMMEENNTT IINNFFOORRMMAATTIIOONN

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

Financial information by geographic area for the YEARS ENDED JUNE 30, 2004, 2003, AND 2002, is summarized below (in
US$ thousands):

USA

Germany

Australia

France

Rest oof
World

Total

22000044

Revenue from external customers

$159,283

$67,253

Long lived assets

22000033

Revenue from external customers

Long lived assets

22000022

Revenue from external customers

Long lived assets

33,010

6,842

124,375

34,340

95,463

$34,127

51,992

5,765

35,386

$3,738

$10,293

108,683

6,972

68,300

5,569

$46,370

$34,629

$67,880

$$333399,,333388

1,075

5,831

115555,,444411

27,745

1,030

20,957

$599

62,486

227733,,557700

2,350

111111,,778855

46,701

$2,455

220044,,007766

$$8877,,228899

Net revenues from external customers is based on the location of the customer. Long-lived assets of geographic areas are those assets
used in the Company(cid:146)s operations in each geographical area and excludes patents, deferred tax assets, and goodwill.

((1166)) CCOOMMMMIITTMMEENNTTSS

The Company leases buildings, motor vehicles and office equipment under operating leases. Rental charges for these items are
expensed as incurred. At June 30, 2004 the Company had the following future minimum lease payments under non-cancelable
operating leases (in thousands):

YYeeaarrss

2005

2006

2007

2008

2009

Thereafter

TToottaall mmiinniimmuumm lleeaassee ppaayymmeennttss

OOppeerraattiinngg
LLeeaasseess

$4,947

3,767

1,411

909

189

(cid:151)

$$1111,,222233

SSuubb lleeaassee
rreennttaall iinnccoommee

$387

(cid:151)

$$445599

TToottaall nneett mmiinniimmuumm
lleeaassee ppaayymmeennttss

$4,560

3,695

1,411

909

189

(cid:151)

$$1100,,776644

Rent expenses under operating leases for the years ended June 30, 2004, 2003 and 2002 were approximately $5.5 million, $3.8 million,
and $2.3 million, respectively.

((1177)) BBUUSSIINNEESSSS AACCQQUUIISSIITTIIOONNSS

FISCAL YEAR ENDED JUNE 30, 2004

On July 2, 2003 we acquired the assets of Respro Medical Company Limited (Respro), our Hong Kong distributor for total
consideration of $184,000 in cash. The acquisition has been accounted for as a purchase and accordingly, the results of operations of
Respro have been included within our consolidated financial statements from July 2, 2003. An amount of $89,000, representing the
excess of the purchase price over the fair value of net identifiable assets acquired of $95,000, has been recorded as goodwill.

FISCAL YEAR ENDED JUNE 30, 2003

On July 24, 2002 we acquired the business of John Stark and Associates, our Texas representative, for total consideration of $0.3
million in cash. The acquisition has been accounted for as a purchase and accordingly, the results of operations of John Stark and
Associates were included within the Company(cid:146)s consolidated financial statements from July 24, 2002. An amount of $0.3 million
representing the excess of the purchase price over the fair value of net identifiable assets acquired of $nil, has been recorded as
goodwill.

FISCAL YEAR ENDED JUNE 30, 2002
SSEERRVVOO MMAAGGNNEETTIICCSS,, IINNCC.. ((SSMMII)). On May 14, 2002, the Company acquired all of the common stock of Servo Magnetics Incorporated
through a merger with our wholly-owned subsidiary, Servo Magnetics Acquisition Inc., for total consideration, including acquisition
costs, of $32.6 million. Consideration included the issue of 853,448 shares for fair value of $24.8 million with the balance of the
acquisition cost paid in cash. Upon consummation of the merger, the surviving corporation, Servo Magnetics Acquisition Inc., changed
its name to Servo Magnetics, Inc.

