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ResMed
Global leaders in sleep and respiratory medicine
w w w. r e s m e d . c o m
TEXT FOR SPINE
CENTER WITHIN SPINE
ResMed
2009 Annual Report
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Res Med
We are a global leader in the development,
manufacturing and marketing of innovative
medical products for the treatment and
management of respiratory disorders, with
a focus on sleep-disordered breathing.
We sell a comprehensive range of products
in more than 70 countries worldwide through
direct offices and a network of distributors.
We are dedicated to developing innovative
products to improve the lives of those who
suffer from these conditions and to increasing
awareness among patients and healthcare
professionals of the potentially serious
health consequences of untreated
sleep-disordered breathing.
Transfer Agent and Registrar
Inquiries regarding transfer requirements,
lost certificates and changes of address
should be directed to:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Tel: (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
750 B Street, Suite 1500
San Diego, CA 92101 USA
To directly receive copies of company news,
copies of the annual report on Form 10-K as
filed with the Securities and Exchange Com-
mission without charge, please contact:
Constance Bienfait
Director, Investor Relations
ResMed Inc.
9001 Spectrum Center Blvd
San Diego, CA
Tel: (858) 836-5971
Fax: (858) 836-5517
Email: investorrelations@resmed.com
Brett Sandercock
Chief Financial Officer
ResMed Inc.
1 Elizabeth Macarthur Drive
Bella Vista NSW 2153 Australia
Tel: +61 2 8884 1000
Fax: +61 2 8883 3114
Annual Meeting of Shareholders
Date: November 18, 2009
Time: 10:00 AM
U.S. Time: November 17, 2009, 3:00 PM
Location: 1 Elizabeth Macarthur Drive
Bella Vista NSW Australia
Locations
USA
ResMed Inc.
ResMed Corp.
ResMed Motor Technologies Inc.
Australia
ResMed Limited
ResMed Asia Pacific Limited
Hong Kong
ResMed Hong Kong Limited
India
ResMed India Private Limited
Japan
ResMed KK
Austria
ResMed Austria Medizintechnik GmbH
Mexico
RedMed Mexico S. de R.L. de C.V.
Brazil
ResMed do Brasil Representacao
de Produtos Medicos Ltda.
Netherlands
ResMed Netherlands BV
China
ResMed (Beijing) Commercial Co., Ltd.
ResMed Enterprise Management
(Shenzhen) Co., Ltd.
New Zealand
ResMed NZ Limited
Norway
ResMed Norway AS
Finland
ResMed Finland Oy
France
ResMed SAS
ResMed Paris SAS
Germany
ResMed Gmbh & Co. KG
Take Air Medical Handels GmbH
ResMed Medizintechnik GmbH
Singapore
ResMed Asia Operations Pty Limited
Sweden
ResMed Sweden AB
Switzerland
ResMed Schweiz AG
UK
ResMed (UK) Limited
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Financial Highlights
Net Revenue
In Millions of Dollars
Net Income
In Millions of Dollars
Earnings Per Share
In Dollars
1000
800
600
920.7
835.4
716.3
607.0
150
120
90
88.2
146.4
110.3
400
425.5
60
64.8
66.3
200
0
05 06 07 08 09
30
0
05 06 07 08 09
2.0
1.6
1.2
.80
.40
0
1.90
1.40
1.16
0.91
0.85
05 06 07 08 09
Cash Flow from Operations
In Millions of Dollars
Shareholder Equity
In Millions of Dollars
Assets
In Millions of Dollars
250
200
150
100
50
0
238.9
137.8
99.0
91.1
71.1
05 06 07 08 09
1200
960
720
738.1
1115
1082
931.2
480
240
0
474.1
05 06 07 08 09
1600
1280
960
640
320
0
1508
1406
1252
1013
774.1
05 06 07 08 09
R e s M e d 2 0 0 9 A n n u A l R e p o R t / 1
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Message From the Founder and Executive Chairman
Two decades ago, industry visionary Peter C. Farrell founded ResMed,
a company focused on the importance of sleep. Today, ResMed is the
largest corporation focused exclusively on providing therapies for
improving the quality of sleep and therefore the quality of life.
In the last 20 years, the
importance of sleep has
become more and more
recognized as integral to our
overall health. the reality is
that sleep is just as important
to our health as adequate
nutrition and regular exercise.
And while the quantity of
sleep is important, the quality
is even more important.
It is believed by many that
sleep disordered breathing
(sdB) primarily affects men,
the obese and those over
40, but in actuality, it has
been shown to affect people
of all ages, genders, body
types and different health
conditions.
the importance of quality
sleep has now been directly
correlated to the growing
understanding that sdB is
related to some of the most
chronic, growing, deadly and
costly diseases in the world
such as heart disease,
diabetes, hypertension and
obesity. national Institutes of
Health estimates that at least
18 million Americans suffer
from sleep apnea (apnea is a
Greek word that means
“without breath”) and as
many as 90% remained
undiagnosed. long term
effects of poor sleep include
an increased risk for: heart
attack, strokes, decreased
immune function, elevated
blood pressure, insulin
resistance, disruption of
personal relationships,
irritability, depression, motor
vehicle accidents, and
premature death. In fact, it is
estimated that more accidents
occur as a result of sleep
apnea than as a result of
driving under the influence
of drugs or alcohol.
Most people with diabetes
have sleep apnea. It is now
estimated that more than
half of all patients with type 2
diabetes could have the
condition and as many as
86% of obese males. In
addition, the national Center
on sleep disorders Research
says that tens of thousands
of cardiovascular deaths
annually are in some way
related to sleep apnea.
our mission and our strategy
are to address and treat
sdB to improve quality and
length of life. Great service
can also be done in combating
huge in-patient and out-pa-
tient costs by treating the
sdB that contributes to the
severity and morbidity of
chronic diseases. It is clear
to us that we can not only
reduce the carnage that
sdB causes in the lives of
many and help people feel
better and function more ef-
ficiently, but help to reduce
the burgeoning costs facing
our healthcare system. We
need to continue to raise the
awareness both in the public
and medical minds about
the morbidity and mortality
associated with undiagnosed
sdB that could arguably be
a major cause of premature
death in the Western World.
Peter C. Farrell
Executive Chairman
R e s M e d 2 0 0 9 A n n u A l R e p o R t / 3
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Dear Shareholders,
our fiscal 2009 was an
extraordinary year in many
ways, a year in which the
Company performed above
and beyond…and a year
when our team was able to
touch the lives of millions of
patients across the globe.
It was also a year that
produced sustained sales
performance throughout all
of our commercial regions,
terrific gains in capturing
market share and success
in managing our expenses.
our focus on quality and
innovation meant that even
during difficult economic
times, customers and
patients reached for the
best, for products they
could trust, from a team
they could trust.
We did all this while building
the foundation for future
growth; upgrading our global
eRp technology system,
opening new operations
in Malaysia and singapore
and moving into new head-
quarters in san diego.
total revenue in 2009 was
$921 million, up 10% from
the past year and up 15%
on a constant currency
basis. net income was a
record $146.4 million, an
increase of 33% over the
prior year and earnings per
share were $1.90, an increase
of 36% over the prior year.
our balance sheet remains
strong, with total assets at
year-end of $1.5 billion and
net equity of $1.1 billion.
our cash balance at the end
of the fiscal year stood at
$416 million.
the sleep-disordered
breathing market continues
to be vastly underpenetrated,
with only 10% of the potential
patient population receiving
treatment. Awareness of sleep
disordered breathing and its
consequences continues to
expand, a promising signal
for the future of patient care
and ResMed’s continued
growth. the global market
grew in double digit percent-
age terms in fiscal 2009, a
year in which many industries
around the globe struggled.
our most critical mission is
to continue expanding the
markets we serve, whether
through our long-standing
efforts in cardiology, type 2
diabetes and occupational
health and safety, through
ventilation and anesthesiology,
or through helping to increase
the numbers of masks and
accessories a patient receives
each year. As a market
leader, we are focused on
driving market growth, not
just accepting it.
ResMed products address
a patient population linked
to some of the most prevalent
and expensive chronic
disorders faced by global
healthcare systems. sleep-
disordered breathing is
linked to three out of the four
top killers in the u.s. alone,
costing the healthcare system
more than half a trillion
dollars per annum. We have
products that we believe can
help reduce the cost of caring
for these patients while
extending their lives. In order
to persuade even the most
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The momentum continues as we wrapped up our second decade in the business of developing
and commercializing innovative treatments for SDB and other respiratory disorders.
skeptical audiences, we have
embarked on the largest
clinical study ResMed has
ever undertaken — seRVe
HF. seRVe HF is a large,
multi-national randomized
prospective study focused
on treating new York Heart
Association Class 2, 3 and 4
heart failure patients with
adaptive servo-ventilation.
the aim of the study is to
demonstrate improvements
in morbidity, mortality and
reduced hospitalization costs
when using our adaptive
servo-ventilator device as
compared to standard of
care…critical objectives for
governments and healthcare
systems around the globe.
Good patient care and good
economics is a powerful
combination.
type 2 diabetes is a critical
co-morbidity that we are
addressing in order to support
improved patient care and
drive market volume. the
prevalence of sdB in type 2
diabetes is staggering. the
overall global prevalence of
type 2 diabetes is similar
to the prevalence of sdB,
although far fewer patients
suffering from sdB have
been identified when
compared with diabetics.
that means there is an
opportunity to address the
population of patients with
diagnosed diabetes, and
also diagnose them for sdB.
In fact, the International
diabetes Federation has
issued a consensus statement
suggesting that all type 2
diabetic patients be evaluated
for sdB. the literature also
shows that by treating their
sdB, we can help patients
improve their cardiovascular
health as well as potentially
improve glycemic control.
We are currently supporting
a multinational clinical trial to
demonstrate that effective
use of CpAp in these
populations will better
control HbA1c levels, a
critical indicator for diabetes
management. We are also
working closely with companies
that have access to diabetic
patients in order to more
quickly and efficiently
educate these patients and
their physicians.
In addition to stimulating
market expansion in 2009,
the ResMed team also
expanded our market share.
We have gained market share
by leveraging an experienced
team and an unparalleled
product range. our patented
easyBreathe technology
underpinned growth in
CpAps, ApAps and VpAp
bi-levels this past year. With
the launch of swift™ lt,
swift lt for Her and Activa™
lt, we added to our continuing
success in the patient inter-
face segment. the VsIII™
introduction provided stability
and new growth opportunities
in an expanding ventilation
market. the industry-leading
quietness and performance
of the VpAp™ IV st proved
a huge success as we
gained significant market
share in the non-invasive
ventilation market. And just
as exciting…we believe our
current product pipeline is
even more robust than what
we launched in the past
year. during fiscal year 2010
and beyond, we have
planned a series of product
launches that will provide
exciting growth opportunities
for ResMed in both new and
existing market segments.
Fiscal 2010 promises to be
an exciting year for ResMed.
the continued flow of
positive clinical data linking
sdB to dangerous and
costly co-morbidities,
the simplification of the
diagnostic pathway in
selected markets, the
increased efforts to educate
and engage primary care
physicians in coordination
with our sleep physician
partners, and an exciting
schedule of new product
introductions all bode well
for both market expansion
and market share growth.
We look forward to keeping
our shareholders updated
throughout the fiscal year as
we both drive and leverage
these opportunities.
I want to take this opportunity
to thank all of our more than
3,000 employees worldwide
for their commitment to
quality, their passion and
enthusiasm. It is their daily
contributions that allow
ResMed to serve millions of
patients across the globe.
Kieran T. Gallahue
President and CEO
R e s M e d 2 0 0 9 A n n u A l R e p o R t / 5
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Sleep Apnea
and Type 2
Diabetes
Average medical
expenditures among
people with diagnosed
diabetes were 2.3
times higher than
what expenditures
would be in the
absence of diabetes.
The International
Diabetes Federation
consensus statement
on sleep apnea
published last year
concluded that type 2
diabetics should be
evaluated to determine
if SDB is present and
they went on to note
that CPAP treatment
is the gold standard
therapy.
Sleep Disorder
Breathing
and Mortality
Moderate to severe
sleep apnea is inde-
pendently associated
with a greater than six-
fold increase in the risk
of all-cause mortality.
A recent study from
John Hopkins University
showed that severe
sleep apnea raises the
risk of dying early by
46%. People with severe
breathing disorders
during sleep were more
likely to die from a
variety of causes than
similar people without
such sleep disorders.
Impacting
Occupational
Health and Safety
Regulations
Drivers with sleep
apnea have a six-fold
increased risk for
crash. Drivers with
sleep apnea are more
dangerous than drunk
drivers. Treating all U.S.
drivers suffering from
sleep apnea would save
$11.1 billion in collision
costs and save 980
lives annually.
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Sleep Apnea and
Obesity Trends
More than one-third of
U.S. adults, over 72
million people, are
obese. Obesity-related
diseases account for
nearly 10% of all
medical spending in the
U.S. or an estimated
$149 billion a year,
double the cost just
10 years ago. A clinical
study in 2004 showed
that SDB is prevalent in
over 77% of people
who are obese.
Cardiovascular
Diseases Linked
to Sleep-Related
Disorders
Cardiovascular disease
affects 80 million U.S.
adults, with direct and
indirect costs of over
$475 billion. Heart
failure alone affects
2.5% of the U.S.
population and costs
$37.2 billion per year
in direct and indirect
costs. The prevalence
of sleep apnea in
patients with congestive
heart failure is over
80%. In 2008, the
European Society of
Cardiologists recom-
mended treatment with
CPAP for patients with
acute and chronic heart
failure diagnosed with
sleep apnea.
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ResMed Leadership
Executive Team: (left to right) Brett Sandercock, CFO, David Pendarvis, Senior VP, Organizational
Development and General Counsel, Kieran T. Gallahue, President/CEO, Stein Jacobsen, COO, Europe,
and Rob Douglas, COO, Asia Pacific
Board of Directors: (left to right) Michael A. Quinn, Ronald A. Taylor, Richard Sulpizio,
Kieran T. Gallahue, Peter C. Farrell, Chairman, Christopher Roberts, Gary Pace, and John Wareham
8 / R E S M E D 2 0 0 9 A n n u A l R E P O R T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2009
Commission file number: 001-15317
RESMED INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
98-0152841
(IRS Employer Identification No.)
9001 Spectrum Center Blvd.
San Diego, CA 92123
United States of America
(Address of principal executive offices)
(858) 836-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
Common Stock, $0.004 Par Value
Name of each exchange upon which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes [ x ] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes [ ] No [ x ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ x ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (S 229.405 of
this Chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
] No [ ]
Large accelerated filer [ x ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ x ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of registrant as of
December 31, 2008 (the last business day of the registrant’s most recently completed second fiscal quarter),
computed by reference to the closing sale price of such stock on the New York Stock Exchange, was
approximately $2,985,718,000. All directors, executive officers, and 10% stockholders of registrant are
considered affiliates.
At August 12, 2009, registrant had 75,544,678 shares of Common Stock, $0.004 par value,
outstanding. This number excludes 6,701,925 shares held by the registrant as treasury shares.
Portions of the registrant’s definitive Proxy Statement to be delivered to shareholders in connection with the
registrant’s 2009 Annual Meeting of Stockholders, to be filed subsequent to the date hereof, are incorporated by
reference into Part III of this report.
issued and
CONTENTS
Cautionary Note Regarding Forward Looking Statements
Part I
Item 1
Business
Item 1A Risk Factors
Item 1B Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A Quantitative and Qualitative Disclosures About Market and Business Risks
Item 8
Consolidated Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A Controls and Procedures
Item 9B Other Information
Part III
Item 10 Directors, Executive Officers and Corporate Governance
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13 Certain Relationships and Related Transactions and Director Independence
Item 14 Principal Accounting Fees and Services
Part IV Item 15 Exhibits and Consolidated Financial Statement Schedules
Signatures
2
2
19
27
27
27
27
28
30
32
44
47
48
48
50
51
51
51
51
51
52
S-1
As used in this 10-K, the terms “we”, “us”, “our” and “the Company” refer to ResMed Inc., a Delaware
corporation, and its subsidiaries, on a consolidated basis, unless otherwise stated.
- 1 -
PART I
Cautionary Note Regarding Forward-Looking Statements
This report contains or may contain certain forward-looking statements and information that are based
on the beliefs of our management as well as estimates and assumptions made by, and information
currently available to our management. All statements other than statements regarding historical facts
are forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “seek,” “will,”
“will continue,” “estimate,” “plan,” “future” and other similar expressions generally identify forward-
looking statements, including, in particular, statements regarding the development and approval of
new products and product applications, market expansion, pending litigation, and the development of
new markets for our products, such as cardiovascular and stroke markets. These forward-looking
statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. You are cautioned not to place undue reliance on these forward-looking statements each
of which applies only as of the date of this report. Such forward-looking statements reflect the views
of our management at the time such statements are made and are subject to a number of risks,
uncertainties, estimates and assumptions, including, without limitation, and in addition to those
identified in the text surrounding such statements, those identified in Item 1A “Risk Factors” and
elsewhere in this report.
In addition, important factors to consider in evaluating such forward-looking statements include
changes or developments in social, economic, market, legal or regulatory circumstances, changes in
our business or growth strategy or an inability to execute our strategy due to changes in our industry
or the economy generally, the emergence of new or growing competitors, the actions or omissions of
third parties, including suppliers, customers, competitors and governmental authorities, the impact of
future developments related to the product recall, and various other factors subject to risks and
uncertainties which could cause actual results to materially differ from those projected or implied in
the forward-looking statements. Should any one or more of these risks or uncertainties materialize, or
the underlying estimates or assumptions prove incorrect, actual results may vary significantly from
those expressed in such forward-looking statements, and there can be no assurance that the forward-
looking statements contained in this report will in fact occur.
ITEM 1
BUSINESS
General
We are a leading developer, manufacturer and distributor of medical equipment for treating,
diagnosing, and managing sleep-disordered breathing and other
respiratory disorders. Sleep-
disordered breathing, or SDB, includes obstructive sleep apnea, or 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 CPAP, 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 CPAP, we have developed a number of innovative products for SDB and
other respiratory disorders including airflow generators, diagnostic products, mask systems, headgear
and other accessories. Our growth has been fuelled by geographic expansion, increased awareness of
respiratory conditions as a significant health concern among physicians and patients, and our research
and product development efforts.