The acquisition has been accounted for as a purchase and accordingly, the results of operations of SMI have been included in the
Company(cid:146)s consolidated financial statements from May 14, 2002. An amount of $30.7 million, representing the excess of the purchase
price over the fair value of the net identifiable assets acquired of $1.9 million, has been recorded as goodwill.

Purchased in-process research and development of $0.4 million was expensed upon acquisition of SMI because technological feasibility
of the products under development had not been established and no further alternative uses existed. The value of in-process
technology was calculated by identifying research projects in areas for which technological feasibility had not been established,
estimating the costs to develop the purchased in-process technology into commercially viable products, estimating the resulting net
cash flows from such products, discounting the net cash flows to present value, and applying the reduced percentage completion of the
projects thereto. The discount rates used in the analysis were 19% and were based on the risk profile of the acquired assets.

LLAABBHHAARRDDTT AAGG.. On November 15, 2001, the Company(cid:146)s wholly owned subsidiary ResMed International Inc. acquired all the
Common Stock of Labhardt AG, its Swiss distributor for total cash consideration including acquisition costs of $5.5 million.

The acquisition has been accounted for as a purchase and accordingly, the results of operations of Labhardt AG have been included in
the Company(cid:146)s consolidated financial statements from November 15, 2001. An amount of $4.2 million, representing the excess of the
purchase price over the fair value of the net identifiable assets acquired of $1.3 million, has been recorded as goodwill.

Pro-forma financial information related to SMI and Labhardt AG are not included as the effects would not be significant to the
consolidated financial statements.

((1188)) LLEEGGAALL AACCTTIIOONNSS

We were engaged in litigation relating to the enforcement and defense of certain of our patents during the year ended June 30, 2004.

11999955 LLIITTIIGGAATTIIOONN WWIITTHH RREESSPPIIRROONNIICCSS.. In January 1995, our subsidiary, ResMed Limited, filed a complaint in the United States
District Court for the Southern District of California seeking monetary damages from and injunctive relief against Respironics Inc. for
alleged infringement of three of its patents. In February 1995, Respironics Inc. filed a complaint in the US District Court for the
Western District of Pennsylvania against ResMed Limited, seeking a declaratory judgment that Respironics Inc. did not infringe claims of
these patents and that ResMed Limited(cid:146)s patents were invalid and unenforceable.

On September 5, 2003, ResMed and Respironics Inc. agreed to settle this action. Both ResMed and Respironics Inc. have dismissed all
claims in the action with prejudice.

22000022 LLIITTIIGGAATTIIOONN WWIITTHH RREESSPPIIRROONNIICCSS.. On October 11, 2002, ResMed Inc, ResMed Corp, and ResMed Limited filed a lawsuit in US
District Court for the Southern District of California, in San Diego against Respironics, Inc. ResMed(cid:146)s suit sought a judgment that
certain of Respironics(cid:146) mask products (Contour Deluxe, Comfort Classic, Comfort Select, and Image3 masks) infringed patents held by
ResMed. The complaint further charged Respironics with copying ResMed(cid:146)s proprietary mask technology, and alleged violation of the
Lanham Act, trademark and trade dress infringement, and common law violations relating to the appearance of ResMed(cid:146)s mask
products. ResMed sought an injunction and damages. On March 4, 2003, the Court denied Respironics(cid:146) motion to transfer the case to
the US District Court for the Western District of Pennsylvania.

On October 16, 2002 Respironics, Inc. filed a lawsuit in US District Court for the Western District of Pennsylvania against ResMed
Limited seeking a declaratory judgment that Respironics Inc. does not infringe the patents that are the subject of ResMed(cid:146)s October
11, 2002 complaint filed in San Diego, that such patents are invalid and unenforceable and that Respironics has not committed any
other trademark, trade dress or common law violations. On July 29, 2003, the court ordered the case transferred to the US District
Court for the Southern District of California.

On September 5, 2003, ResMed and Respironics settled both lawsuits involved in the 2002 litigation. ResMed and Respironics have
dismissed all claims in the actions with prejudice.

22000022 LLIITTIIGGAATTIIOONN WWIITTHH FFIISSHHEERR && PPAAYYKKEELL HHEEAALLTTHHCCAARREE.. On August 26, 2002, ResMed Inc., ResMed Corp. and ResMed Limited
filed a lawsuit in U.S. District Court for the Southern District of California, in San Diego against Fisher & Paykel Healthcare Inc and
Fisher & Paykel Healthcare Limited (Fisher & Paykel Healthcare). ResMed(cid:146)s amended complaint sought a judgment that selected Fisher
& Paykel Healthcare mask products infringe patents held by ResMed. The complaint further charged the defendants with the copying
of ResMed proprietary mask technology and alleged violations of the Lanham Act, trademark and trade dress infringement and
common law violations relating to the appearance of ResMed mask products.

On May 6, 2003, ResMed and Fisher & Paykel Healthcare agreed to settle this patent infringement lawsuit. In accordance with the
settlement, Fisher & Paykel Healthcare introduced a new design of its mask in the United States and ResMed will not assert intellectual
property claims against the new mask. ResMed has dismissed the lawsuit with prejudice.

OOTTHHEERR LLIITTIIGGAATTIIOONN.. In addition to the matters described above, in the normal course of business, we are subject to routine litigation
incidental to our business. While the results of this litigation cannot be predicted with certainty, we believe that their final outcome will
not have a material adverse effect on our consolidated financial statements taken as a whole.

((1199)) IINN-PPRROOCCEESSSS RREESSEEAARRCCHH AANNDD DDEEVVEELLOOPPMMEENNTT CCHHAARRGGEE

MMAAPP

On acquisition of MAP Medizin-Technologie GmbH (MAP) in February 2001, we recognized as an expense a charge of $17.7 million
with respect to five in-process research and development programs under active development by MAP at date of acquisition. The five
projects were:

(i) A single-walled nasal cushion mask system

(ii) A new headgear system

(iii) A standalone active humidifier

(iv) An autotitration CPAP device for treatment of OSA

(v) A new OSA diagnostic screening device.

The status of each project as of June 30, 2004 is as noted below:

(i) Single-walled nasal cushion

The nasal cushion under development by MAP on acquisition was originally due for release in October 2001. Delays in the design and
manufacturing process delayed the release for seven months, until April 2002. The delay in release of the product was not significant
over its expected life cycle, and has made no significant impact on the net return assumptions used in the initial in-process research
and development model. Since release, the product (now referred to as the Papillon(cid:153)) has met or exceeded all sales forecasts.

56
56

(ii) New headgear system

The new headgear product line was withheld to coincide with the release of the Papillon mask system in April 2002 and so was also
seven months behind schedule in projected release dates. Since release, the new headgear system has exceeded original sales
projections and continues to meet or exceed initial expectations.

(iii) Standalone active humidifier

Due to other priorities and to the introduction of integrated humidification flow generator devices by a number of competitors during
fiscal 2002, we have abandoned the standalone humidifier project.

Given the relatively small revenue forecast of the product line in the in-process research and development model, the financial impact
of this project is not material to ResMed or the net return of the MAP acquisition.

(iv) Autotitration CPAP device

The main product development effort of MAP since acquisition has been the completion of the Autotitration CPAP flow generator
specified in the initial in-process research and development charge, now referred to as the Magellan(cid:153). This project experienced some
delays due to the complexity of the software algorithm development process and associated electronics resulting in the product being
released in November 2002. Sales are now broadly consistent with our initial expectations.

(v) OSA diagnostic screening device

MAP(cid:146)s new diagnostic screening device, the MicroMESAM(cid:153), was released in the German market in March 2004. We remain confident
in the capacity of the device to enhance the diagnostic process, and remain confident in the potential of the product to significantly
impact the treatment and diagnosis of obstructive sleep apnea in the German market.