- 2 -
We employ approximately 2,900 people and sell our products in over 70 countries through a
combination of wholly owned subsidiaries and independent distributors.
together with any
Our web site address is www.resmed.com. We make our periodic reports,
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 Americas, Asia-Pacific 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, or NYSE, trading under the ticker symbol RMD. On
November 25, 1999, we established a secondary listing of our common stock via Chess Depositary
Instruments, or CDI’s, on the Australian Stock Exchange (now known as the Australian Securities
Exchange), or ASX, also under the symbol RMD. Ten CDI’s 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’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:
Name of Entity
Dieter W. Priess Medtechnik
Premium Medical SARL
Innovmedics Pte Ltd
EINAR Egnell AB
MAP Medizin Technologie GmbH
Labhardt AG
Servo Magnetics Inc.
John Stark and Associates
Respro Medical Company Limited
Resprecare BV
Hoefner Medizintechnik GmbH
Saime SA
Pulmomed Medizinisch-Technische Geräte GmbH
PolarMed Holding AS
Western Medical Marketing
Respicure Medsys PVT.LTD
Date of Acquisition
February 7, 1996
June 12, 1996
November 1, 1997
January 31, 2000
February 16, 2001
November 15, 2001
May 14, 2002
July 24, 2002
July 2, 2003
December 1, 2004
February 14, 2005
May 19, 2005
July 1, 2005
December 1, 2005
October 4, 2006
April 30, 2009
Segment Information
We believe that, given the single market focus of our operations solely in the sleep-disordered
breathing sector of the respiratory medicine industry, and the inter-dependence of its products, we
operate as a single operating segment. See Note 16 – Segment Information of the Notes to Financial
- 3 -
Statements (Part II, Item 8) for financial
information regarding segment reporting. Financial
information about our revenues from and assets located in foreign countries is also included in the
notes to our consolidated financial statements.
The Market
Sleep is a complex neurological process that includes two distinct states: rapid eye movement, or
REM, sleep and non-rapid eye movement, or non-REM, sleep. REM sleep, which is about 20-25% of
total sleep experienced by adults, is characterized by a high level of brain activity, bursts of rapid eye
movement, increased heart and respiration rates, and paralysis of many muscles. Non-REM sleep is
subdivided into four stages that generally parallel sleep depth; stage 1 is the lightest and stage 4 is the
deepest.
The upper airway has no rigid support and is held open by active contraction of upper airway muscles.
Normally, during REM sleep and deeper levels of non-REM sleep, upper airway muscles relax and
the airway narrows. Individuals with narrow upper airways or poor muscle tone are prone to
temporary collapses of the upper airway during sleep, called apneas, and to near closures of the upper
airway called hypopneas. These breathing irregularities result
in a lowering of blood oxygen
concentration, causing the central nervous system to react to the lack of oxygen or increased carbon
dioxide and signaling the body to respond. Typically, the individual subconsciously arouses from
sleep, causing the throat muscles to contract, opening the airway. After a few gasping breaths, blood
oxygen levels increase and the individual can resume a deeper sleep until the cycle repeats itself.
Sufferers of OSA typically experience ten or more such cycles per hour. While these awakenings
greatly impair the quality of sleep, the individual is not normally aware of these disruptions. In
addition, OSA has recently been recognized as a cause of hypertension and a significant co-morbidity
for heart disease, stroke and diabetes.
Scientists estimate that one in five adults have some form of obstructive sleep apnea. In the United
States alone, this represents approximately 40 million people. Despite the high prevalence of OSA,
there is a general lack of awareness of OSA among both the medical community and the general
public. It is estimated that less than 10% of those with OSA have been diagnosed or treated. Many
healthcare professionals are often unable to diagnose OSA because they are unaware that such
non-specific symptoms as excessive daytime sleepiness, snoring, hypertension and irritability are
characteristic of OSA.
While OSA has been diagnosed in a broad cross-section of the population, it is predominant among
middle-aged men and those who are obese, smoke, consume alcohol in excess or use muscle-relaxing
and pain-killing drugs. A strong association has been discovered between OSA and a number of
cardiovascular diseases. Recent studies have shown that SDB is present in approximately 80% of
patients with drug-resistant hypertension, approximately 72% of patients with type 2 diabetes and
approximately 80% of patients with congestive heart failure. In relation to diabetes, recent studies
indicate that SDB is independently associated with glucose intolerance and insulin resistance.
Sleep-Disordered Breathing and Obstructive Sleep Apnea
Sleep-disordered breathing encompasses all physiological processes that cause detrimental breathing
patterns during sleep. Manifestations include OSA, central sleep apnea, or CSA, and hypoventilation
syndromes that occur during sleep. Hypoventilation syndromes are generally associated with obesity,
chronic obstructive lung disease and neuromuscular disease. OSA is the most common form of SDB.
Sleep fragmentation and the loss of the deeper levels of sleep caused by OSA can lead to excessive
daytime sleepiness, reduced cognitive function, including memory loss and lack of concentration,
- 4 -
depression and irritability. OSA sufferers also experience an increase in heart rate and an elevation of
blood pressure during the cycle of apneas. Several studies indicate that the oxygen desaturation,
increased heart rate and elevated blood pressure caused by OSA may be associated with increased risk
of cardiovascular morbidity and mortality due to angina, stroke and heart attack. Patients with OSA
have been shown to have impaired daytime performance in a variety of cognitive functions including
problem solving, response speed and visual motor coordination, and studies have linked OSA to
increased occurrences of traffic and workplace accidents.
Generally, an individual seeking treatment for the symptoms of OSA is referred by a general
practitioner to a specialist for further evaluation. The diagnosis of OSA typically requires monitoring
the patient during sleep at either a sleep clinic or the patient’s home. During overnight testing,
respiratory parameters and sleep patterns may be monitored, along with other vital signs such as heart
rate and blood oxygen levels. Simpler tests, using devices such as our Apnealink, or our automatic
positive airway pressure devices, monitor airflow during sleep, and use computer programs to analyze
airflow patterns. These tests allow sleep clinicians to detect any sleep disturbances such as apneas,
hypopneas or subconscious awakenings. We estimate that there are currently around 3,000 sleep
clinics in the United States, a substantial portion of which are affiliated with hospitals. The number of
sleep clinics has expanded significantly from approximately 100 such facilities in 1985.
Existing Therapies
Before 1981, the primary treatment for OSA was a tracheotomy, a surgical procedure to cut a hole in
the patient’s windpipe to create a channel for airflow. Most recently, alternative treatments have
involved either uvulopalatopharyngoplasty, or UPPP, in which surgery is performed on the upper
airway to remove excess tissue and to streamline the shape of the airway, implanting a device to add
support to the soft palate, or mandibular advancement, in which the lower jaw is moved forward to
widen the patient’s airway. UPPP alone has a poor success rate; however, when performed in
conjunction with multi-stage upper airway surgical procedures, a greater success rate has been
claimed. These combined procedures, performed by highly specialized surgeons, are expensive and
involve prolonged and often painful recovery periods.
CPAP, by contrast, is a non-invasive means of treating OSA. CPAP was first used as a treatment for
OSA in 1980 by Dr. Colin Sullivan, the past Chairman of our Medical Advisory Board. CPAP
systems were commercialized for treatment of OSA in the United States in the mid 1980’s. Today,
use of CPAP is generally acknowledged as the most effective and least invasive therapy for managing
OSA.
During CPAP treatment, a patient sleeps with a nasal interface connected to a small portable airflow
generator that delivers room air at a positive pressure. The patient breathes in air from the flow
generator and breathes out through an exhaust port in the interface. Continuous air pressure applied in
this manner acts as a pneumatic splint to keep the upper airway open and unobstructed. Interfaces
include nasal masks and nasal pillows. Sometimes, when a patient leaks air through their mouth, a
full-face mask may need to be used, rather than a nasal interface.
CPAP is not a cure and therefore, must be used on a nightly basis as long as treatment is required.
Patient compliance has been a major factor in the efficacy of CPAP treatment. Early generations of
CPAP units provided limited patient comfort and convenience. Patients experienced soreness from the
repeated use of nasal masks and had difficulty falling asleep with the CPAP device operating at the
prescribed pressure. In more recent years, product innovations to improve patient comfort and
compliance have been developed. These include more comfortable patient interface systems; delay
timers that gradually raise air pressure allowing the patient to fall asleep more easily; bilevel air flow
- 5 -
generators, including Variable Positive Airway Pressure, or VPAP systems, which provide different
air pressures for inhalation and exhalation; heated humidification systems to make the airflow more
comfortable; and autotitration devices that reduce the average pressure delivered during the night.
Business Strategy
We believe that the SDB market will continue to grow in the future due to a number of factors
including increasing awareness of OSA, improved understanding of the role of SDB treatment in the
management of cardiac, neurologic, metabolic and related disorders, and an increase in home-based
diagnosis. Our strategy for expanding our business operations and capitalizing on the growth of the
SDB market consists of the following key elements:
Continue Product Development and Innovation. We are committed to ongoing innovation in
developing products for the diagnosis and treatment of SDB. We have been a leading innovator of
products designed to more effectively treat SDB, increase patient comfort and encourage compliance
with prescribed therapy. For example, in 1999 we introduced the Mirage Full Face Mask. This mask
conforms to the patient’s facial contours, creating a more comfortable and better seal. In 2002, we
introduced the AutoSet Spirit flow generator, our second-generation autotitrating device that adapts to
the patient’s breathing patterns to more effectively treat OSA. In 2003, we introduced the Mirage
Activa nasal mask, with active cushion technology. In 2004, we introduced the Mirage Swift nasal
pillows system, a less obtrusive, lightweight, and flexible alternative to nasal masks. In 2005, we
introduced the S8 range of CPAP, a small flow generator with optional integrated humidification. In
2007, we introduced the Mirage Quattro, a full face mask that offers dual-wall cushion with spring air
technology which accommodates movement during sleep, and the Mirage Liberty, which combines
our nasal pillow technology in a full face mask product with a minimalist design. In 2008, we
launched several new patient interfaces including the Mirage Micro, a new generation nasal mask
with a microfit dial and the Swift LT which offers a pillow system for additional support and comfort.
In 2008, we also launched an updated version of our S8 flow generator and the VPAP Auto, a new
bi-level device incorporating our new motor technology including the easy-breathe waveform. In
2009, we launched Activa LT and the Swift LT for Her, which was the first nasal pillow product
released that is designed and marketed specifically for female patients. We believe that continued
product development and innovation are key factors to our ongoing success. Approximately 11% of
our employees are devoted to research and development activities. In fiscal year 2009, we invested
$63.1 million, or 7% of our revenues, in research and development.
Expand Geographic Presence. We market our products in over 70 countries to sleep clinics, home
healthcare dealers and third party payers. We intend to increase our sales and marketing efforts in our
principal markets, as well as expand the depth of our presence in other geographic regions.
Increase Public and Clinical Awareness. We intend to continue to expand our existing
treatment alternatives. These
promotional activities to increase awareness of SDB and our
promotional activities target the population with predisposition to SDB as well as primary care
physicians and specialists, such as cardiologists, neurologists and pulmonologists. In addition, we also
target special
the American Heart
interest groups,
Association and the National Sleep Foundation.
including the National Stroke Association,
During fiscal years 2009, 2008 and 2007, we donated $3.5 million, $2.0 million and $Nil,
respectively,
to the ResMed Foundation in the United States, and the ResMed Foundation in
Australia, to further enhance research and awareness of SDB. The contributions to the Foundations
reflect ResMed’s commitment to medical research into sleep-disordered breathing, particularly the
treatment of obstructive sleep apnea.
- 6 -
Expand into New Clinical Applications. We continually seek to identify new applications of our
technology for significant unmet medical needs. Recent studies have established a clinical association
between OSA and both stroke and congestive heart failure, and have recognized SDB as a cause of
hypertension or high blood pressure. Research also indicates that SDB is independently associated
with glucose intolerance and insulin resistance. We have developed a device for the treatment of
Cheyne-Stokes breathing in patients with congestive heart failure. In addition, we maintain close
working relationships with a number of prominent physicians to explore new medical applications for
our products and technology. In 2007 we received Food and Drug Administration, or FDA, clearance
and launched a new product in the United States for the treatment of respiratory insufficiency due to
central sleep apnea, mixed apnea and periodic breathing, called the Adapt SV. The Adapt SV uses a
technology known as adaptive servo-ventilation and was first made available to a select group of U.S.
key opinion leader sites beginning in the third quarter of fiscal year 2006. Adapt SV, utilizes an
advanced algorithm to calculate a patient-specific minute ventilation target and automatically adjusts
pressure support to maintain the target. We believe this technology has allowed physicians to
successfully treat complex breathing disorders in some patients who had previously tried and failed
traditional positive airway pressure therapy.
Leverage the Experience of our Management Team. Our senior management team has extensive
experience in the medical device industry in general, and in the field of SDB in particular. We intend
to continue to leverage the experience and expertise of these individuals to maintain our innovative
approach to the development of products and increase awareness of the serious medical problems
caused by SDB.
Products
Our portfolio of products for the treatment of OSA and other forms of SDB includes airflow
generators, diagnostic products, mask systems, headgear and other accessories.
Air Flow Generators
We produce CPAP, VPAP and AutoSet systems for the titration and treatment of SDB. The flow
generator systems deliver positive airway pressure through a patient interface, either a small nasal
mask, nasal pillows system, or full-face mask.
Our VPAP units deliver ultra-quiet, comfortable bilevel therapy. There are two preset pressures: a
higher pressure as the patient breathes in, and a lower pressure as the patient breathes out. Breathing
out against a lower pressure makes treatment more comfortable, particularly for patients who need
high pressure levels or for those with impaired breathing ability.
AutoSet systems are based on a proprietary technology to monitor breathing and can also be used in
the diagnosis, treatment and management of OSA. CPAP and VPAP flow generators accounted for
approximately 58%, 50% and 52% of our net revenues in fiscal years 2009, 2008 and 2007,
respectively.
With the acquisition of Saime SAS in May 2005, we increased our presence in the European
homecare ventilation market. The VS and Elisée range of products are sophisticated, yet easy to use
for physicians, clinicians and patients. We believe these devices compliment our VPAP III, VPAP
Adapt SV and Autoset CS2 for patients who need ventilatory assistance.
- 7 -
The tables below provide a selection of products, as known by our trademarks, which have been
released during the last five years.
CONTINUOUS
POSITIVE AIRWAY
PRESSURE PRODUCTS
ResMed S8 Series
DESCRIPTION
DATE OF
COMMERCIAL
INTRODUCTION
A small CPAP device with optional integrated
humidification.
June 2005
C-Series Tango
An entry level CPAP device with optional
humidification
March 2007
ResMed S8 Series II
S8 Elite (AutoScore)
II (ROW, ex Japan)
S8 Elite II (US)
S8 Escape II (US)
S8 Escape
(Lightweight) II
(ROW, ex Japan)
A small CPAP device with enhanced feature set
to the original S8 Series, with improved patient
therapy comfort. The device has an optional
integrated humidifier.
A small CPAP device with enhanced feature set
to the original S8 (AutoScore), with improved
patient
therapy comfort. The device has an
optional integrated humidifier.
A small CPAP device with enhanced feature set
to the original S8 Elite, with further improved
patient
therapy comfort. The device has an
optional integrated humidifier.
A small CPAP device with enhanced feature set
to the original S8 Escape, with further improved
patient
therapy comfort. The device has an
optional integrated humidifier
A small CPAP device with enhanced feature set
to the original S8 Escape (Lightweight), with
further improved patient
therapy comfort. The
device has an optional integrated humidifier
April 2008
September 2007
April 2008
June 2008
September 2008
- 8 -
VARIABLE
POSITIVE AIRWAY
PRESSURE PRODUCTS
VPAP Adapt SV
VPAP Malibu
VPAP Auto
VPAP Adapt SV –
Enhanced
VPAP ST
VPAP Auto 25
DESCRIPTION
The newest and most highly evolved bilevel
device which uses adaptive servo-ventilation
technology to treat patients with central sleep
apnea, mixed apnea and periodic breathing.
bilevel
the
Auto-adjusting
smooth pressure waveform of the VPAP Adapt
SV to achieve ultimate comfort for non-compliant
CPAP users.
utilizing
device
DATE OF
COMMERCIAL
INTRODUCTION
March 2006
April 2007
Auto-bilevel device on the compact S8 platform
utilizing the easy-breathe waveform and Autoset
algorithms.
Revised VPAP Adapt SV increasing pressure
range from 4-20 cmH2O to 4-25 cmH2O and
AHI resporting.
January 2008
February 2008
Small compact Bi-level ST device in an S8 box
with VAuto for US
June 2008
Small compact Bi-level ST device in an S8 box
with VAuto for US
June 2008
VPAP III STA with
QuickNav
An upgraded Bi-level device with alarm history,
instant efficacy data and a large screen.
July 2008
VPAP S / VPAP IV
VPAP IV ST#
S8 Auto 25
Bi-level device that provides S and CPAP modes
with the pressure up to 25 cmH2O in a compact
and convenient S8 design.
September 2008
Small compact Bi-level ST device in an S8 box
with VAuto for Europe
September 2008
Bi-level device that provides the Easy-Breathe
wave on the AutoSet algorithm and the pressure
up to 25cm H2O in a compact and convenient S8
design.
October 2008
# Sold outside United States only
- 9 -
AUTOMATIC
POSITIVE AIRWAY
PRESSURE PRODUCTS
AutoSet CS2*#
S8 Autoset II (ROW,
ex Japan)
S8 Autoset II (US)
DESCRIPTION
Modular, automatic device specifically designed
to normalize ventilation in congestive heart
failure patients with Cheyne Stokes respiration.
The device has an optional integrated humidifier.
Premium auto-adjusting device in ResMed’s S8
Series II range, with improved patient therapy
comfort. The device has an optional integrated
humidifier.
Premium auto-adjusting device in ResMed’s S8
Series II range, with further improved patient
therapy comfort. The device has an optional
integrated humidifier.
DATE OF
COMMERCIAL
INTRODUCTION
August 2004
September 2007
April 2008
* Not cleared for marketing in the United States
# Sold outside United States only
VENTILATION PRODUCTS
DESCRIPTION
DATE OF
COMMERCIAL
INTRODUCTION
Elisée 150*#
Elisée 370*#
Ventilator device that combines volumetric and
barometric ventilation modes with single or
double limb circuit.
June 2004
for use
Ventilator
in Intensive Care Unit
combining all conventional ventilation modes,
diagnostic functions with external monitoring
interface for ventilation loops.