As at June 30, 2004, four of the five programs have been completed with the release of the Papillon mask system, upgraded headgear,
Magellan flow generator and MicroMESAM.

Given the completion of the above research programs and performance of the associated product lines, we remain confident in the
assumptions used to determine the in-process research and development charge and as a result the net return of the MAP acquisition.

57
57

BOARD OF DIRECTORS
Peter C Farrell
Chairman and Chief Executive Officer, ResMed Inc

Gary W Pace
Chairman, QrxPharma and former CEO of a number of bio-pharmaceutical research and development companies

Christopher A Bartlett
Thomas D. Casserly Professor Emeritus, Harvard Business School

Donagh McCarthy
Currently consulting with Pharmedium Healthcare Inc., a privately held pharmacy services business. Formerly President and CEO, Protiveris Inc.
and President, Baxter Renal Division North America.

Michael A Quinn
CEO of Innovation Capital and formerly CEO of a medical device company and co-founder of NYSE listed environmental company.

Christopher G Roberts
CEO and President Cochlear Limited

Louis A Simpson
President and CEO, Capital Operations, Geico Corporation

SENIOR EXECUTIVE OFFICERS
Mark Abourizk: Vice President, Intellectual Property and Legal Affairs (Asia Pacific)
Lasse Beijer: Chief Executive, Sweden and Scandinavia
Dennis Brodie: Chief Operating Officer, SMI, a wholly owned subsidiary of ResMed
Caroline Carr: Vice President, Global Customer Operations
Grant Carter: Vice President Compliance & Channel Management
Don Darkin: Vice President, Business Divisions
David D(cid:146)Cruz: Vice President, US Regulatory and Clinical Affairs for the Americas
Robert Douglas: Vice President, Operations
Paul Eisen: Vice President, Europe & Asia Pacific
Michael Farrell: Vice President, Business Development
Robert Frater: Vice President, Innovation
Kieran Gallahue: President, ResMed Global
Connie Garrett: Vice President, Global Human Resources
Elliott Glick: Vice President, US Operations
Lionel King: Vice President, Regulatory and Clinical Affairs for Australia
Brett Lenthall: Vice President, Information Systems
Phillip Miller: Vice President, Product Development, Telemedicine and Informatics Services
William Nicklin: Vice President, Global Manufacturing
David Pendarvis: Vice President and General Counsel
Alain PersØguers: Chief Executive, Southern Europe
Eric Phuah: Vice President, OSA and Bilevel Business Division
Ron Richard: Vice President, Marketing, Americas
Glenn Richards: Medical Director
Greg Rogers: Vice President, Six Sigma
Klaus Schindhelm: Senior Vice President, Cardiorespiratory Development
Joerg Schneider: Chief Executive, ResMed Germany
Keith Serzen: Senior Vice President, Sales, Marketing and Clinical Education
Adrian Smith: Senior Vice President, Finance and Chief Financial Officer
Ross Sommerville: Managing Director, ResMed UK and Ireland
Shirley Sproats: Vice President, Human Resources for Australia
Caspar Stauffenberg: Chief Executive, MAP, Germany
Deirdre Stewart: Vice President, Strategic Clinical Initiatives
Ann Tisthammer: Vice President, Clinical Education and Training
Dana Voien: Senior Vice President, Telemedicine and Channel Management

58
58

SHAREHOLDERS(cid:146) INFORMATION
Our common stock commenced trading on June 2, 1995 on the NASDAQ National Market under the symbol (cid:147)RESM(cid:148). On September
30, 1999, we transferred our primary listing to the New York Stock Exchange (NYSE) under the symbol (cid:147)RMD(cid:148). The following table
sets forth for the fiscal periods indicated the high and low closing prices for the common stock as reported by the New York Stock
Exchange.

Quarter One, ended September 30

Quarter Two, ended December 31

Quarter Three, ended March 31

Quarter Four, ended June 30

22000044

22000033

HHIIGGHH

$43.98

46.49

47.95

LLOOWW

$38.58

38.05

40.69

HHIIGGHH

$33.63

34.13

33.87

LLOOWW

$24.89

27.63

29.67

$51.56

$44.84

$41.95

$32.00

As of August 20, 2004, there were 64 holders of record of our common stock. We have not paid any cash dividends on our common
stock since our initial public offering of our common stock and we do not currently intend to pay cash dividends in the foreseeable
future. We anticipate that all of our earnings and other cash resources, if any, will be retained for the operation and expansion of our
business and for general corporate purposes.

YEARS ENDED JUNE 30 In thousands except per share data

Net revenues

339,338

273,570

204,076

155,156

115,615

88,627

66,519

49,180

34,562

23,501

0044

0033

0022

0011

0000

9999

9988

9977

9966

9955

Income from operations

85,361

67,240

51,159

44,269*

33,138

25,255

17,363

8,327

Income before income taxes 84,668

67,127

54,592

45,541*

34,166

24,577

16,112

11,087

Net income

Basic EPS

Diluted EPS

Working capital

Long-term debt

57,284

45,729

37,506

29,857*

22,226

16,102

10,611

7,465

1.70

1.63

1.38

1.33

1.17

1.10

0.96*

0.89*

0.74

0.69

0.55

0.52

0.37

0.35

0.26

217,238

191.322

142,809

144,272

47,550

32,529

32,759

34,395

30,844

27,354

113,250

123,250

150,000

(cid:151)

274

578

787

3,595

6,561

4,503

0.16

2,787

3,781

2,833

0.19

0.16

Shareholders(cid:146) equity

361,499

286,433

192,930

100,366

93,972

71,647

50,773

44,625

38,986

28,867

Total assets

544,159

459,595

376,191

288,090 115,594

89,889

64,618

54,895

47,299

35,313

*Numbers after MAP acquisition are: Income from operations 26,042; Income before income taxes 27,314; Net income 11,630; Basic EPS 0.37; Diluted EPS 0.35

CONVERTIBLE NOTES INQUIRIES
The indenture trustee for the notes is American Stock Transfer and Trust Company. Inquiries regarding the notes should be directed to:

American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Tel: +1 718 921 8275

The notes and the common stock issuable upon conversion of the notes (the Securities) were not registered under the Securities Act
or any other state or foreign securities laws at the time of issue. The Securities were subsequently registered for resale under
Securities Act (Registration No. 333-70500) effective October 9, 2001; and consequently, the Securities may be resold in accordance
with the prospectus that is part of the registration statement by the selling security holders(cid:146) names in the prospectus or a supplement
to the prospectus. Other sales of the Securities may only be made in compliance with the registration requirements of the Securities
Act and all other applicable securities laws, or pursuant to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and any other applicable securities laws.

TRANSFER AGENT AND REGISTRAR
Inquiries regarding transfer requirements, lost certificates, and changes of address should be directed to either of the following:

American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Tel: +1 718 921 8275

Computershare, Level 3
60 Carrington Street
Sydney NSW 2000
Tel: +61 2 8234 5000

LEGAL COUNSEL
Latham and Watkins
650 Town Center Drive, Suite 2000
Costa Mesa, CA 92626 USA

INDEPENDENT AUDITORS
KPMG LLP
750B Street, Suite 3000
San Diego, CA 92101 USA

FORM 10-K
Copies of the ResMed Inc. annual report on Form 10-K, as filed with the Securities and Exchange Commission, are available upon
request without charge.

Please address written requests to:
Hillary Theakston,
Director, Investor Relations, ResMed Inc.
14040 Danielson Street
Poway, CA 92064-6857 USA

SHAREHOLDER AND INVESTOR INQUIRIES
ResMed has a Web site containing details about the company, its products, SDB, and information for sleep professionals, as well as the
latest company news releases.
You can visit the Web site at www.resmed.com.