September 2004
Elisée 250*#
Ventilator for use in transport and emergency
situations.
April 2005
Elisée 150*# (Lyon)
VS III *#
New software launch V2.50 incorporating CPAP
mode and additional flexibility in settings. For
example presetting 2 programs in both invasive
and non-invasive.
Pressure support and volume ventilator
for
invasive and non-invasive purposes so it can be
used from the hospital to the home. Launched in
France and Germany.
November 2008
December 2008
* Not cleared for marketing in the United States
# Sold outside United States only
- 10 -
Mask Systems and Diagnostic Products
Mask systems are one of the most important elements of SDB treatment systems. Masks are a primary
determinant of patient comfort and as such may drive or impede patient compliance with therapy. We
have been a consistent innovator in masks, improving patient comfort while minimizing size and
weight. Masks, accessories, motors and diagnostic products accounted for approximately 42%, 50%
and 48% of our net revenues in fiscal years 2009, 2008 and 2007, respectively.
MASK PRODUCTS
Mirage Swift
Silent Papillon
Mask*#
DESCRIPTION
DATE OF
COMMERCIAL
INTRODUCTION
A light and unobtrusive nasal pillows mask
system.
August 2004
A low noise nasal mask with simplified assembly. March 2005
Hospital Full Face
Mask
Disposable full face mask specifically designed
for hospital use.
April 2005
Hospital Nasal Mask
Disposable nasal mask specifically designed for
hospital use.
April 2005
Ultra Mirage II
Advanced version of the Ultra Mirage Nasal
System with improved comfort and ease of fit
through enhanced forehead pads and support.
July 2005
Meridian Nasal Mask A value line nasal mask that
is simple yet
February 2006
comfortable.
Mirage Swift II
Mirage Quattro
Mirage Liberty
Improved design to reduce noise and airflow
pattern.
April 2007
face mask,
fourth generation full
ResMed’s
delivering an individualized fit for over 95% of
users.
April 2007
A full face mask that seals individually at the
mouth and nose. With less skin contact and an
open field of vision, this unobtrusive mask feels
light on the face.
May 2007
Hospital NV Full
Face Mask
Non-vented version of hospital Full Face Mask
designed for hospital ventilation
October 2007
Micro Mirage
Nasal mask equipped with Mircofit dial
personalized fit
for
February 2008
Swift LT
Activa LT
Nasal mask offering pillow system for additional
support and stability
June 2008
Nasal mask including Active Cell Technology in
a lightweight version to help mitigate leak and
optimize patient comfort
October 2008
Swift LT for Her
Nasal mask offering pillows systems with female
specific design features
November 2008
* Not cleared for marketing in the United States
# Sold outside United States only
- 11 -
We market sleep recorders for the diagnosis and titration of SDB in sleep clinics and hospitals. These
diagnostic systems record relevant respiratory and sleep data, which can be analyzed by a sleep
specialist or physician who can then tailor an appropriate OSA treatment regimen for the patient.
DIAGNOSTIC PRODUCTS
DESCRIPTION
ApneaLink
(MicroMesam)
A portable Sleep Apnea screening device for use
by
care
sleep
physicians
professionals
primary
and
DATE OF
COMMERCIAL
INTRODUCTION
April 2004
ApneaLink +
Oximetry
A portable Sleep Apnea screening device with
oximetry measurement
June 2007
ApneaLink Plus (US) A portable Sleep Apnea screening device with
oximetry measurement and respiratory effort
measurement
June 2009
- 12 -
Accessories and Other Products
To assist
those professionals diagnosing or managing the treatment of patients there are data
communications and control products such as the ResLink, ResControl, ResControl II, TxControl,
ResScan and ResTraxx modules that facilitate the transfer of data and other information to and from
the flow generators. To enhance patient comfort, convenience and compliance, we market a variety of
other products and accessories. These products include humidifiers, such as the HumidAire, H2i and
H3i, which connect directly with the CPAP, VPAP and AutoSet flow generators to humidify and heat
the air delivered to the patient. Their use helps prevent the drying of nasal passages that can cause
discomfort. Other optional accessories include cold passover humidifiers, carry bags and breathing
circuits.
DATA / PATIENT
MANAGEMENT PRODUCTS
ResScan v3.6
ResScan v3.7
ResTraxx v13
ResTraxx v14
DESCRIPTION
Support for VPAP Auto 25, VPAP ST, VPAP S
devices; plus ability to export patient files to csv
format; option to switch between hPa and
cmH2O units of measurement; patient list display
improvements.
Support for S8 Auto 25, S8 Escape II (ROW), S8
AutoSet II w/EPR (ROW), S8 Escape II Auto
devices; support for Vista Home Premium OS;
support for Japanese OS; enhancements to Quick
Start feature.
ResMed
Support for using the GSM network for wireless
communication
Data
between
Centre(“RDC”) and S8 AutoSet II, S8 Elite II,
VPAP- ST, VPAP Auto, VPAP Auto 25 & VPAP
S flow generators. S8 ResTraxx Centres for
Medicare
(“GSM”)
and Medicaid Services
module released.
Support for VPAP S devices; enhancements to
compliance reports to show CMS guidelines
compliance; ability to generate compliance report
directly by running a script on the database for a
given organization as a csv file.
DATE OF
COMMERCIAL
INTRODUCTION
July 2008
September 2008
October 2008
May 2009
Product Development and Clinical Trials
We have a strong track record in innovation in the sleep market. In 1989, we introduced our first
CPAP device. Since then we have been committed to an ongoing program of product advancement
and development. Currently, our product development efforts are focused on not only improving our
current product offerings, but also expanding into new product applications.
In 1999, we introduced the AutoSet T flow generator, an autotitrating device that adapts to the
patient’s breathing patterns to effectively prevent apneas. In 2001, we introduced our next generation
autotitrating device, the AutoSet Spirit. The AutoSet Spirit is an autotitrating modular device with
optional integrated humidifier. In 2003, we introduced the Activa nasal mask using our patented
Active Cushion Technology. In 2004, we launched our Mirage Swift mask, a light and unobtrusive
- 13 -
nasal pillows mask system. Also, in 2004 we launched an improved AutoSet CS 2 (outside the United
States only) to treat congestive heart failure patients with significant central sleep apnea. In 2006, we
launched the Adapt SV within the United States. This product is for the treatment of respiratory
insufficiency due to central sleep apnea, mixed apnea and periodic breathing and uses a technology
which we call adaptive servo-ventilation.
We continually seek to identify new applications of our technology for significant unmet medical
needs. SDB is associated with a number of symptoms beyond excessive daytime sleepiness and
irritability. Recent studies have established a clinical association between SDB and hypertension,
stroke, congestive heart failure and diabetes. We support clinical trials in the United States, Germany,
France, the United Kingdom, Italy, Switzerland and Australia to develop new clinical applications for
our technology.
We consult with physicians at major sleep centers throughout the world to identify technological
trends in the treatment of SDB. New product ideas are also identified by our marketing staff, direct
sales force, network of distributors, manufacturers’ representatives, customers and patients. Typically,
our internal development staff then develops these ideas, where appropriate, into new products.
In fiscal years 2009, 2008 and 2007 we invested $63.1 million, $60.5 million and $50.1 million,
respectively, on research and development.
Sales and Marketing
We currently market our products in over 70 countries using a network of distributors, independent
manufacturers’ representatives and our direct sales force. We attempt to tailor our marketing approach
to each national market, based on regional awareness of SDB as a health problem, physician referral
patterns, consumer preferences and local reimbursement policies. See Note 16 – Segment Information
of the Notes to Financial Statements (Part II, Item 8) for financial information about our geographic
areas.
North America and Latin America. Our products are typically purchased by a home healthcare
dealer who then sells the products to the patient. The decision to purchase our products, as opposed to
those of our competitors, is made or influenced by one or more of the following individuals or
organizations: the prescribing physician and his or her staff; the home healthcare dealer; the insurer
and the patient. In the United States, our sales and marketing activities are conducted through a field
sales organization made up of regional territory representatives, program development specialists and
regional sales directors. Our U.S. field sales organization markets and sells products to home
healthcare dealer branch locations throughout the United States.
We also market our products directly to sleep clinics. Patients who are diagnosed with OSA and
prescribed CPAP treatment are typically referred by the diagnosing sleep clinic to a home healthcare
dealer to fill the prescription. The home healthcare dealer, in consultation with the referring physician,
will assist the patient in selecting the equipment, fit the patient with the appropriate mask and set the
flow generator pressure to the prescribed level.
Sales in North and Latin America accounted for 54%, 49% and 53% of our net revenues for fiscal
years 2009, 2008 and 2007, respectively.
Europe. We market our products in most major European countries. We have wholly-owned
subsidiaries in Austria, Finland, France, Germany, Spain, Sweden, Norway, Netherlands, Switzerland
and the United Kingdom. We use independent distributors to sell our products in other areas of
Europe. Distributors are selected in each country based on their knowledge of respiratory medicine
- 14 -
and a commitment to SDB therapy. In each country in which we sell our products direct, a local
senior manager is responsible for direct national sales. In many countries in Europe, we sell our
products to home healthcare dealers who then sell the products to the patients. In Germany, we also
operate a home healthcare company, in which we provide products and services directly to patients,
and receive reimbursement directly from third party payers.
Sales in Europe accounted for 38%, 43% and 39% of our total net revenues for fiscal years 2009,
2008 and 2007, respectively.
Asia Pacific. We have wholly–owned subsidiaries in Australia, Hong Kong, Japan, New Zealand,
Singapore, China and India. We use a combination of our direct sales force and independent
distributors to sell our products in Asia Pacific. Sales in Asia Pacific and the rest of the world
accounted for 8%, 8% and 8% of our total net revenues for the fiscal years 2009, 2008 and 2007,
respectively.
Other Marketing Efforts. We continue to pursue other suitable opportunities with professional and
healthcare associations to raise awareness of the co-morbidity of SDB in cardiovascular disease
patients, including coronary artery disease, congestive heart failure, hypertension and stroke.
We also continue to work to raise awareness of SDB in diabetes. Current research is increasingly
showing an independent association between OSA and type 2 diabetes. Accordingly, we initiated a
study investigating the prevalence of OSA in the type 2 diabetic population. Due to the high
prevalence of the SDB and type 2 diabetes, we are now actively supporting the American Association
of Diabetes Educators and are in the process of setting up further initiatives to develop the SDB
market in the diabetic population. ResMed is also reaching out to diabetes patients. Through our
partnership with the American Diabetes Association, a sleep laboratory is now present at every
Diabetes Expo meeting where patients have the opportunity to learn about diabetes self-management.
In June 2008, the International Diabetes Federation (IDF) released a statement on SDB and type 2
diabetes. The IDF Taskforce on Epidemiology and Prevention strongly recommended that health
professionals working in both type 2 diabetes and SDB adopt clinical practices to ensure that a patient
presenting with one condition is considered for the other. Furthermore, the IDF recommended that
people with type 2 diabetes should be screened for OSA particularly when they present classical
symptoms such as witnessed apneas, heavy snoring or daytime sleepiness and poor workplace
performance. We also announced a co-marketing agreement with LifeScan, a Johnson and Johnson
company, to increase the level of education and awareness of SDB in the diabetic population.
In September 2008, the European Society of Cardiologists published guidelines for the treatment of
acute and chronic heart failure. The guidelines noted that patients with symptomatic heart failure
frequently have sleep-related disorders (central or obstructive sleep apnea) and recommended
treatment with Continuous Positive Airway Pressure, or CPAP, for patients diagnosed with
obstructive sleep apnea. In June 2008 the International Diabetes Federation issued a consensus
statement on sleep disordered breathing and Type 2 Diabetes, where the substantial value of
identifying and treating diabetic patients suffering from sleep disordered breathing was recognized
and recommended. We believe that the increasing awareness among the co-morbidity specialists
supports the efforts and investment we are making in new markets, including diabetes and cardiology.
Manufacturing
Our principal manufacturing facility is located in Sydney, Australia and comprises a 155,000 square
foot manufacturing facility. Our manufacturing operations consist primarily of assembly and testing
of our flow generators, masks and accessories. Of the numerous raw materials, parts and components
- 15 -
purchased for assembly of our therapeutic and diagnostic sleep disorder products, most are
off-the-shelf items available from multiple vendors. We generally manufacture to our internal sales
forecasts and fill orders as received. Over the last few years, the manufacturing processes have been
transformed along lean manufacturing guidelines to flow lines staffed by dedicated teams. Each team
is responsible for the manufacture and quality of their product group and decisions are based on
performance and quality measures, including customer feedback.
We have a 43,000 square foot manufacturing facility in Paris, France. This facility is accredited to
ISO 13485 and is primarily responsible for the assembly of mechanical ventilators and associated
accessories.
We also manufacture high-quality electric motors for our flow generator devices at the ResMed Motor
Technologies Inc. facility which comprises a 72,000 square foot facility at Chatsworth, California.
In November 2008 we opened a 32,000 square foot manufacturing facility in Singapore to
complement the Sydney manufacturing site. The plant commenced with the production of masks and
in the fourth quarter of fiscal year 2009 a flow generator assembly line was commissioned.
Our quality management system is based upon the requirements of ISO 9001, ISO 13485, FDA
Quality System Regulations for Medical Devices and the Medical Device Directive (93/42/EEC). Our
Sydney, Australia and San Diego, California and Singapore facilities are each accredited to ISO 9001
and ISO 13485. These three sites have third party audits conducted by the ISO certification bodies at
regular intervals.
Third-Party Reimbursement
The cost of medical care in many of the countries in which we operate is funded in substantial part by
government and private insurance programs. In Germany, we receive payments directly from these
payers. Outside Germany, although we do not generally receive payments for our products directly
from these payers, our success in major markets is dependent upon the ability of patients to obtain
adequate reimbursement for our products.
In the United States, our products are purchased primarily by home healthcare dealers, hospitals or
sleep clinics, which then invoice third-party payers directly for reimbursement. Domestic third-party
payers include Medicare, Medicaid and corporate health insurance plans. These payers may deny
reimbursement if they determine that a device is not used in accordance with cost-effective treatment
methods, or is experimental, unnecessary or inappropriate. The long-term trend towards managed
healthcare, or legislative proposals to reform healthcare, could control or significantly influence the
purchase of healthcare services and products and could result in lower prices for our products. In
some foreign markets, such as Spain, France and Germany, government reimbursement is currently
available for purchase or rental of our products, however, subject to constraints such as price controls
or unit sales limitations. In Australia and in some other foreign markets, there is currently limited or
no reimbursement for devices that treat OSA.
For example, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the 2003
Act) reduced medical reimbursement for respiratory drugs and home oxygen to homecare providers
and placed a freeze on current reimbursement levels for Durable Medical Equipment (DME) through
2008. As required by the 2003 Act, Medicare plans to implement competitive bidding of durable
medical equipment in 10 of the largest Metropolitan Statistical Areas (MSA) by the end of 2007, and
in 80 of the largest MSAs by the end of 2009. In addition, the U.S. Congress passed the Deficit
Reduction Act of 2005 (2005 Act) in February 2006 which contained Medicare payment reductions
for home oxygen equipment, and certain durable medical equipment classified by Medicare as capped
- 16 -
rental equipment. In August 2006, the Centers for Medicare and Medicaid Services published a
proposed regulation to implement the 2005 Act which could reduce Medicare reimbursement in 2007
for oxygen equipment. Additional reimbursement reductions for home oxygen were proposed in
President Bush’s Fiscal Year 2007 budget proposal, and could also be enacted into law. Both the
federal government and state legislatures are considering options for containing growth in the
Medicaid program.
Even though we do not file claims or bill governmental programs and other third-party payers directly
for reimbursement for our products sold in the United States, we are still subject to laws and
regulations relating to governmental programs, and any violation of these laws and regulations could
result in civil and criminal penalties, including fines. In particular, the federal Anti-Kickback Law
prohibits persons from knowingly and willfully soliciting,
receiving, offering or providing
remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing,
recommending or arranging for a good or service, for which payment may be made under a Federal
healthcare program such as the Medicare and Medicaid programs. The government has interpreted
this law broadly to apply to the marketing and sales activities of manufacturers and distributors like
us. Many states have adopted laws similar to the federal Anti-Kickback Law. We are also subject to
other federal and state fraud laws applicable to payment from any third-party payer. These laws
prohibit persons from knowingly and willfully filing false claims or executing a scheme to defraud
any healthcare benefit program, including private third-party payers. These laws may apply to
manufacturers and distributors who provide information on coverage, coding and reimbursement of
their products to persons who bill third-party payers. We continuously strive to comply with these
laws and believe that our arrangements do not violate these laws. Liability may still arise from the
intentions or actions of the parties with whom we do business or from a different governmental
agency interpretation of the laws.
Service and Warranty
We generally offer one-year and two-year limited warranties on our flow generator products.
Warranties on mask systems are for 90 days. In most markets, we rely on our distributors to repair our
products with parts supplied by us. In the United States, home healthcare dealers generally arrange
shipment of products to our San Diego facility for repair.
We receive returns of our products from the field for various reasons. We believe that the level of
returns experienced to date is consistent with levels typically experienced by manufacturers of similar
devices. We provide for warranties and returns based on historical data.
Competition
The markets for our products are highly competitive. We believe that the principal competitive factors
in all of our markets are product features, reliability and price. Customer support, reputation and
efficient distribution are also important factors.
We compete on a market-by-market basis with various companies, some of which have greater
financial, research, manufacturing and marketing resources than us. In the United States, our principal
market, Philips BV, who acquired Respironics Inc., a previous competitor; DeVilbiss, a division of
Sunrise Medical Inc.; Nellcor Puritan Bennett, a division of Covidien Ltd.; and Fisher & Paykel
Healthcare Corporation Limited are the primary competitors for our products. Our principal European
competitors are also Philips, DeVilbiss, and Nellcor Puritan Bennett, as well as regional European
manufacturers. The disparity between our resources and those of our competitors may increase as a
result of the trend towards consolidation in the healthcare industry. In addition, our products compete
with surgical procedures and dental appliances designed to treat OSA and other SDB related
- 17 -
respiratory conditions. The development of new or innovative procedures or devices by others could
result in our products becoming obsolete or noncompetitive, which would harm our revenues and
financial condition.