To directly receive copies of company news and other investor information, please contact:
Hillary Theakston,
Director, Investor Relations, ResMed Inc.
14040 Danielson Street
Poway, CA 92064-6857 USA
Tel: +1 858 746 2400
Fax: +1 858 746 2830
E-mail: investorrelations@resmed.com

Security analysts and institutional investors are invited to contact:
Adrian M. Smith,
Senior Vice President, Finance, ResMed Inc.
Tel: +61 2 9886 5000 or

Hillary Theakston,
Director, Investor Relations, ResMed Inc.
Tel +1 858 746 2400

ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held on Thursday, November 18, 2004, at 3pm at ResMed Inc., 14040 Danielson Street,
Poway, CA, USA.

R e f e r e n c e s

GROWING MARKETS

1. Young T, Peppard PE, Gottlieb DJ. Epidemiology of Obstructive Sleep Apnea. American Journal of Respiratory and Critical Care Medicine 2002;165:

1217-1239.

2. Young et al p 1222-3.

3. Coughlin SR, Mawdsley L, Mugarza JA, Calverley PMA, Wilding JPH. Obstructive sleep apnoea is independently associated with an increased

prevalence of metabolic syndrome. European Heart Journal 2004; 25: 735-741.

4. Young et al p 1224.

5. Shamsuzzaman ASM, Gersh BJ, Somers VK. Obstructive Sleep Apnea: Implications for Cardiac and Vascular Disease. JAMA 2003; 290: 1906-1914.

6. Martinez GMA, Galiano BR, Cabero SL, Soler CJJ, Escamilla T, Roman SP. Prevalence of sleep-disordered breathing in patients with acute ischemic

stroke: influence of onset time of stroke. Archivos de bronconeumologia 2004; 40(5): 196-202.

7. Harsch IA, Schahin SP, Radespiel-Troger M, Weintz O, Jahreiss H, Fuchs FS, Wiest GH, Hahn EG, Lohmann T, Konturek PC, Ficker JH. Continuous
positive airway pressure treatment rapidly improves insulin sensitivity in patients with obstructive sleep apnea syndrome. American Journal of
Respiratory and Critical Care Medicine 2004;169(2): 156-162.

8. Nieto FJ, Herrington DM, Redline S et al. Sleep apnea and markers of vascular endothelial function in a large community sample of older adults.

American Journal of Respiratory and Critical Care Medicine 2004;169(3): 354-360.

9. Shamsuzzaman et al p 1906.

10. Shamsuzzaman et al p 1910.

1l. Sassani A, Findley LJ, Kryger M, Goldlust E, George C, Davidson TM. Reducing motor-vehicle collisions, costs, and fatalities by treating obstructive

sleep apnea syndrome. Sleep 2004; 27(3): 453-458.

12. Mansfield DR, Gollogly NC, Kaye DM, Richardson M, Bergin P, Naughton MT. Controlled trial of continuous positive airway pressure in obstructive

sleep apnea and heart failure. American Journal of Respiratory and Critical Care Medicine 2004;169(3): 361-366.

13. Blyton DM, Sullivan CE, Edwards N. Reduced nocturnal cardiac output associated with preeclampsia is minimized with the use of nocturnal nasal

CPAP. Sleep 2004; 27(1): 79-84.

14. Pepperell JCT, Maskell NA, Jones DR, Langford-Wiley BA, Crosthwaite N, Stradling JR, Davies RJO. A randomized controlled trial of adaptive
ventilation for Cheyne-Stokes breathing in heart failure. American Journal of Respiratory and Critical Care Medicine 2003;168(9): 1109-1114.

15. Sch(cid:228)dlich S, K(cid:246)nigs I, Kalbitz F, Blankenburg T, Busse H-J et al. Cardiac function in patients with congestive heart failure and Cheyne-Stokes

respiration in long-term treatment with adaptive servo ventilation (AutoSet CS). Zeitschrift f(cid:252)r Kardiologie 2004; 93(6): 454-462.

16. Topfer V, El-Sebai M, Wessendorf TE, Moraidis I, Teschler H. Adaptive servoventilation: effect on Cheyne-Stokes respiration and on quality of life.

Pneumologie 2004; 58(1): 28-32.

17.

Ip MSM, Tse H-F, Lam B, Tsang KWT, Lam W-K. Endothelial function in obstructive sleep apnea and response to treatment. American Journal of
Respiratory and Critical Care Medicine 2004;169(3): 348-353.

18. Shamsuzzaman et al p 1910.

19. Shamsuzzaman et al p 1911.

20. Milleron O, Pilliere R, Foucher A, de Roquefeuil F, Aegerter P, Jondeau G, Raffestin BG, Dubourg O. Benefits of obstructive sleep apnoea treatment

in coronary artery disease: a long-term follow-up study. European Heart Journal 2004; 25 (9): 728-734.

GROWING AWARENESS

1. Sch(cid:228)dlich S et al.

2. Topfer V et al.

3. Milleron et al.

ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders will be held on Thursday, November
18, 2004, at 3pm at ResMed Inc., 14040 Danielson Street, Poway, CA,
USA.

FORM 10-K
Copies of the ResMed Inc. annual report on Form 10-K, as filed with the
Securities and Exchange Commission, are available upon request without
charge.

Please address written requests to:
Hillary Theakston,
Director, Investor Relations, ResMed Inc.
14040 Danielson Street
Poway, CA 92064-6857 USA

SHAREHOLDER AND INVESTOR INQUIRIES
ResMed has a Web site containing details about the company, its
products, sleep-disordered breathing, and information for sleep
professionals, as well as the latest company news releases. You can visit
the Web site at www.resmed.com.

To directly receive copies of company news and other investor
information, please contact:
Hillary Theakston,
Director, Investor Relations, ResMed Inc.
14040 Danielson Street
Poway, CA 92064-6857 USA
Tel: +1 858 746 2400
Fax: +1 858 746 2830
E-mail: investorrelations@resmed.com

Security analysts and institutional investors are invited to contact:
Adrian M. Smith,
Senior Vice President, Finance, ResMed Inc.
Tel: +61 2 9886 5000 or

Hillary Theakston,
Director, Investor Relations, ResMed Inc.
Tel +1 858 746 2400

TRADEMARKS
ApneaLink, AutoSet, AutoSet Respond, AutoSet Spirit, AutoSet T, AutoSet CS, Boomerang, HumidAire, HumidAire 2i, HumidAire 3i, Magellan, MicroMESAM,
Mirage Activa, Mirage Swift, Papillon, ResLink, ResMed, S8, Sullivan, Ultra Mirage, and VPAP are our trademarks.
' 2004 ResMed Inc. 1010439r1

UNITED STATES
World Headquarters
ResMed Corp
14040 Danielson St
Poway CA 92064-6857 USA
Tel: +1 (858) 746 2400
or 1 800 424 0737 (toll free)
Fax: +1 (858) 746 2900
reception@resmed.com

ResMed Corp (East Coast)
3001 Brockport Rd
Spencerport NY 14559 USA
Tel: +1 (716) 352 7772
Fax: +1 (716) 352 1622
reception@resmed.com

UNITED KINGDOM
ResMed (UK) Ltd
65B Milton Park Abingdon
Oxfordshire OX14 4RX UK
Tel: +44 (1235) 862 997
Fax: +44 (1235) 831 336
reception@resmed.co.uk

SWITZERLAND
Labhardt AG
Thannerstra(cid:223)e 57
CH-4054 Basel Switzerland
Tel: +41 (061) 307 9711
Fax: +41 (061) 307 9722
info@labhardt.ch