Any product developed by us that gains regulatory clearance will have to compete for market
acceptance and market share. An important factor in such competition may be the timing of market
introduction of competitive products. Accordingly, the relative speed with which we can develop
products, complete clinical
testing and regulatory clearance processes and supply commercial
quantities of the product to the market are important competitive factors. In addition, our ability to
compete will continue to be dependent on the extent to which we are successful in protecting our
patents and other intellectual property.
Patents and Proprietary Rights and Related Litigation
Through our subsidiaries ResMed Limited, MAP Medizin-Technologie GmbH, ResMed Motor
Technologies Inc., and ResMed Paris SAS, we own or have licensed rights to approximately 400
issued United States patents (including approximately 200 design patents) and approximately 500
there are approximately 400 pending United States patent
issued foreign patents. In addition,
applications (including approximately 80 design patent applications), approximately 780 pending
foreign patent applications, approximately 1,000 registered foreign designs and approximately 90
pending foreign designs. Some of these patents, patent applications and designs relate to significant
aspects and features of our products.
Of our patents, 14 United States patents and 29 foreign patents are due to expire in the next five years,
with 2 foreign patents due to expire in 2010, 18 in 2011, 1 in 2012, 3 in 2013, and 5 in 2014; and 2
United States patents in 2010, 4 United States patents in 2011, 2 United States patents in 2013, and 6
United States patents in 2014. We believe that the expiration of these patents will not have a material
adverse impact on our competitive position.
We rely on a combination of patents, trade secrets, copyrights, trademarks and non-disclosure
agreements to protect our proprietary technology and rights.
Litigation may be necessary to enforce patents issued to us, to protect our rights, or to defend third-
party claims of infringement by us of the proprietary rights of others. Patent laws regarding the
enforceability of patents vary from country to country. Therefore, there can be no assurance that
patent issues will be uniformly resolved, or that local laws will provide us with consistent rights and
benefits.
Government Regulations
Our products are subject to extensive regulation particularly as to safety, efficacy and adherence to
FDA Quality System Regulation, and related manufacturing standards. Medical device products are
subject to rigorous FDA and other governmental agency regulations in the United States and similar
regulations of foreign agencies abroad. The FDA regulates the introduction, manufacture, advertising,
labeling, packaging, marketing, distribution and record keeping for such products, in order to ensure
that medical products distributed in the United States are safe and effective for their intended use. In
addition, the FDA is authorized to establish special controls to provide reasonable assurance of the
safety and effectiveness of most devices. Non-compliance with applicable requirements can result in
import detentions, fines, civil penalties, injunctions, suspensions or losses of regulatory approvals,
recall or seizure of products, operating restrictions, refusal of the government to approve product
export applications or allow us to enter into supply contracts, and criminal prosecution.
The FDA requires that a manufacturer introducing a new medical device or a new indication for use
of an existing medical device obtain either a Section 510(k) premarket notification clearance or a
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premarket approval, or PMA, before introducing it into the U.S. market. Our products currently
marketed in the United States are marketed in reliance on 510(k) pre-marketing clearances as either
Class I or Class II devices. The process of obtaining a Section 510(k) clearance generally requires the
submission of performance data and often clinical data, which in some cases can be extensive, to
demonstrate that the device is “substantially equivalent” to a device that was on the market before
1976 or to a device that has been found by the FDA to be “substantially equivalent” to such a
pre-1976 device. As a result, FDA clearance requirements may extend the development process for a
considerable length of time. In addition, in some cases, the FDA may require additional review by an
advisory panel, which can further lengthen the process. The PMA process, which is reserved for new
devices that are not substantially equivalent to any predicate device and for high-risk devices or those
that are used to support or sustain human life, may take several years and requires the submission of
extensive performance and clinical information.
As a medical device manufacturer, all of our domestic and Australian manufacturing facilities are
subject to inspection on a routine basis by the FDA. We believe that our design, manufacturing and
quality control procedures are in compliance with the FDA’s regulatory requirements.
Sales of medical devices outside the United States are subject to regulatory requirements that vary
widely from country to country. Approval for sale of our medical devices in Europe is through the CE
mark process. Where appropriate, our products are CE marked to the European Union’s Medical
Device Directive. Under the CE marketing scheme, our products are classified as either Class I or
Class II. Our devices are listed in Australia with the Therapeutic Goods Administration, or TGA, and
in Canada with Health Canada.
Employees
As of June 30, 2009, we had approximately 2,900 employees or full time consultants, of which
approximately 1,200 persons were employed in warehousing and manufacturing, 300 in research and
development and 1,400 in sales, marketing and administration. Of our employees and consultants,
approximately, 1,200 were located in Australia, 600 in North and South America, 900 in Europe and
200 in Asia.
We believe that the success of our business will depend, in part, on our ability to attract and retain
qualified personnel. None of our employees are covered by a collective bargaining agreement. We
believe that our relationship with our employees is good.
ITEM 1A RISK FACTORS
Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks
described below in addition to the other cautionary statements and risks described elsewhere, and the
other information contained, in this Report and in our other filings with the SEC, including our
subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial may also affect our business. If any of these known or unknown risks or
uncertainties actually occurs with material adverse effects on us, our business, financial condition and
results of operations could be seriously harmed. In that event, the market price for our common stock
will likely decline, and you may lose all or part of your investment.
Our inability to compete successfully in our markets may harm our business. The markets for
our sleep-disordered breathing products are highly competitive and are characterized by frequent
product improvements and evolving technology. Our ability to compete successfully depends, in part,
on our ability to develop, manufacture and market innovative new products. The development of
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innovative new products by our competitors or the discovery of alternative treatments or potential
cures for the conditions that our products treat could make our products noncompetitive or obsolete.
Current competitors, new entrants, academics, and others are trying to develop new devices,
alternative treatments or cures, and pharmaceutical solutions to the conditions our products treat.
financial,
some of our competitors have greater
Additionally,
research and development,
manufacturing and marketing resources than we do. The past several years have seen a trend towards
consolidation in the healthcare industry and in the markets for our products. Industry consolidation
could result in greater competition if our competitors combine their resources or if our competitors are
acquired by other companies with greater resources than ours. This competition could increase
pressure on us to reduce the selling prices of our products or could cause us to increase our spending
on research and development and sales and marketing. If we are unable to develop innovative new
products, maintain competitive pricing, and offer products that consumers perceive to be as reliable as
those of our competitors, our sales or gross margins could decrease which would harm our business.
Our business depends on our ability to market effectively to dealers of home healthcare
products and sleep clinics. We market our products primarily to home healthcare dealers and to
sleep clinics that diagnose OSA and other sleep disorders. We believe that home healthcare dealers
and sleep clinics play a significant role in determining which brand of product a patient will use. The
success of our business depends on our ability to market effectively to home healthcare dealers and
sleep clinics to ensure that our products are properly marketed and sold by these third parties.
We have limited resources to market to approximately the 3,000 U.S. sleep clinics and the more than
6,000 home healthcare dealer branch locations, most of which use, sell or recommend several brands
of products. In addition, home healthcare dealers have experienced price pressures as government and
third-party reimbursement has declined for home healthcare products, and home healthcare dealers
are requiring price discounts and longer periods of time to pay for products purchased from us. We
cannot assure you that sleep clinic physicians will continue to prescribe our products, or that home
healthcare dealers or patients will not substitute competing products when a prescription specifying
our products has been written.
We have expanded our marketing activities to target the population with a predisposition to sleep-
disordered breathing as well as primary care physicians and various medical specialists. We cannot
assure you that these marketing efforts will be successful in increasing awareness or sales of our
products.
Any inability to market effectively our products outside the U.S. could impact our
profitability. Approximately half our revenues are generated outside the U.S., in over 70 different
countries. Many of these countries have unique regulatory, medical and business environments, which
may adversely impact our ability to market our products. If we are unable to market effectively our
products outside the U.S., our overall financial performance could decline.
Fluctuations in foreign currency exchange rates could result in declines in our reported sales
and earnings. Since our international sales and a significant portion of our manufacturing costs are
denominated in local currencies and not in U.S. dollars, our reported sales and earnings are subject to
fluctuations in foreign exchange rates. We had foreign currency transaction losses in recent periods
and may have further losses in the future. We expect that international sales will continue to be a
significant portion of our business and that a significant portion of our manufacturing costs and
research and development costs will continue to be denominated in Australian dollars.
If we are unable to support our continued growth, our business could suffer. We have
experienced rapid and substantial growth. As we continue to grow, the complexity of our operations
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increases, placing greater demands on our management. Our ability to manage our growth effectively
depends on our ability to implement and improve our financial and management information systems
on a timely basis and to effect other changes in our business including, the ability to monitor and
improve manufacturing systems, information technology, and quality and regulatory compliance
systems, among others. Unexpected difficulties during expansion, the failure to attract and retain
qualified employees, the failure to successfully replace or upgrade our management information
systems, the failure to manage costs or our inability to respond effectively to growth or plan for future
expansion could cause our growth to stop. If we fail to manage effectively and efficiently our growth,
our costs could increase faster than our revenues and our business could suffer.
If we fail to integrate our recent acquisitions with our operations, our business could
suffer. During the past five fiscal years we have acquired Respicure, Western Medical Marketing,
PolarMed, Pulmomed, Saime, Hoefner and Resprecare. We continue to integrate these acquisitions
into our operations. The integration requires significant efforts from each company and we may find it
difficult to integrate the operations as personnel may leave and licensees, distributors or suppliers may
terminate their arrangements or demand amended terms to these arrangements. Additionally, our
management may have their attention diverted while trying to integrate these companies. If we are not
able to successfully integrate the operations, we may not realize the anticipated benefits of these
acquisitions.
We are subject to various risks relating to international activities that could affect our overall
profitability. We manufacture substantially all of our products outside the U.S. and sell a
significant portion of our products in non-U.S. markets. Sales outside North and Latin America
accounted for approximately 46% and 51% of our net revenues in the years ended June 30, 2009 and
2008, respectively. We expect that sales within these areas will account for approximately 50% of our
net revenues in the foreseeable future. Our sales outside of North America and our operations in
Europe, Australia and Asia are subject to several difficulties and risks that are separate and distinct
from those we face in our U.S. operations, including:
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fluctuations in currency exchange rates;
tariffs and other trade barriers;
compliance with foreign medical device manufacturing regulations;
difficulty in enforcing agreements and collect receivables through foreign legal systems;
reduction in third party payer reimbursement for our products;
inability to obtain import licenses;
changes in trade policies and in U.S. and foreign tax policies;
possible changes in export or import restrictions; and
the modification or introduction of other governmental policies with potentially adverse effects.
Government and private insurance plans may not adequately reimburse patients for our
products, which could result in reductions in sales or selling prices for our products. Our
ability to sell our products depends in large part on the extent to which reimbursement for the cost of
our products will be available from government health administration authorities, private health
insurers and other organizations. These third party payers are increasingly challenging the prices
charged for medical products and services and can, without notice, deny coverage for treatments that
may include the use of the Company’s products. Therefore, even if a product is approved for
marketing, we cannot assure you that reimbursement will be allowed for the product, that the
reimbursement amount will be adequate or, that the reimbursement amount, even if initially adequate,
- 21 -
will not subsequently be reduced. For example, in some markets, such as Spain, France and Germany,
government reimbursement is currently available for purchase or rental of our products but is subject
to constraints such as price controls or unit sales limitations. In other markets, such as Australia, there
is currently limited or no reimbursement for devices that treat sleep-disordered breathing conditions.
Additionally, future legislation or regulation concerning the healthcare industry or third party or
governmental coverage and reimbursement, particularly legislation or regulation limiting consumers’
reimbursement rights, may harm our business.
As we continue to develop new products, those products will generally not qualify for reimbursement,
if at all, until they are approved for marketing. In the United States, we sell our products primarily to
home healthcare dealers and to sleep clinics. We do not file claims and bill governmental programs or
other third party payers directly for reimbursement for our products. However, we are still subject to
laws and regulations relating to governmental reimbursement programs, particularly Medicaid and
Medicare.
In addition to reimbursement for our products, our customers depend in part on reimbursement by
in
government and private health insurers
reimbursement, if they occur, may have a material impact on our customers. Any material impact on
our customers may indirectly affect our sales to those customers, or the collectibility of receivables
we have from those customers.
for other products. Any proposed reductions
Failure to comply with anti-kickback and fraud regulations could result in substantial penalties
and changes in our business operations.
In particular, the federal Anti-Kickback Law prohibits
persons from knowingly and willfully soliciting, receiving, offering or providing remuneration,
directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending or
arranging for a good or service, for which payment may be made under a federal healthcare program
such as the Medicare and Medicaid programs. The U.S. government has interpreted this law broadly
to apply to the marketing and sales activities of manufacturers and distributors like us. Many states
and other governments have adopted laws similar to the federal Anti-Kickback Law. We are also
subject to other federal and state fraud laws applicable to payment from any third party payer. These
laws prohibit persons from knowingly and willfully filing false claims or executing a scheme to
defraud any healthcare benefit program, including private third party payers. These laws may apply to
manufacturers and distributors who provide information on coverage, coding, and reimbursement of
their products to persons who do bill third party payers. Any violation of these laws and regulations
could result in civil and criminal penalties (including fines), increased legal expenses and exclusions
from governmental reimbursement programs, all of which could have a material adverse effect upon
our business, financial conditions and results of operations.
Complying with Food and Drug Administration, or FDA, and other regulations is an expensive
and time-consuming process, and any failure to comply could have a materially adverse effect
on the Company’s business, financial condition, or results of operations. We are subject to
various federal, state, local and international regulations regarding our business activities. Failure to
comply with these regulations could result in, among other things, recalls of our products, substantial
fines and criminal charges against us or against our employees. Furthermore, our products could be
subject to recall if the FDA or we determine, for any reason, that our products are not safe or
effective. Any recall or other regulatory action could increase our costs, damage our reputation, affect
our ability to supply customers with the quantity of products they require and materially affect our
operating results. For example, in April 2007 we announced a worldwide voluntary product recall of
approximately 300,000 of our S8 flow generators manufactured between July 2004 and May 2006.
We determined that there was a remote potential for a short circuit in the power connector. To date,
no significant property damage or patient injury has been reported. The initial estimated cost of this
action was $59.7 million which was recognized as a charge to cost of sales in the consolidated
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statement of income year ended June 30, 2007. During the year ended June 30, 2009 and June 30,
2008 we recognized additional charges of $Nil and $3.1 million. These costs accounted for factors
such as expected return rates for the affected units, unit replacement costs, legal, consulting, logistical
and temporary contractor expenses directly associated with the recall. We expect negligible additional
costs associated with the recall and at June 30, 2009 there is no remaining recall accrual.
Product sales, introductions or modifications may be delayed or canceled as a result of FDA
regulations or similar foreign regulations, which could cause our sales and profits to
decline. Before we can market or sell a new medical device in the United States, we must obtain
FDA clearance, which can be a lengthy and time-consuming process. We generally receive clearance
from the FDA to market our products in the United States under Section 510(k) of the Federal Food,
Drug, and Cosmetic Act or our products are exempt from the Section 510(k) clearance process. We
have modified some of our Section 510(k) approved products without submitting new Section 510(k)
notices, which we do not believe were required. However, if the FDA disagrees with us and requires
us to submit new Section 510(k) notifications for modifications to our existing products, we may be
required to stop marketing the products while the FDA reviews the Section 510(k) notification.
Any new product introduction or existing product modification could be subjected to a lengthier, more
rigorous FDA examination process. For example, in certain cases we may need to conduct clinical
trials of a new product before submitting a 510(k) notice. Additionally, we may be required to obtain
premarket approvals for our products. The requirements of these more rigorous processes could delay
product introductions and increase the costs associated with FDA compliance. Marketing and sale of
our products outside the United States are also subject to regulatory clearances and approvals, and if
we fail to obtain these regulatory approvals, our sales could suffer.
We cannot assure you that any new products we develop will receive required regulatory approvals
from U.S. or foreign regulatory agencies.
to substantial regulation related to quality standards applicable to its
We are subject
manufacturing and quality processes. Our failure to comply with these standards could have an
adverse effect on our business, financial condition, or results of operations. The FDA regulates
the approval, manufacturing, and sales and marketing of many of our products in the U.S. Significant
government regulation also exists in Canada, Japan, Europe, and other countries in which we conduct
business. As a device manufacturer, we are required to register with the FDA and is subject to
periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”)
requirements, which require manufacturers of medical devices to adhere to certain regulations,
including testing, quality control and documentation procedures. In addition, the federal Medical
Device Reporting regulations require us to provide information to the FDA whenever there is
evidence that reasonably suggests that a device may have caused or contributed to a death or serious
injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury.
Compliance with applicable regulatory requirements is subject to continual review and is rigorously
monitored through periodic inspections by the FDA. In the European Community, we are required to
maintain certain ISO certifications in order to sell our products and must undergo periodic inspections
by notified bodies to obtain and maintain these certifications. Failure to comply with current
governmental regulations and quality assurance guidelines could lead to temporary manufacturing
related field actions, product shortages or delays in product
shutdowns, product
manufacturing. Efficacy or safety concerns, an increase in trends of adverse events in the marketplace,
and/or manufacturing quality issues with respect to our products could lead to product recalls or
related field actions, withdrawals, and/or declining sales.
recalls or
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Off-label marketing of our products could result in substantial penalties. Clearance under
Section 510(k) only permits us to market our products for the uses indicated on the labeling cleared by
the FDA. We may request additional label indications for our current products, and the FDA may
deny those requests outright, require additional expensive clinical data to support any additional
indications or impose limitations on the intended use of any cleared products as a condition of
clearance. If the FDA determines that we have marketed our products for off-label use, we could be
subject to fines, injunctions or other penalties.
Disruptions in the supply of components from our single source suppliers could result in a
significant reduction in sales and profitability. We purchase uniquely configured components for
our devices from various suppliers, including some who are single-source suppliers for us. We cannot
assure you that a replacement supplier would be able to configure its components for our devices on a
timely basis or, in the alternative, that we would be able to reconfigure our devices to integrate the
replacement part.
A reduction or halt in supply while a replacement supplier reconfigures its components, or while we
reconfigure our devices for the replacement part, would limit our ability to manufacture our devices,
which could result in a significant reduction in sales and profitability. We cannot assure you that our
inventories would be adequate to meet our production needs during any prolonged interruption of
supply.