SWEDEN
ResMed Sweden AB
Industrigatan 2
S-461 37 Trollh(cid:228)ttan Sweden
Tel: +46 520 420 110
Fax: +46 520 397 15
reception@resmed.se

SPAIN
ResMed Spain SL
C/Arturo Soria, 245
28033 Madrid Spain
Tel: +34 (93) 590 8154
Fax: +34 (93) 590 8153

SINGAPORE
ResMed Singapore Pte Ltd
238A Thomson Road # 12-03/04
Novena Square Tower A
Singapore 307684
Tel: +65 284 7177
Fax: +65 284 7787
reception@resmed.com.sg

NEW ZEALAND
ResMed NZ Ltd
PO Box 51-048
Pakuranga Auckland New Zealand
Tel: +0800 737 633 (NZ toll free) or
+64 25 737 633
Fax: +0800 737 634 (NZ toll free) or
+64 9 239 0193
reception@resmed.co.nz

NETHERLANDS
Resprecare Medical BV (MAP Distributor)
Nieuwe Parklaan 86
2587 BV Den Haag Netherlands
Tel: +31 (70) 358 6263
Fax: +31 (70) 358 4333
info@resprecare-medical.nl

MALAYSIA
ResMed Malaysia Sdn Bhd
Suite E-10-20 Plaza Mon’t Kiara
No. 2 Jalan 1/70C Mon’t Kiara
50480 Kuala Lumpur Malaysia
Tel: +60 (3) 6201 7177
Fax: +60 (3) 6201 2177
reception@resmed.com.my

JAPAN
ResMed Japan
Japan Nihonbashi Hisamatsu Bldg. 4F
2-28-1 Nihonbashi-Hamacho Chuo-Ku
Tokyo 103-0007 Japan
Tel: +81 (3) 3662 5056
Fax: +81 (3) 3662 5040

FINLAND
ResMed Finland
Niittykatu 6
FIN 02200 Espoo Suomi Finland
Tel: +358 (0) 9 8676 820
Fax: +358 (0) 9 8676 8222
reception@resmed.fi

HONG KONG
ResMed Hong Kong Ltd
Room 1714, Miramar Tower
132-134 Nathan Road
Tsim Sha Tsui Hong Kong
Tel: +852 2366 0707
Fax: +852 2366 4546
reception@resmed.com.hk

GERMANY
ResMed GmbH & Co. KG
Rudolfstra(cid:223)e 10
D-41068 M(cid:246)nchengladbach Germany
Tel: +49 0 2161 / 3521-0
Fax: +49 0 2161 / 3521-299
reception@resmed.de

AUSTRIA
Laborex-Sanesco Med. Techn. Ger(cid:228)te AG
(MAP Distributor)
Linzer Stra(cid:223)e 44-46
1140 Wein Austria
Tel: +43 (1) 7808 8171
Fax: +43 (1) 789 8831

AUSTRALIA
ResMed Ltd (Administration)
97 Waterloo Road
North Ryde NSW 2113 Australia
Tel: +61 (2) 9886 5000
or 1 800 658 189 (Aust toll free)
Fax: +61 (2) 9878 0120
reception@resmed.com.au

MAP MEDIZIN-Technology GmbH
Fraunhoferstrasse 16
D-82152 Martinsried Germany
Tel: +49 89 89518-6
Fax: +49 89 89518-714
info.de@map-med.com
www.map-med.com

ResMed Ltd (Manufacturer)
1 Elizabeth MacArthur Drive
Bella Vista NSW 2153 Australia
Tel: +61 (2) 8884 1000
or 1 800 658 189 (Aust toll free)
Fax: +61 (2) 8883 3114
reception@resmed.com.au

FRANCE
ResMed SA
Parc de la BandonniŁre
2 rue Maurice Audibert
69800 Saint-Priest, France
Tel: +33 (4) 37 251 251
Fax: +33 (4) 37 251 260
reception@resmed.fr