We are subject to potential product liability claims that may exceed the scope and amount of
our insurance coverage, which would expose us to liability for uninsured claims. We are subject
to potential product liability claims as a result of the design, manufacture and marketing of medical
devices. In April 2007 we announced a worldwide voluntary product recall of approximately 300,000
of our S8 flow generators manufactured between July 2004 and May 2006. We determined that there
was a remote potential for a short circuit in the power connector. To date, no significant property
damage or patient injury has been reported. However, we would likely be subject to product liability
claims should any of these devices malfunction, resulting in injury to a patient or damage to property.
Any product liability claim brought against us, with or without merit, could result in the increase of
our product liability insurance rates. In addition, we would have to pay any amount awarded by a
court in excess of our policy limits. Our insurance policies have various exclusions, and thus we may
be subject to a product liability claim for which we have no insurance coverage, in which case, we
may have to pay the entire amount of any award. We cannot assure you that our insurance coverage
will be adequate or that all claims brought against us will be covered by our insurance. Insurance
varies in cost and can be difficult to obtain, and we cannot assure you that we will be able to obtain
insurance in the future on terms acceptable to us or at all. A successful product liability claim brought
against us in excess of our insurance coverage, if any, may require us to pay substantial amounts,
which could harm our business.
Our intellectual property may not protect our products, and/or our products may infringe on
the intellectual property rights of third parties. We rely on a combination of patents, trade
secrets and non-disclosure agreements to protect our intellectual property. Our success depends, in
part, on our ability to obtain and maintain United States and foreign patent protection for our
products, their uses and our processes to preserve our trade secrets and to operate without infringing
on the proprietary rights of third parties. We have a number of pending patent applications, and we do
not know whether any patents will issue from any of these applications. We do not know whether any
of the claims in our issued patents or pending applications will provide us with any significant
protection against competitive products or otherwise be commercially valuable. Legal standards
regarding the validity of patents and the proper scope of their claims are still evolving, and there is no
consistent law or policy regarding the valid breadth of claims. Additionally, there may be third party
patents, patent applications and other intellectual property relevant to our products and technology
which are not known to us and that block or compete with our products.
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We face the risks that:
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third parties will infringe our intellectual property rights;
our non-disclosure agreements will be breached;
• we will not have adequate remedies for infringement;
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our trade secrets will become known to or independently developed by our competitors; or
third parties will be issued patents that may prevent the sale of our products or require us to
license and pay fees or royalties in order for us to be able to market some of our products.
Litigation may be necessary to enforce patents issued to us, to protect our proprietary rights, or to
defend third party claims that we have infringed upon proprietary rights of others. The defense and
prosecution of patent claims, including these pending claims, as well as participation in other inter-
party proceedings, can be expensive and time consuming, even in those instances in which the
outcome is favorable to us. If the outcome of any litigation or proceeding brought against us were
adverse, we could be subject to significant liabilities to third parties, could be required to obtain
licenses from third parties, could be forced to design around the patents at issue or could be required
to cease sales of the affected products. A license may not be available at all or on commercially viable
terms, and we may not be able to redesign our products to avoid infringement. Additionally, the laws
regarding the enforceability of patents vary from country to country, and we cannot assure you that
any patent issues we face will be uniformly resolved, or that local laws will provide us with consistent
rights and benefits.
We are subject to tax audits by various tax authorities in many jurisdictions. From time to time
we may be audited by the tax authorities and are still subject to an ongoing German tax audit. Any
final assessment resulting from this audit could result in material changes to our past or future taxable
income, tax payable or deferred tax assets, and could require us to pay penalties and interest that could
materially adversely affect our financial results.
Our quarterly operating results are subject to fluctuation for a variety of reasons. Our
operating results have, from time to time, fluctuated on a quarterly basis and may be subject to similar
fluctuations in the future. These fluctuations may result from a number of factors, including:
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•
•
the introduction of new products by us or our competitors;
the geographic mix of product sales;
the success of our marketing efforts in new regions;
changes in third party reimbursement;
timing of regulatory clearances and approvals;
timing of orders by distributors;
expenditures incurred for research and development;
competitive pricing in different regions;
seasonality;
the cost and effect of promotional and marketing programs;
the effect of foreign currency transaction gains or losses; and
other activities of our competitors.
- 25 -
Fluctuations in our quarterly operating results may cause the market price of our common stock to
fluctuate.
If a natural or man-made disaster strikes our manufacturing facilities, we will be unable to
manufacture our products for a substantial amount of time and our sales and profitability will
decline. Our facilities and the manufacturing equipment we use to produce our products would be
costly to replace and could require substantial lead-time to repair or replace. The facilities may be
affected by natural or man-made disasters and in the event they were affected by a disaster, we would
be forced to rely on third party manufacturers. Although we believe we possess adequate insurance
for damage to our property and the disruption of our business from casualties, such insurance may not
be sufficient to cover all of our potential losses and may not continue to be available to us on
acceptable terms, or at all.
Delaware law and provisions in our charter and could make it difficult for another company to
acquire us. Provisions of our certificate of incorporation may have the effect of delaying or
preventing changes in control or management which might be beneficial to us or our security holders.
In particular, our Board of Directors is divided into three classes, serving for staggered three-year
terms. Because of this classification it will require at least two annual meetings to elect directors
constituting a majority of our Board of Directors.
Additionally, our Board of Directors has the authority to issue up to 2,000,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without further vote or action by the stockholders. The rights of the holders of
our common stock will be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control, may discourage bids for our common
stock at a premium over the market price of our common stock and may adversely affect the market
price of our common stock and the voting and other rights of the holders of our common stock.
We may not be able to enforce the judgments of U.S. courts against some of our assets or
officers and directors. A substantial portion of our assets are located outside the United States.
Additionally, two of our eight directors and three of our six executive officers reside outside the
United States, along with all or a substantial portion of the assets of these persons. As a result, it may
not be possible for investors to enforce judgments of U.S. courts relating to any liabilities under U.S.
securities laws against our assets, those persons or their assets. In addition, we have been advised by
our Australian counsel that some doubt exists as to the ability of investors to pursue claims based on
U.S. securities laws against these assets or these persons in Australian courts.
Our results of operations may be materially affected by global economic conditions generally,
including conditions in the financial markets. Recently, concerns over inflation, energy costs,
geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining
residential real estate market in the U.S. have contributed to increased volatility and diminished
expectations for the economy and the financial markets going forward. These factors, combined with
volatile oil prices, declining business and consumer confidence and increased unemployment, have
precipitated an economic slowdown. It
to predict how long the current economic
conditions will continue and whether the economic conditions will continue to deteriorate. If the
economic climate in the U.S. or outside the U.S. continues to deteriorate or there is a shift in
government spending priorities, customers or potential customers could reduce or delay their
purchases, which could impact our revenue, our ability to manage inventory levels, collect customer
receivables, and ultimately decrease our profitability.
is difficult
- 26 -
ITEM 1B UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the
Securities and Exchange Commission that were issued 180 days or more preceding the end of our
fiscal year 2009 that remain unresolved.
ITEM 2
PROPERTIES
Our new principal executive offices and U.S. distribution facilities, consisting of approximately
230,000 square feet, are located on Spectrum Centre Boulevard (North San Diego County),
California, in a building we own. We have our research and development and office facilities at our
existing site in Norwest, Sydney, Australia, which consists of approximately 69,000 square feet. We
own our principal manufacturing facility consisting of a 155,000 square foot complex at this same
Norwest site in Sydney, Australia. We lease a 72,000 square foot facility for manufacture of
electronic motors in Chatsworth, California. During the year ended June 30, 2009, we completed the
construction of our new corporate headquarters located at Kearny Mesa, San Diego. In November
2008, we opened a 32,000 square foot manufacturing facility in Singapore to complement the Sydney
manufacturing site.
Sales and warehousing facilities are either leased or owned in South Carolina and Oregon, U.S.A.;
Abingdon, England; Munich, Germany; Bremen, Germany; Hochstadt, Germany; Lyon, France; Paris,
France; Basel, Switzerland; Trollhaettan, Sweden; Vienna, Austria; Helsinki, Finland; Den Haag,
Netherlands; Oslo, Norway; and Kowloon, Hong Kong.
ITEM 3
LEGAL PROCEEDINGS
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.
During September and October 2004, we began receiving tax assessment notices for the audit of one
of our German subsidiaries by the German tax authorities for the years 1996 through 1998. Certain
aspects of these assessment notices are being contested and appealed to the German tax authority
office. As the outcome of the appeal cannot be predicted with certainty, any tax issues resolved in a
manner not consistent with our expectations may require us to adjust our provision for income tax in
the period of resolution.
In February 2007, the University of Sydney commenced legal action in the Federal Court of Australia
against us, claiming breach of a license agreement and infringement of certain intellectual property.
The claim has been amended to include an allegation of breach of confidentiality. The university is
seeking various types of relief, including an injunction against manufacturing, supplying, offering for
sale, selling or exporting certain mask devices, payment of license fees, damages or an account of
profits,
interest, costs and declaration of a constructive trust over and assignment of certain
intellectual property. In October 2007, we filed a defense denying the university’s claim, as well as a
cross-claim against the university seeking an order for rectification of the contract and alleging the
university violated the Australian Trade Practices Act. The matter is ongoing. We do not expect the
outcome of this matter to have a material adverse effect on our condensed consolidated financial
statements.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 27 -
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “RMD”.
The following table sets forth for the fiscal periods indicated the high and low closing prices for the
common stock as reported by 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
2009
2008
High
Low
High
Low
$47.98
43.35
42.81
41.56
$35.53
29.83
31.82
34.19
$45.40
53.09
51.31
45.32
$39.33
39.65
39.20
34.19
As of July 20, 2009, there were 43 holders of record of our common stock. We have not paid any cash
dividends on our common stock since the 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.
Securities Authorized for Issuance Under Equity Compensation Plans
The information included under Item 12 of Part III of this report, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters,” is hereby incorporated by
reference into this Item 5 of Part II of this report.
- 28 -
Purchases of Equity Securities
The following table summarizes purchases by us of our common stock during the fiscal year ending
June 30, 2009:
Period 2009
July 1 to July 31
August 1 to August 31
September 1 to September 30
October 1 to October 31
November 1 to November 30
Total
Number
of Shares
Average
Price Paid
per Share
622,500
30,100
36.87
37.89
-
-
-
-
-
-
December 1 to December 31
55,989
35.02
January 1 to January 31
February 1 to February 28
March 1 to March 31
April 1 to April 30
May 1 to May 31
June 1 to June 30
Total
-
50,000
719,100
-
-
37.82
34.40
-
269,600
$37.11
79,018
$37.78
1,826,307
$35.96
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs(1)
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs(1)
5,498,118
5,528,218
5,528,218
5,528,218
5,528,218
5,584,207
5,584,207
5,634,207
6,353,307
6,353,307
6,622,907
6,701,925
6,701,925
2,501,882
2,471,782
2,471,782
2,471,782
2,471,782
2,415,793
2,415,793
2,365,793
1,646,693
1,646,693
10,000,000
9,920,982
9,920,982
(1) On May 27, 2009, our Board of Directors authorized a new program to repurchase up to 10.0 million shares of our
outstanding common stock. This program replaces and cancels our previous program to repurchase up to 8.0 million shares
authorized by the board on June 2, 2002 and allows us to repurchase shares in addition to the shares we repurchased under our
previous program. There is no expiration date for the repurchase of these shares. For the years ended June 30, 2009 and 2008,
we repurchased 1,826,307 and 2,570,700 shares at a cost of $65.7 million and $99.5 million, respectively. At June 30, 2009, we
have repurchased a total of 6,701,925 shares at a cost of $208.3 million under both programs. 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.
- 29 -
ITEM 6
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, 2009. The data set forth below should
be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and
Results of Operations and our Consolidated Financial Statements and related Notes included
elsewhere in this Report. The consolidated statements of operations data for the years ended June 30,
2009, 2008 and 2007 and the balance sheet data as of June 30, 2009 and 2008 are derived from our
audited consolidated financial statements included elsewhere in this Report. The consolidated
statements of operations data for the years ended June 30, 2006 and 2005 and the balance sheet data
as of June 30, 2007, 2006 and 2005 are derived from our audited consolidated financial statements not
included herein. Historical results are not necessarily indicative of the results to be expected in the
future, and the results for the years presented should not be considered indicative of our future results
of operations.
Consolidated Statement of Income Data:
(In thousands, except per share data)
2009
2008
Years Ended June 30
2007
2006
2005
Net revenues
Cost of sales
Product recall expenses
$920,735
$835,397
$716,332
$606,996
$425,505
366,933
-
338,544
3,103
272,140
59,700
230,101
-
150,645
-
Gross profit
553,802
493,750
384,492
376,895
274,860
Selling, general and administrative
expenses
Research and development expenses
Donations to research foundations
In-process research and development
charge
Amortization of acquired intangible
assets
Restructuring expenses
289,875
63,056
3,500
278,087
60,524
2,000
237,326
50,106
-
200,168
37,216
760
135,703
30,014
500
-
-
-
-
5,268
7,060
-
7,791
2,378
6,897
-
6,327
1,124
870
5,152
Total operating expenses
363,491
350,780
294,329
245,595
177,507
Income from operations
190,311
142,970
90,163
131,300
97,353
Other income (expenses):
Interest income (expense), net
Other, net
10,205
1,168
10,058
4,827
Total other income (expenses)
11,373
14,885
6,477
1,333
7,810
1,320
774
2,094
(808)
81
(727)
Income before income taxes
Income taxes
201,684
(55,236)
157,855
(47,552)
97,973
(31,671)
133,394
(45,183)
96,626
(31,841)
Net income
$146,448
$110,303
$ 66,302
$ 88,211
$ 64,785
Basic earnings per share
Diluted earnings per share
Weighted average:
$
$
1.94
1.90
$
$
1.43
1.40
$
$
0.86
0.85
$
$
1.22
1.16
$
$
0.94
0.91
Basic shares outstanding
Diluted shares outstanding
75,629
77,113
77,378
78,712
76,709
78,253
72,307
77,162
68,643
74,942
- 30 -
All share and per share information has been adjusted to reflect the two-for-one stock split effected in
the form of a 100% stock dividend that was declared on August 10, 2005 and distributed on
September 30, 2005.
Consolidated Balance Sheet Data:
(In thousands)
2009
2008
As of June 30
2007
2006
2005
Working capital
Total assets
Long-term debt, less current
maturities
Total stockholders’ equity
$ 584,184
1,507,968
$ 546,647
1,406,000
$ 466,396
1,252,042
$ 381,284
1,012,921
$141,659
774,146
94,191
1,115,192
93,789
1,081,775
87,648
931,222
116,212
738,148
58,934
474,065
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among ResMed Inc., The S&P 500 Index
And The S&P Health Care Equipment Index
$300
$250
$200
$150
$100
$50
$0
6/04
6/05
6/06
6/07
6/08
6/09
ResMed Inc.
S&P 500
S&P Health Care Equipment
* $100 invested on 6/30/04 in stock & index-including reinvestment of dividends.
Fiscal year ending June 30.
- 31 -
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Management’s discussion and analysis (“MD&A”) of financial condition and results of operations is
intended to help the reader understand the results of operations and financial condition of Resmed Inc.
MD&A is provided as a supplement to, and should be read in conjunction with selected financial data
and consolidated financial statements and notes, included herein.
We are a leading developer, manufacturer and distributor of medical equipment for treating,
diagnosing, and managing sleep-disordered breathing (“SDB”) and other respiratory disorders. During
the fiscal year we continued our efforts to build awareness of the consequences of untreated sleep-
disordered breathing and to grow our business in this market. In our efforts we have attempted to raise
awareness through market and clinical
initiatives highlighting the increasing link between the
potential effects SDB can have on cardiovascular diseases and Type 2 diabetes.
In September 2008, the European Society of Cardiologists published guidelines for the treatment of
acute and chronic heart failure. The guidelines noted that patients with symptomatic heart failure
frequently have sleep-related disorders (central or obstructive sleep apnea) and recommended
treatment with Continuous Positive Airway Pressure, or CPAP, for patients diagnosed with
obstructive sleep apnea. In June 2008 the International Diabetes Federation issued a consensus
statement on sleep disordered breathing and Type 2 Diabetes, where the substantial value of
identifying and treating diabetic patients suffering from sleep disordered breathing was recognized
and recommended. We believe that the increasing awareness among the co-morbidity specialists
supports the efforts and investment we are making in new markets, including diabetes and cardiology.
We are committed to ongoing investment in research and development and product enhancements.
During fiscal year 2009 we invested approximately $63.1 million on research and development
activities, which represents 7% of revenue. Since the development of CPAP, we have developed a
number of innovative products for SDB and other respiratory disorders including airflow generators,
diagnostic products, mask systems, headgear and other accessories.
During fiscal year 2009, we released new products across both our mask and flow generator
categories. We have introduced new masks in both Europe and the U.S. during fiscal 2009, including
the release of Activa LT and Swift LT for Her, which was the first nasal pillows product designed and
marketed specifically for female patients. Additionally, we released a series of new bilevel flow
generators in Europe and in North and Latin America. These products utilize our patented
EasyBreathe motor technology, providing performance at substantially quieter noise levels compared
to other leading competitors.
We reported record financial results in fiscal year 2009, with an increase in net revenue of 10% to
$920.7 million compared to fiscal year 2008. Gross profit increased for the year ended June 30, 2009
to $553.8 million from $493.7 million for the year ended June 30, 2008, an increase of $60.1 million
or 12%. Our net income for the year ended June 30, 2009 was $146.4 million or $1.90 per diluted
share compared to net income of $110.3 million or $1.40 per diluted share for the year ended June 30,
2008.
Total operating cash flow for fiscal year 2009 was $238.9 million, which represents a 73% increase
from the year ended June 30, 2008. At June 30, 2009, our cash and cash equivalents totaled $415.7
million. Our total assets increased by 7% to $1.5 billion and our shareholders’ equity was up 3% to
$1.1 billion. During fiscal year 2009, we repurchased 1,826,307 shares at a cost of $65.7 million
under our share buy-back program.
- 32 -
Fiscal Year Ended June 30, 2009 Compared to Fiscal Year Ended June 30, 2008
Net Revenues. Net revenue increased for the year ended June 30, 2009 to $920.7 million from
$835.4 million for the year ended June 30, 2008, an increase of $85.3 million or 10%. The increase in
net revenue was attributable to an increase in unit sales of our flow generators, masks and accessories.
Movements in international currencies against the U.S. dollar negatively impacted revenues by
approximately $40.3 million for the year ended June 30, 2009. Excluding the impact of unfavorable
foreign currency movements, sales for the year ended June 30, 2009 increased by 15% compared to
the year ended June 30, 2008.
Net revenue in North and Latin America increased for the year ended June 30, 2009 to $493.4 million
from $409.6 million for the year ended June 30, 2008, an increase of $83.8 million or 20%. This
growth has been generated by increased public and physician awareness of sleep-disordered breathing
and growth generated from our recent product releases including the S8II flow generator, VPAP Auto
25, VPAP S, Swift LT nasal pillows mask and Mirage Quattro full-face mask.
Net revenue in markets outside North and Latin America increased for the year ended June 30, 2009
to $427.3 million from $425.8 million for the year ended June 30, 2008, an increase of $1.5 million or
0.4%. Excluding the impact of unfavorable foreign currency movements, international sales grew by
10%. This sales growth outside North and Latin America predominantly reflects growth in the overall
sleep-disordered breathing market, growth generated from our recent product releases including the
S8II flow generator, VPAP S, VPAP ST and Mirage Quattro full-face mask offset by the negative
impact from movements of international currencies against the U.S. dollar.
Sales of flow generators for the year ended June 30, 2009 totaled $532.1 million from $418.5 million
for the year ended June 30, 2008, an increase of 10%, including increases of 21% in North and Latin
America and 2% elsewhere. Sales of mask systems, motors and other accessories totaled $388.6
million, an increase of 11%, including increase of 20% in North and Latin America offset by a
decrease of 2% elsewhere, for the year ended June 30, 2009, compared to the year ended June 30,
2008. We believe these primarily reflect growth in the overall sleep-disordered breathing market and
contributions from new products, partially offset by unfavorable foreign currency movements in sales
outside of North and Latin America.
Gross Profit. Gross profit increased for the year ended June 30, 2009 to $553.8 million from $493.8
million for the year ended June 30, 2008, an increase of $60.1 million or 12%. Gross profit as a
percentage of net revenue increased for the year ended June 30, 2009 to 60% from 59% for the year
ended June 30, 2008. The increase in gross margins is primarily due to the depreciation of the
Australian dollar against the U.S. dollar as the majority of our manufacturing labor and overhead is
denominated in Australian dollars, a favorable change in product mix as sales of our higher margin
products represented a higher proportion of our sales and cost savings attributable to manufacturing
and supply chain improvements.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased for the year ended June 30, 2009 to $289.9 million from $278.1 million for the year ended
June 30, 2008, an increase of $11.8 million or 4%. As a percentage of net revenue, selling, general
and administrative expenses for the year ended June 30, 2009 was 31% compared to 33% for the year
ended June 30, 2008.
The increase in selling, general and administrative expenses was primarily due to an increase in the
number of sales and administrative personnel to support our growth, stock-based compensation costs
and other expenses related to the increase in our sales. The increase in selling, general and
administrative expenses was also offset by the net appreciation of the U.S. dollar against international
currencies, which reduced by approximately $21.8 million our expenses for the year ended June 30,
- 33 -
2009, as reported in U.S. dollars. As a percentage of net revenue, we expect our future selling, general
and administrative expense to continue in the historical range of 31% to 33%.
Research and Development Expenses. Research and development expenses increased for the year
ended June 30, 2009 to $63.1 million from $60.5 million for the year ended June 30, 2008, an increase
of $2.5 million or 4%. As a percentage of net revenue, research and development expenses were 7%
for the year ended June 30, 2009 and are consistent with the year ended June 30, 2008.
The increase in research and development expenses was primarily due to an increase in the number of
research and development personnel, increased charges for consulting fees and an increase in clinical
trials, including the SERVE-HF study. The increase in research and development expenses was also
offset by the net appreciation of the U.S. dollar against international currencies, which reduced our
expenses by approximately $11.0 million for the year ended June 30, 2009, as reported in U.S.
dollars. As a percentage of net revenue, we expect our future research and development expense to
continue at approximately 7%.
Donations to Foundations.
In the years ended June 30, 2009 and 2008, we donated $3.5 million
and $2.0 million, respectively,
to the ResMed Foundations. The Foundations were established
primarily to promote research into the deleterious medical consequences of untreated sleep-disordered
breathing.
Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets for the
year ended June 30, 2009 totaled $7.1 million compared to $7.8 million for the year ended June 30,
2008. The decrease in amortization expense is attributable to the appreciation of the U.S. dollar
against the Euro as the majority of the acquired intangible assets are denominated in Euros.
Restructuring Expenses. Restructuring expenses incurred for the year ended June 30, 2009 were
$Nil compared to $2.4 million for the year ended June 30, 2008. Restructuring expenses in the prior
year consisted of expenses associated with our decision to streamline European management,
including the closure of part of the European headquarters in Basel, Switzerland and two regional
offices in the Netherlands. The restructuring expenses mainly comprise employee termination costs,
leasehold improvement write-downs and property lease exit costs. We will continue to monitor the
progress of this restructure and adjust our business strategies and personnel accordingly to achieve
maximum efficiencies and cost savings.
Other Income (Expense), Net. Other income, net for the year ended June 30, 2009 was $11.4
million, a decrease of $3.5 million over the year ended June 30, 2008 of $14.9 million. This was
predominantly due a $5.9 million gain on the sale of our Poway property, that was reported in year
ended June 30, 2008 which was partly offset by a $3.2 million impairment write-down of our at cost-
method investments in the same fiscal year.
Income Taxes. Our effective income tax rate decreased to 27.4% for the year ended June 30, 2009
from 30.1% for the year ended June 30, 2008. The lower tax rate was primarily due to a change in the
geographic mix of taxable income, including the impact of lower taxes associated with our new
Singapore manufacturing operation. We continue to benefit from the Australian corporate tax rate of
30% and certain Australian research and development tax benefits because we generate the majority
of our taxable income in Australia.
Net Income. As a result of the factors above, our net income for the year ended June 30, 2009 was
$146.4 million or $1.90 per diluted share compared to net income of $110.3 million or $1.40 per
diluted share for the year ended June 30, 2008, an increase of 33% and 36%, respectively, over the
year ended June 30, 2008.
- 34 -
Fiscal Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30, 2007
Net Revenues. Net revenue increased for the year ended June 30, 2008 to $835.4 million from
$716.3 million for the year ended June 30, 2007, an increase of $119.1 million or 17%. The increase
in net revenue was attributable to an increase in unit sales of our flow generators, masks and
accessories and a strong contribution from our new full face masks. Movements in international
currencies against the U.S. dollar positively impacted revenues by approximately $42.7 million for the
year ended June 30, 2008. Excluding the impact of favorable foreign currency movements, sales for
the year ended June 30, 2008 increased by 11% compared to the year ended June 30, 2007.
Net revenue in North and Latin America increased for the year ended June 30, 2008 to $409.6 million
from $376.7 million for the year ended June 30, 2007, an increase of $32.9 million or 9%. This
growth has been generated by increased public and physician awareness of sleep-disordered breathing
and growth generated from our recent product releases including the S8II flow generator, Swift LT
nasal pillows mask and Mirage Quattro full-face mask.
Net revenue in markets outside North and Latin America increased for the year ended June 30, 2008
to $425.8 million from $339.6 million for the year ended June 30, 2007, an increase of 25%. This
sales growth outside North and Latin America predominantly reflects growth in the overall sleep-
disordered breathing market, growth generated from our recent product releases including the S8II
flow generator and Mirage Quattro full-face mask and the positive impact from movements of
international currencies against the U.S. dollar. Excluding the positive impact from movements of
international currencies, international sales grew by 13%.
Sales of flow generators for the year ended June 30, 2008 totaled $418.5 million, an increase of 13%
compared to the year ended June 30, 2007, including increases of 3% in North and Latin America and
20% elsewhere. Sales of mask systems, motors and other accessories totaled $416.9 million, an
increase of 21%, including increases of 13% in North and Latin America and 35% elsewhere, for the
year ended June 30, 2008, compared to the year ended June 30, 2007. We believe these increases
primarily reflect growth in the overall sleep-disordered breathing market and contributions from new
products.
Gross Profit. Gross profit increased for the year ended June 30, 2008 to $493.8 million from $384.5
million for the year ended June 30, 2007, an increase of $109.3 million or 28%. Gross profit as a
percentage of net revenue increased for the year ended June 30, 2008 to 59% from 54% for the year
ended June 30, 2007. The increase in gross margin is primarily due to $59.7 million of voluntary
product recall expenses that we recognized during the year ended June 30 2007. During the year
ended June 30, 2008 we also recognized an additional charge of $3.1 million in relation to the product
recall announced in 2007 due to higher than original estimated return rates and consulting charges.
Excluding voluntary product recall expenses, gross profit as a percentage of revenue was 59% for the
year ended June 30, 2008, which is lower than the year ended June 30, 2007 of 62%. The lower gross
margin (excluding the voluntary product recall expense) is primarily due to a general reduction in
average selling prices, appreciation of the Australian dollar against the U.S. dollar, partially offset by
manufacturing and supply chain improvements.
Voluntary Product Recall Expenses. On April 23, 2007, we initiated a worldwide voluntary
product recall of approximately 300,000 units of our early production S8 flow generators. In these
particular units, which were manufactured between July 2004 and May 15, 2006, there was what we
considered to be a remote potential for a short circuit in the power supply connector. The initial
estimated cost of this recall action was $59.7 million which was recognized as a charge to cost of
sales in the condensed consolidated statement of income during the year ended June 30, 2007. During
the year ended June 30, 2008 we recognized an additional charge of $3.1 million due to the higher
than original estimated return rates and consulting charges. At June 30, 2008 the recall accrual was
$1.0 million.
- 35 -
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased for the year ended June 30, 2008 to $278.1 million from $237.3 million for the year ended
June 30, 2007, an increase of $40.8 million or 17%. As a percentage of net revenue, selling, general
and administrative expenses for the year ended June 30, 2008 was 33% and is consistent with the year
ended June 30, 2007.
The increase in selling, general and administrative expenses was primarily due to an increase in the
number of sales and administrative personnel
to support our growth, continued infrastructure
investment, particularly in our European businesses, stock-based compensation costs and other
expenses related to the increase in our sales. The increase in selling, general and administrative
expenses was also attributable to net appreciation of international currencies against the U.S. dollar,
which added approximately $18.8 million to our expenses for the year ended June 30, 2008, as
reported in U.S. dollars. As a percentage of net revenue, we expect our future selling, general and
administrative expense to continue in the historical range of 32% to 34%.
Research and Development Expenses. Research and development expenses increased for the year
ended June 30, 2008 to $60.5 million from $50.1 million for the year ended June 30, 2007, an increase
of $10.4 million or 21%. As a percentage of net revenue, research and development expenses were
7% for the year ended June 30, 2008 and are consistent with the year ended June 30, 2007.
The increase in research and development expenses was primarily due to an increase in the number of
research and development personnel,
increased charges for consulting fees and an increase in
technical assessments incurred to facilitate development of new products. The increase in research
and development expenses was also attributable to the net appreciation of international currencies
against the U.S. dollar, which added approximately $7.1 million to our expenses for the year ended
June 30, 2007, as reported in U.S. dollars. As a percentage of net revenue, we expect our future
research and development expense to continue at approximately 7%.
Donations to Foundations.
In the years ended June 30, 2008 and 2007, we donated $2.0 million
and $Nil, respectively, to the ResMed Foundation in the United States. The Foundations’ overall
mission includes the education of both the public and physicians about the inherent dangers of
untreated SDB/OSA, particularly as it relates to cerebrovascular and cardiovascular disease.
Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets for the
year ended June 30, 2008 totaled $7.8 million compared to $6.9 million for the year ended June 30,
2007. The increase in amortization expense is attributable to the appreciation of the Euro against the
U.S. dollar as the majority of the acquired intangible assets are denominated in Euros.
Restructuring Expenses. Restructuring expenses incurred for the year ended June 30, 2008 were
$2.4 million compared to $Nil for the year ended June 30, 2007. Restructuring expenses consisted of
expenses associated with our decision to streamline European management, including the closure of
part of the European headquarters in Basel, Switzerland and two regional offices in the Netherlands.
The restructuring expenses mainly comprise employee termination costs, leasehold improvement
write-downs and property lease exit costs. We will continue to monitor the progress of this restructure
and adjust our business strategies and personnel accordingly to achieve maximum efficiencies and
cost savings.
Other Income (Expense), Net. Other income, net for the year ended June 30, 2008 was $14.9
million, an increase of $7.0 million over the year ended June 30, 2007. This was predominantly due to
higher interest income on additional cash balances and a $5.9 million gain on the sale of our Poway
property. These impacts were partly offset by a $3.2 million impairment write-down of our at cost-
method investments.
- 36 -
Income Taxes. Our effective income tax rate decreased to approximately 30.1% for the year ended
June 30, 2008 from approximately 32.3% for the year ended June 30, 2007. Our effective income tax
rate was impacted by the tax benefit associated with the voluntary product recall expense that was
recognized during the years ended June 30, 2008 and 2007. Excluding the impact of voluntary product
recall expenses, the effective income tax rate was 30.1% and 31.4% for the years ended June 30, 2008
and 2007, respectively. The reduction in the full year effective tax rate is mainly due to factors such as
an increase in the concessional R&D tax claim in Australia and a 10% decrease in the German
corporate tax rate. We continue to benefit from the Australian corporate tax rate of 30% and certain
Australian research and development tax benefits because we generate the majority of our taxable
income in Australia.
Net Income. As a result of the factors above, our net income for the year ended June 30, 2008 was
$110.3 million or $1.40 per diluted share compared to net income of $66.3 million or $0.85 per
diluted share for the year ended June 30, 2007. The net after tax impact of the voluntary product recall
expense of $2.2 million described above resulted in a reduction of diluted earnings per share of $0.03
on an after-tax basis for the year ended June 30, 2008 compared to $41.8 million or $0.53 diluted
earnings per share for the year ended June 30, 2007. Excluding the impact of the voluntary product
recall expenses, diluted earnings per share for the year ended June 30, 2008 was $1.43, an increase of
4% over the year ended June 30, 2007 of $1.38.
Liquidity and Capital Resources
As of June 30, 2009 and June 30, 2008, we had cash and cash equivalents of $415.7 million and
$321.1 million, respectively. Working capital was $584.2 million and $546.6 million at June 30, 2009
and June 30, 2008, respectively. The increase in working capital predominantly reflects the growth
and profitability of the business during the year.
Inventories at June 30, 2009 decreased by $0.9 million or 1% to $157.4 million compared to June 30,
2008 inventories of $158.3 million. The decrease in inventories was lower than the increase of 10% in
net revenues in the year ended June 30, 2009 compared to the year ended June 30, 2008 due to
improved inventory management.
Accounts receivable at June 30, 2009 were $212.1 million, an increase of $19.9 million or 10% over
the June 30, 2008 accounts receivable balance of $192.2 million. The increase was consistent with the
10% incremental increase in net revenues for the year ended June 30, 2009 compared to the year
ended June 30, 2008. Accounts receivable days sales outstanding of 74 days at June 30, 2009
increased by 2 days compared to 72 days at June 30, 2008. Our allowance for doubtful accounts as a
percentage of total accounts receivable at June 30, 2009 and 2008 was 3.4% and 2.5%, respectively.
The credit quality of our customers remains broadly consistent with our past experience.
During the year ended June 30, 2009, we generated cash of $238.9 million from operations.
Movements in foreign currency exchange rates during the year ended June 30, 2009 had the effect of
decreasing our cash and cash equivalents by $36.9 million, as reported in U.S. dollars. During fiscal
years 2009 and 2008, we repurchased 1,826,307 and 2,570,700 shares at a cost of $65.7 million and
$99.5 million, respectively.
Capital expenditures for the years ended June 30, 2009 and 2008 aggregated $109.7 million and $75.8
million, respectively. The capital expenditures for the year ended June 30, 2009 primarily reflected
construction costs related to our new corporate headquarters in San Diego, California, office facilities,
computer hardware and software, rental and loan equipment and purchase of production tooling
equipment and machinery. As a result of these capital expenditures, our balance sheet reflects net
property, plant and equipment of approximately $377.6 million at June 30, 2009 compared to $357.1
million at June 30, 2008. During the year ended June 30, 2009 we completed construction of new
- 37 -
corporate headquarters in San Diego, California. The total cost of the new corporate headquarters was
$99.9 million.
Details of contractual obligations at June 30, 2009 are as follows:
In $000’s
Total
2010
2011
2012
2013
2014
Thereafter
Payments Due by Period
Long-Term Debt
Operating Leases
Purchase
Obligations
Total Contractual
Obligations
$161,736
38,886
$ 67,545
12,538
$ 94,191
9,970
$
-
5,174
$
-
2,658
$
-
2,079
$
-
6,467
88,968
88,926
22
20
-
-
-
$289,590 $169,009
$104,183
$5,194
$2,658
$2,079
$6,467
Details of other commercial commitments at June 30, 2009 are as follows:
In $000’s
Standby Letters of Credit
Other commercial
commitments
Guarantees*
Total Commercial
Commitments
Total
Amounts
Committed
Amount of Commitment Expiration Per Period
2010
2011
2012
2013
2014
Thereafter
$
900
$ 900
$
-
$
-
$-
567
92,735
98
1,335
48
64,851
-
22,761
-
-
$94,202
$2,333
$64,899
$22,761
$-
$-
-
-
$-
$
-
421
3,788
$4,209
*The above guarantees mainly relate to security provided as part of our Syndicated Facility Agreement and requirements under
contractual obligations with insurance companies transacting with our German subsidiaries.
Revolving Facility
On February 27, 2009, ResMed Inc., and our wholly-owned subsidiaries, ResMed Corp., ResMed
EAP Holdings Inc. and ResMed Motor Technologies Inc., entered into a Third Amendment to the
March 1, 2006 Second Amended and Restated Revolving Loan Agreement with Union Bank of
California, N.A.
The loan agreement was amended in order that the revolving commitment at $65 million remain
unchanged as otherwise it would have been reduced to $55 million as of March 1, 2009. The loan
agreement was also amended to revise our obligation to maintain certain financial covenants. The
minimum fixed charge coverage ratio was revised to exclude capital expenditures related to
construction of our new headquarters building. The requirement that ResMed Corp. and ResMed
Motor Technologies Inc. maintain minimum earnings before interest,
taxes, depreciation and
amortization, or EBITDA, was increased to $15 million. Finally, the requirement that we meet certain
minimum liquidity was eliminated.
The entire outstanding principal amount must be repaid in full before March 1, 2011. The outstanding
principal amount due under the loan will bear interest at a rate equal to LIBOR plus 0.75% to 1.00%
(depending on the applicable leverage ratio). At June 30, 2009, there was $64.1 million outstanding
under this loan facility.
Syndicated Facility
On June 8, 2006, our wholly owned Australian subsidiary, ResMed Limited, entered into a Syndicated
Facility Agreement with HSBC Bank Australia Limited as original financier, facility agent and
security trustee, that provides for a loan in three tranches (the “Syndicated Facility Agreement”).
- 38 -
Tranche A is a Euro (“EUR”) 50 million five-year term loan facility that refinanced all amounts
outstanding under a syndicated facility agreement dated May 16, 2005, between ResMed Limited and
HSBC Bank Australia Limited, to fund the obligations of our wholly owned French subsidiary
ResMed SAS under its agreement to acquire Saime SAS. Tranche A bears interest at a rate equal to
LIBOR for deposits denominated in EUR plus a margin of 0.80% or 0.90%, depending on the ratio of
the total debt to EBITDA of ResMed Inc. and its subsidiaries (the “ResMed Group”) for the most
recently completed fiscal year for the applicable interest period. Payments of principal must be made
to reduce the total outstanding principal amount of Tranche A to EUR 27.5 million on June 30, 2009,
EUR 15 million on December 31, 2009, and the entire outstanding principal amount must be repaid in
full on June 8, 2011. At June 30, 2009, the Tranche A facility loan had an amount outstanding of EUR
27.5 million, equivalent to approximately U.S. dollars (“USD”) 38.6 million.
Tranche B is a USD 15 million term loan facility that may only be used for the purpose of financing
capital expenditures and other asset acquisitions by the ResMed Group. Tranche B bears interest at a
rate equal to LIBOR for deposits denominated in EUR, Australian dollars, USD or British Pounds
Sterling plus a margin of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of the
ResMed Group for the most recently completed fiscal year for the applicable interest period. The
entire principal amount must be repaid in full on June 8, 2011. At June 30, 2009, there was USD
9.0 million outstanding under this loan facility.
Tranche C was a USD 60 million term loan facility that could only be used for the purpose of the
payment by ResMed Limited of a dividend to ResMed Holdings Limited, which would ultimately be
paid to ResMed Inc. Tranche C beared interest at a rate equal to LIBOR for deposits denominated in
EUR, Australian dollars or USD plus a margin of 0.70% or 0.80%, depending on the ratio of the total
debt to EBITDA of the ResMed Group for the most recently completed fiscal year for the applicable
interest period. The entire outstanding principal amount had to be repaid in full by June 8, 2009. At
June 30, 2009, there were no amounts outstanding under this loan facility.
Simultaneous with the Syndicated Facility Agreement, ResMed Limited entered into a working
capital agreement with HSBC Bank Australia Limited for revolving, letter of credit and overdraft
facilities up to a total commitment of 6.5 million Australian dollars, and ResMed (UK) Limited
entered into a working capital agreement with HSBC Bank plc for a revolving cash advance facility
for a total commitment of up to 3 million British Pounds Sterling. At June 30, 2009, there were no
amounts outstanding under any of these arrangements.
On September 30, 2008, our wholly-owned Australian subsidiary, ResMed Limited, agreed to amend
and restate the Syndicated Facility Agreement entered into on June 8, 2006. The amended and restated
agreement (“First Amended and Restated Syndicated Facility Agreement”) with the Hong Kong and
Shanghai Banking Corporation, Sydney Branch as financier and HSBC Bank Australia Limited as
facility agent and security trustee, provides for an additional Tranche D term loan facility in the
amount of USD 50 million. The financier has the right to assign part or all of its rights and/or
obligations under the First Amended and Restated Syndicated Facility Agreement to other financial
institutions.
The additional USD 50 million loan facility will be used for general corporate purposes. The
additional loan facility bears interest at a rate equal to LIBOR for deposits denominated in USD, plus
a margin of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of ResMed Inc. and
subsidiaries for the most recently completed fiscal year for the applicable interest period. The entire
principal amount of the additional loan facility must be repaid in full by September 30, 2009. At
June 30, 2009, there was USD 50.0 million outstanding under this loan facility.
We expect to satisfy all of our short-term liquidity requirements through a combination of cash on
hand, cash generated from operations and our $6.9 million in undrawn facilities.
- 39 -
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.
Stock-Based Compensation Costs
We have granted stock options to personnel,
including officers and directors, under our 2006
Incentive Award Plan, as amended (the “2006 Plan”). These options have expiration dates of seven
years from the date of grant and vest over four years. We granted these options with the exercise price
equal to the market value as determined at the date of grant. We have also offered to our personnel,
including officers and directors, the right to purchase shares of our common stock at a discount under
our employee stock purchase plan (“ESPP”).
As of July 1, 2005, we adopted SFAS 123(R) using the modified prospective method, which requires
measurement of compensation expense of all stock-based awards at fair value on the date of grant and
recognition of compensation expense over the service period for awards expected to vest. Under this
method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of
adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption,
determined under the original provisions of SFAS No. 123 shall be recognized in net income in the
periods after adoption. The fair value of stock options is determined using the Black-Scholes
valuation model. Such value is recognized as expense over the service period, using the graded-
attribution method for stock-based awards granted prior to July 1, 2005 and the straight-line method
for stock-based awards granted after July 1, 2005.
The fair value of stock options granted under our stock option plans and purchase rights granted under
our ESPP is estimated on the date of the grant using the Black-Scholes option-pricing model,
assuming no dividends and the following assumptions:
Stock Options:
Weighted average grant date fair value
Weighted average risk-free interest rate
Dividend yield
Expected option life in years
Volatility
ESPP Purchase rights:
Weighted average risk-free interest rate
Dividend yield
Expected option life
Volatility
2009
Years ended June 30
2008
2007
$
10.58
$
12.87
$
14.53
1.9% 2.6-4.6% 4.3-5.1%
-
4.0-4.8
27-28%
-
4.0-5.2
26-30%
-
4.0-4.8
27-38%
1.3% 1.7-5.0% 4.9-5.1%
-
6 months
-
6 months
-
6 months
33-55%
23-33%
30-41%
Expected volatilities are based on a combination of historical volatilities of our stock and the implied
volatilities from tradeable options of our stock corresponding to their expected term. We use a
combination of the historic and implied volatilities as the additional use of the implied volatilities are
more representative of our future stock price trends. The expected life represents the weighted average
period of time that options granted are expected to be outstanding giving consideration to vesting
schedules and our historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant for periods corresponding with the expected life of the option.
- 40 -
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 years 2009, 2008 and 2007. During fiscal years 2009, 2008 and 2007,
our consolidated effective tax rate has fluctuated between approximately 27% and approximately
32%. 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 geographic mix of taxable income 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.
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, deferred tax valuation allowances, contingencies and stock-based compensation
costs.
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 consolidated financial statements:
(1) Allowance for Doubtful Accounts. 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’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.
(2)
Inventory Adjustments. 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.
(3) Valuation of Goodwill, Intangible and Other Long-Lived Assets. We use assumptions in
establishing the carrying value, fair value and estimated lives of our goodwill, intangibles and other
long-lived assets. The criteria used for these evaluations include management’s estimate of the asset’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
- 41 -
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’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.
(4) Valuation of Deferred Income Taxes. 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.
(5) Provision for Warranty. 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.
(6) Revenue Recognition. 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 recognize revenues to the extent that we 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
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.
to revenue.
the
(7) Stock-Based Compensation.
compensation of all stock-based awards at fair value on date of grant. Such value is recognized as
compensation expense over the service period, net of estimated forfeitures. We estimate the fair value
In accordance with SFAS No.123(R), we measure
- 42 -
of employee stock options using a Black-Scholes valuation model. The fair value of an award is
affected by our stock price on the date of grant as well as other assumptions including the estimated
volatility of our stock price over the term of the awards and the estimated period of time that we
expect employees to hold their stock options. The risk-free interest rate assumption we use is based
upon U.S. Treasury yield curve appropriate for the expected life of the awards. Expected volatilities
are based on a combination of historical volatilities of our stock and the implied volatilities from
tradeable options of our stock corresponding to the expected term of the options. We use a
combination of the historic and implied volatilities as the addition of the implied volatility is more
representative of our future stock price trends. In order to determine the estimated period of time that
we expect employees to hold their stock options, we have used historical rates by employee groups.
The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual
results differ from our estimates, such amounts will be recorded as a cumulative adjustment in the
period estimates are revised. The aforementioned inputs entered into the option valuation model we
use to fair value our stock awards are subjective estimates and changes to these estimates will cause
the fair value of our stock awards and related stock-based compensation expense we record to vary.
Income Tax. We have adopted the provisions of Financial Accounting Standards Board (FASB)
(8)
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB
Statement No. 109” (“FIN 48”) on July 1, 2007. In accordance with FIN 48 we assess our income tax
positions and record tax benefits for all years subject to examination based upon management’s
evaluation of the facts, circumstances, and information available at the reporting date. For those tax
positions where it is more likely than not that a tax benefit will be sustained, we have recorded the
largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all relevant information. For those
income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax
benefit has been recognized in the financial statements
Recently Issued Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS
No. 165 provides rules on recognition and disclosure for events and transactions occurring after the
balance sheet date but before the financial statements are issued or available to be issued. In addition,
SFAS No. 165 requires a reporting entity to disclose the date through which subsequent events have
been evaluated, as well as whether that date is the date the financial statements are issued or the date
the financial statements are available to be issued. SFAS No. 165 is effective for interim and annual
periods ending after June 15, 2009. We have adopted SFAS No. 165 and have included the required
additional disclosures.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities – an Amendment of FASB Statement 133” (“SFAS No. 161”). SFAS No. 161
requires disclosure of how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for and how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cashflows. SFAS No. 161 is effective
for fiscal years and interim periods within those years, beginning after November 15, 2008. We do not
believe the adoption of this standard will have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (“SFAS
No. 141(R)”). Under the requirements of SFAS No. 141(R), the acquiring entity will be required to
recognise all assets and liabilities acquired in a transaction at their acquisition date fair value. SFAS
No. 141(R) will also change the accounting treatment for specific transactions such as the recognition
of contingent
the recognition of capitalized in-process research and development,
restructuring costs, the treatment of acquisition related transaction costs and changes in the income
liabilities,
- 43 -
tax valuation allowances. SFAS No. 141(R) is effective for business combinations for which the
acquisition date is on or after July 1, 2009, with early adoption prohibited. The impact on our
consolidated financial statements of SFAS No. 141(R), will depend on whether we engage in such
activity, and also upon the nature, terms and size of the acquisitions we may consummate after the
effective date.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated
Financial Statements – An amendment of ARB No.51” (“SFAS No. 160”). SFAS No. 160 outlines the
accounting and reporting requirements for non-controlling interests in consolidated financial
statements such as recognizing non-controlling interests as a component of consolidated stockholder’s
equity separate from the parent equity and net income attributable to non-controlling interests be
identified and shown separately on the face of the consolidated income statement. SFAS No. 160 also
revises the accounting for increases and decreases in a parent’s controlling interest. SFAS No. 160 is
effective for fiscal years and interim periods within those years, beginning after December 15, 2008,
with early adoption prohibited. We do not believe the adoption of this standard will have a material
impact on our financial statements.
In June 2007, the FASB ratified EITF No. 07-3, “Accounting for Nonrefundable Advanced Payments
for Goods or Services received for Use in Future Research and Development Activities” (“EITF
No. 07-3”). EITF No. 07-3 requires that non-refundable advance payments for goods and services that
will be used or rendered for future research and development activities should be deferred and
capitalized. These amounts should be expensed as the related goods are delivered or the related
services are performed. EITF No. 07-3 is effective for fiscal years beginning after December 15,
2007. We have adopted this standard and it did not have a material impact on our financial statements.
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”), which allows entities to account for most financial instruments at
fair value rather than under other applicable generally accepted accounting principles (GAAP), such
as historical cost. The accounting results in the instrument being marked to fair value every reporting
period with the gain or loss from a change in fair value recorded in the income statement. SFAS 159
is effective for financial statements issued for fiscal years beginning after November 15, 2007. Based
upon our analysis and implementation of SFAS 159 as it relates to our balance sheet accounts, we did
not elect the fair value option permitted in SFAS 159 for any of our eligible financial assets or
liabilities. Therefore, SFAS 159 did not have any impact on our financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”),
which defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective
for financial statements issued for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. We have adopted this standard on July 1, 2008 and all related staff
positions. The adoption did not have a material impact on our financial statements.
Off-Balance Sheet Arrangements
As of June 30, 2009, we are not involved in any off-balance sheet arrangements, as defined in Item
303(a)(4)(ii) of Regulation S-K promulgated by the SEC.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET AND BUSINESS RISKS
Foreign Currency Market Risk
Our reporting currency is the U.S. dollar, although the financial statements of our non-U.S.
subsidiaries are maintained in their respective local currencies. We transact business in various
- 44 -
foreign currencies, including a number of major European currencies as well as the Australian dollar.
We have significant foreign currency exposure through both our Australian manufacturing activities
and international sales operations.
We have established a foreign currency hedging program using purchased currency options to hedge
foreign-currency-denominated financial assets, liabilities and manufacturing expenditures. The goal
of this hedging program is to economically guarantee or lock-in the exchange rates on our foreign
currency exposures denominated in Euro’s and the Australian dollar. Under this program, increases or
decreases in our foreign-currency-denominated financial assets, liabilities, and firm commitments are
partially offset by gains and losses on the hedging instruments. We have determined our hedge
program to be a non-effective hedge as defined under SFAS No. 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.
The table below provides information about our foreign currency derivative financial instruments and
presents the information in U.S. dollar equivalents. The table summarizes information on instruments
and transactions that are sensitive to foreign currency exchange rates, including foreign currency call
options held at June 30, 2009. The table presents the notional amounts and weighted average
exchange rates by contractual maturity dates for our foreign currency derivative financial instruments.
These notional amounts generally are used to calculate payments to be exchanged under the options
contracts.
(In thousands except
exchange rates)
FY 2010
FY 2011
Total
Foreign Exchange Call Options
(Receive AUD$/Pay U.S.$)
Option amount
Average contractual exchange rate AUD $1 = USD 0.8236 AUD $1 = USD 0.7986 AUD $1 = USD 0.8141
$127,500
$80,000
$47,500
Fair Value
Assets /
(Liabilities)
As of
June 30
2009
2008
$5,903 $4,493
(Receive AUD$/Pay GBP$)
Option amount
Average contractual exchange rate AUD $1 = GBP 0.5120
$2,469
$-
$2,469
$18
$381
AUD $1 = GBP $- AUD $1 = GBP 0.5120
(Receive AUD$/Pay Euro)
Option amount
Average contractual exchange rate AUD $1 = Euro 0.5739 AUD $1 = Euro 0.5479 AUD $1 = Euro 0.5618
$33,686
$28,072
$61,758
$1,894 $143
- 45 -
The table below provides information (in U.S. dollars) on our foreign-currency-denominated financial
assets by legal entity functional currency as of June 30, 2009 (in thousands):
Australian
Dollar
(AUD)
US
Dollar
(USD)
Euro
(EUR)
Great
Britain
Pound
(GBP)
Canadian
Dollar
(CAD)
Singapore
Dollar
(SGD)
New
Zealand
Dollar
(NZD)
Swedish
Krona
(SEK)
Swiss
Franc
(CHF)
Norwegian
Kroner
(NOK)
-
-
-
6,074
-
6,074
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$495
(2)
$ 424
(186)
$1,092
(71)
$ 133
(19)
$(263)
(61)
493
238
1,021
114
(324)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(633)
(633)
-
(890)
(890)
-
-
-
411
167
-
-
411
167
-
-
-
-
-
-
-
-
-
-
(13)
(13)
-
(79)
(79)
-
-
-
178
-
178
-
-
-
AUD Functional
Currency Entities:
Assets
Liability
Net Total
USD Functional
Currency Entities:
Assets
Liability
Net Total
EURO Functional
Currency Entities:
Assets
Liability
Net Total
GBP Functional
Currency Entities:
Assets
Liability
Net Total
CHF Functional
Currency Entities:
Assets
Liability
Net Total
SGD Functional
Currency Entities:
Assets
Liability
Net Total
INR Functional
Currency Entities:
Assets
Liability
Net Total
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$ 93,825 $ 74,702 $ 4,623
(164)
(78,413)
(46,466)
15,412
28,236
4,459
-
-
-
1
(89)
(88)
-
-
-
-
-
-
-
-
-
-
(1,597)
(1,597)
571
11,262
-
(10,571)
571
691
225
(1)
224
-
(56)
(56)
-
-
-
-
(3)
(3)
789
(1)
162
8,828
3,774
(1,590)
(15,798)
-
(1,428)
(6,970)
3,774
788
-
-
-
-
-
(890)
(169)
(890)
(169)
-
-
-
- 46 -
Interest Rate Risk
We are exposed to risk associated with changes in interest rates affecting the return on our cash and
cash equivalents and debt. At June 30, 2009, we had total long-term debt, including the current
portion of those obligations, of $161.7 million. All of this debt is subject to variable interest rates. A
hypothetical 10% change in interest rates during the year ended June 30, 2009, would not have a
material impact on pretax income. We have no interest rate hedging agreements.
Credit Market Risk
At June 30, 2009, our investment securities of $4.3 million were held in Aaa rated auction securities
with various maturities between July 2039 and November 2047. These investments had regular roll-
over or auction dates at which time the interest rates were re-set or the investments were redeemed for
cash. During the year ended June 30, 2009, there were no auctions with respect to these investments
due to the current liquidity issues surrounding the domestic and global capital markets. We continue
to earn interest on these investments in accordance with the contract until the next auction occurs.
During November 2008, we accepted an offer from UBS Financial Services Inc. (“UBS”) that gave us
a contractual right to sell our investment securities back to UBS at full par value after June 29, 2010.
However, in the event we need to access the funds invested in these auction rate securities prior to
June 29, 2010 we may not be able to liquidate these securities at the par value. Therefore given the
current market liquidity conditions and our intention to hold these investments until the rights under
the UBS offer can be exercised on June 29, 2010 we have reclassified these securities from current to
non-current assets. We also believe the current lack of liquidity of these investments is temporary and
have therefore recorded the excess of the carrying value of $0.7 million over the fair value to
accumulated other comprehensive income within stockholders’ equity.
Additionally, based on our ability to access our cash and cash equivalents, expected operating cash
flows, and other sources of cash, we do not anticipate the current
lack of liquidity on these
investments will affect our ability to operate the business in the ordinary course.
ITEM 8
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to the financial statements
set forth in Item 15 of Part IV of this report, “Exhibits and Consolidated Financial Statement
Schedules.”
a)
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2009 and 2008
Consolidated Statements of Income for the years ended June 30, 2009, 2008 and 2007
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the
F1
F2
F3
years ended June 30, 2009, 2008 and 2007
F4
Consolidated Statements of Cash Flows for the years ended June 30, 2009, 2008 and 2007 F5
Notes to Consolidated Financial Statements
F6
Schedule II – Valuation and Qualifying Accounts and Reserves
- 47 -
b)
Supplementary Data
Quarterly Financial Information (unaudited)—The quarterly results for the years ended
June 30, 2009 and 2008 are summarized below (in thousands, except per share amounts):
2009
Net revenues
Gross profit
Net income/(loss)
First
Quarter
$217,931
127,127
28,027
Second
Quarter
$222,980
131,024
33,853
Third
Quarter
$227,865
138,943
39,198
Fourth
Quarter
$251,959
156,708
45,370
Basic earnings per share
Diluted earnings per share
$
$
0.37
0.36
$
$
0.45
0.44
$
$
0.52
0.51
$
$
0.60
0.59
Fiscal
Year
$920,735
553,802
146,448
$
$
1.94
1.90
2008
Net revenues
Gross profit
Net income/(loss)
First
Quarter
$185,740
111,777
24,125
Second
Quarter
$202,679
121,331
26,861
Third
Quarter
$211,827
126,558
29,684
Fourth
Quarter
$235,151
134,084
29,633
Fiscal
Year
$835,397
493,750
110,303
Basic earnings per share
Diluted earnings per share
$
$
0.31
0.30
$
$
0.35
0.34
$
$
0.38
0.38
$
$
0.38
0.38
$
$
1.43
1.40
Note: Per share amounts for each quarter are computed independently, and, due to the computation
formula, the sum of the four quarters may not equal the year.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required
to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and forms and that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required
In designing and evaluating the disclosure controls and procedures, management
disclosure.
recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures as of
June 30, 2009. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective at the reasonable assurance level
as of June 30, 2009.
There has been no change in our internal controls over financial reporting during our most recent
fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
- 48 -
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the
United States of America. The Company’s internal control over financial reporting includes those
policies and procedures that:
(i)
(ii)
(iii)
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of
the Company are being made only in accordance with
authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as
of June 30, 2009. Management based this assessment on criteria for effective internal control over
financial reporting described in “Internal Control – Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an
evaluation of the design of ResMed Inc.’s internal control over financial reporting and testing of the
operational effectiveness of its internal control over financial reporting. Management reviewed the
results of its assessment with the Audit Committee of our Board of Directors.
Based on our assessment and those criteria, management has concluded that the Company did
maintain effective internal control over financial reporting as of June 30, 2009.
independent registered public accounting firm, who audited and reported on the
KPMG LLP,
consolidated financial statements of ResMed, Inc. included in this report, has issued an attestation
report on the effectiveness of internal control over financial reporting.
- 49 -
RESMED INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
ResMed Inc.:
We have audited ResMed Inc.’s internal control over financial reporting as of June 30, 2009, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). ResMed Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
In our opinion, ResMed Inc. maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2009, based on criteria established in Internal Control – Integrated Framework issued by
COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of ResMed Inc. and subsidiaries as of June 30, 2009 and 2008,
and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash
flows for each of the years in the three-year period ended June 30, 2009, and the related financial statement
schedule, and our report dated August 20, 2009 expressed an unqualified opinion on those consolidated financial
statements and financial statement schedule.
/s/ KPMG LLP
San Diego, California
August 20, 2009
ITEM 9B OTHER INFORMATION
None.
- 50 -
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Information required by this Item is herein incorporated by reference from our definitive Proxy
Statement for our November 18, 2009, Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2009.
The Company has filed, as exhibits to this Annual Report on Form 10-K for the year ended June 30,
2009, the certifications of its Chief Executive Officer and Chief Financial Officer required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
On December 8, 2008 the Company submitted to the New York Stock Exchange the Annual CEO
Certification required pursuant to Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual.
ITEM 11 EXECUTIVE COMPENSATION
Information required by this Item is herein incorporated by reference from our definitive Proxy
Statement for our November 18, 2009, Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2009.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is herein incorporated by reference from our definitive Proxy
Statement for our November 18, 2009, Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2009.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is herein incorporated by reference from our definitive Proxy
Statement for our November 18, 2009, Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2009.
ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is herein incorporated by reference from our definitive Proxy
Statement for our November 18, 2009, Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2009.
- 51 -
PART IV
ITEM 15 EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(a)
(b)
3.1
3.2
3.3
4.1
10.1*
10.2*
10.3
10.5
10.6
10.7
10.8*
10.9
Consolidated Financial Statements and Schedule – The consolidated financial statements
and schedule of the Company and its consolidated subsidiaries are set forth in the “Index
to Consolidated Financial Statements” under Item 8 of this report.
Exhibit Lists
First Restated Certificate of Incorporation of Registrant, as amended (15)
Third Restated By-laws of Registrant (12)
Fourth Amended and Restated Bylaws of ResMed Inc. (17)
Form of certificate evidencing shares of Common Stock (1)
1995 Stock Option Plan (1)
1997 Equity Participation Plan (3)
Licensing Agreement between the University of Sydney and ResMed Ltd dated May 17,
1991, as amended (1)
Loan Agreement between the Australian Trade Commission and ResMed Ltd dated
May 3, 1994 (1)
Lease for 10121 Carroll Canyon Road, San Diego CA 92131-1109, USA (4)
Sale and Leaseback Agreements for 97 Waterloo Rd, North Ryde, Australia (5)
Employment Agreement dated May 14, 2002, between Servo Magnetics Inc. and Leslie
Hoffman (6)
Agreement for the purchase of Lot 6001, Norwest Business Park, Baulkham Hills,
Australia (6)
10.10*
2003 Employee Stock Purchase Plan (7)
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Loan Agreement between ResMed Limited and HSBC Bank Australia Limited (11)
Securities Sale Agreement Financiere Ace S.A.S. dated as of May 4, 2005 (11)
First Amended and Restated Loan Agreement, dated as of November 1, 2005, by and
among ResMed Corp., ResMed EAP Holdings Inc. and Union Bank of California, N.A. (8)
Security Agreement, dated as of November 1, 2005, by and between ResMed EAP
Holdings Inc. and Union Bank of California, N.A. (8)
Continuing Guaranty, dated as of November 1, 2005, by and between ResMed Corp. and
ResMed EAP Holdings Inc and Union Bank of California, N.A. (8)
Commercial Promissory Note, dated as of November 1, 2005, made by ResMed Corp.
and ResMed EAP Holdings Inc. (8)
Commercial Promissory Note, dated as of November 1, 2005, made by ResMed Corp.
and ResMed EAP Holdings Inc. (8)
- 52 -
10.18
10.19
10.20
10.21
10.22
10.23
Second Amended and Restated Revolving Loan Agreement, dated as of March 13, 2006,
among ResMed Corp., Motor Technologies Inc., ResMed EAP Holdings Inc. and Union
Bank of California, N.A. (9)
Syndicated Facility Agreement, dated as of June 8, 2006, by and between ResMed
Limited and HSBC Bank Australia Limited (10)
Deed of Guarantee and Indemnity, dated as of June 8, 2006, by and among HSBC Bank
Australia Limited, ResMed Limited, ResMed SAS, ResMed GmbH & Co. KG, ResMed
(UK) Limited and Take Air Medical Handels-GmbH (10)
Deed of Guarantee and Indemnity, dated as of June 8, 2006, by and among HSBC Bank
Australia Limited, ResMed Inc., ResMed Corp. and ResMed Limited (10)
Working Capital Agreement, dated as of June 8, 2006, by and among ResMed (UK)
Limited and HSBC Bank plc (10)
Working Capital Agreement, dated as of June 8, 2006, by and among ResMed Limited
and HSBC Bank Australia Limited (10)
10.24*
ResMed Inc. 2006 Incentive Award Plan (16)
10.25*
Amendment No. 1 to the ResMed Inc. 2006 Incentive Award Plan (13)
10.26*
2006 Grant agreement for Board of Directors (13)
10.27*
2006 Grant agreement for Executive Officers (15)
10.28*
2006 Grant agreement for Australian Executive Officers (15)
10.29*
Form of Executive Agreement (14)
10.30
10.31
10.32
10.33
10.34
10.35
Second Amendment to Second Amended and Restated Revolving Loan Agreement dated
January 28, 2008 (18)
Lease Agreement between ResMed Corp. and Poway Danielson, LP (19)
First Amended and Restated Syndicated Facility Agreement dated September 30, 2008 (20)
Amendment and Restatement Agreement, dated as of September 30, 2008, by and
between ResMed Limited; The Hong Kong and Shanghai Banking Corporation, Sydney
Branch; and HSBC Bank Australia Limited (20)
US Guarantee Consent Deed, dated as of September 17, 2008, by and among HSBC Bank
Australia Limited, ResMed Inc., ResMed Corp. and ResMed Limited (20)
International Guarantee Consent Deed, dated as of September 30,2008, by and among
HSBC Bank Australia Limited, ResMed Limited, ResMed SAS, ResMed GmbH & Co.
KG, ResMed (UK) Limited and Take Air Medical Handels-GmbH (20)
10.36*
Amended and Restated 2006 Incentive Award Plan dated November 20, 2008 (21)
10.37
10.38
10.39
10.40
10.41
Departure of Directors or Certain Officers dated December 12, 2008 (22)
Third Amendment to the March 1, 2006 Second Amended and Restated Revolving Loan
Agreement (23)
Approval of new share repurchase program dated May 29, 2009 (24)
Form of Indemnification Agreements for our directors and officers (25)
Form of Access Agreement for directors (26)
10.42*
Updated Form of Executive Agreement (9)
21.1
Subsidiaries of the Registrant (9)
- 53 -
23.1
31.1
31.2
32.1
Independent Registered Public Accounting Firm’s Consent and Report on Schedule (9)
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of
2002 (9)
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of
2002 (9)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (9)
* Management contract or compensatory plan or arrangement
(1) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (No. 33-91094) declared effective on
June 1, 1995.
(2) Incorporated by reference to the Registrant’s Registration Statement on Form 8-A12G filed on April 25, 1997.
(3) Incorporated by reference to the Registrant’s 1997 Proxy Statement.
(4) Incorporated by reference to the Registrant’s Report on Form 10-K dated June 30, 1998.
(5) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2001.
(6) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2002.
(7) Incorporated by reference to the Registrant’s 2007 Definitive Proxy Statement dated October 13, 2007.
(8) Incorporated by reference to the Registrant’s Form 8-K dated November 8, 2005.
(9) Filed herewith.
(10) Incorporated by reference to the Registrant’s Form 8-K dated June 8, 2006.
(11) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2005.
(12) Incorporated by reference to the Registrant’s Report on Form 8-K dated February 23, 2007.
(13) Incorporated by reference to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006.
(14) Incorporated by reference to the Registrant’s Report on Form 8-K dated July 9, 2007.
(15) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2007
(16) Incorporated by reference to the Registrant’s Report on Form 8-K dated November 9, 2006.
(17) Incorporated by reference to the Registrant’s Report on Form 8-K filed on December 14, 2007
(18) Incorporated by reference to the Registrant’s Report on Form 8-K filed on February 6, 2008.
(19) Incorporated by reference to the Registrant’s Report on Form 8-K filed on March 27, 2008.
(20) Incorporated by reference to the Registrant’s Definitive Proxy Statement filed October 6, 2008.
(21) Incorporated by reference to the Registrant’s Definitive Proxy Statement filed October 15, 2008.
(22) Incorporated by reference to the Registrant’s Report on Form 8-K filed on December 15, 2008.
(23) Incorporated by reference to the Registrant’s Report on Form 8-K filed on March 5, 2009.
(24) Incorporated by reference to the Registrant’s Report on Form 8-K filed on June 4, 2009.
(25) Incorporated by reference to the Registrant’s Report on Form 8-K filed on June 24, 2009.
- 54 -
RESMED INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
ResMed Inc.:
We have audited the accompanying consolidated balance sheets of ResMed Inc. and subsidiaries as of June 30,
2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive
income, and cash flows for each of the years in the three-year period ended June 30, 2009. In connection with our
audits of the consolidated financial statements, we also have audited financial statement schedule II. These
consolidated financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting 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, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the three-year period ended June 30, 2009, in conformity
with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), ResMed Inc.’s internal control over financial reporting as of June 30, 2009, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated August 20, 2009, expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
San Diego, California
August 20, 2009
F1
RESMED INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2009 and 2008
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $7,381 and $4,935 at June 30, 2009 and
2008, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net (note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $208,119 and $208,446 at June 30,
2009 and 2008, respectively (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangibles, net (note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Securities (note 4 and 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2009
June 30,
2008
$ 415,650
$ 321,078
212,096
157,431
44,368
2,067
21,672
192,200
158,251
31,355
17,115
19,241
853,284
739,240
377,613
213,169
35,023
19,364
5,261
4,254
357,057
234,647
46,771
16,162
7,508
4,615
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
654,684
666,760
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,507,968
$1,406,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses (notes 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt (note 10)
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities:
Deferred income taxes (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
48,293
67,018
28,881
56,972
391
67,545
56,308
61,338
26,133
3,799
1,150
43,865
269,100
192,593
11,137
15,238
94,191
3,110
18,333
15,673
93,789
3,837
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123,676
131,632
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
392,776
324,225
Commitments and contingencies (notes 17 and 18)
Stockholders’ equity: (note 12)
Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $0.004 par value, 200,000,000 shares authorized; issued and outstanding 75,251,209 at
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2009 and 75,975,031 at June 30, 2008
-
-
-
-
(excluding 6,701,925 and 4,875,618 shares held as Treasury stock respectively) . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
303
522,980
694,791
(208,659)
105,777
304
468,346
548,343
(142,987)
207,769
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,115,192
1,081,775
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,507,968
$1,406,000
See accompanying notes to consolidated financial statements.
F2
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended June 30, 2009, 2008 and 2007
(In thousands, except per share data)
Net revenues
Cost of sales
Voluntary product recall expenses (note 20)
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Donations to research foundations
Amortization of acquired intangible assets
Restructuring expenses (note 11)
Total operating expenses
Income from operations
Other income (expenses):
Interest income (expense), net
Other, net (note 13)
Total other income (expenses), net
Income before income taxes
Income taxes (note 14)
Net income
Basic earnings per share
Diluted earnings per share (note 2-j)
Basic shares outstanding
Diluted shares outstanding
June 30,
2009
June 30,
2008
June 30,
2007
$920,735
366,933
-
$835,397
338,544
3,103
$716,332
272,140
59,700
553,802
493,750
384,492
289,875
63,056
3,500
7,060
-
278,087
60,524
2,000
7,791
2,378
237,326
50,106
-
6,897
-
363,491
350,780
294,329
190,311
142,970
90,163
10,205
1,168
10,058
4,827
11,373
14,885
6,477
1,333
7,810
201,684
55,236
157,855
47,552
97,973
31,671
$146,448
$110,303
$ 66,302
$
$
1.94
1.90
$
$
1.43
1.40
$
$
0.86
0.85
75,629
77,113
77,378
78,712
76,709
78,253
See accompanying notes to consolidated financial statements.
F3
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years ended June 30, 2009, 2008 and 2007
(In thousands)
Balance, June 30, 2006
Common stock issued on exercise of
options (note 12)
Common stock issued on employee
stock purchase plan (note 12)
Treasury stock purchases
Tax benefit from exercise of options
FAS123(R) stock-based
compensation costs
Comprehensive income:
Net income
Other comprehensive income:
Foreign currency translation
adjustments
Comprehensive income
Balance, June 30, 2007
Common stock issued on exercise of
options (note 12)
Common stock issued on employee
stock purchase plan (note 12)
Treasury stock purchases
Tax benefit from exercise of options
FAS123(R) stock-based
compensation costs
Comprehensive income:
Net income
Cumulative adjustment on
implementation of FIN 48
Other comprehensive income:
Foreign currency translation
adjustments
Unrealised temporary impairment
on available-for-sale securities
Comprehensive income
Balance, June 30, 2008
Common stock issued on exercise of
options (note 12)
Common stock issued on employee
stock purchase plan (note 12)
Treasury stock purchases
Tax benefit from exercise of options
FAS123(R) stock-based
compensation costs
Comprehensive income:
Net income
Other comprehensive income:
Foreign currency translation
adjustments
Unrealised temporary impairment
on available-for-sale securities
Comprehensive income
Common Stock
Shares Amount
Additional
Paid-in
Capital
Treasury Stock Retained
Shares Amount
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Comprehensive
Income
78,026
$303
$353,464 (2,255) $ (41,405) $370,652
$ 55,134
$ 738,148
1,747
148
7
1
32,672
5,388
12,682
17,495
(50)
(2,092)
32,679
5,389
(2,092)
12,682
17,495
66,302
66,302
66,302
60,619
60,619
60,619
$ 126,921
79,921
$311
$421,701 (2,305) $ (43,497) $436,954
$ 115,753
$ 931,222
787
143
3
16,294
1
(11)
5,546
4,058
20,747
(2,571)
(99,490)
16,297
5,547
(99,501)
4,058
20,747
110,303
1,086
110,303
110,303
1,086
92,401
92,401
92,401
(385)
(385)
(385)
$ 202,319
80,851
$304
$468,346 (4,876) $(142,987) $548,343
$ 207,769
$1,081,775
924
178
4
1
(6)
20,289
4,733
4,051
25,561
(1,826)
(65,672)
20,293
4,734
(65,678)
4,051
25,561
146,448
146,448
146,448
(101,631)
(101,631)
(101,631)
(361)
(361)
(361)
$ 44,456
Balance, June 30, 2009
81,953
$303
$522,980 (6,702) $(208,659) $694,791
$ 105,777
$1,115,192
See accompanying notes to consolidated financial statements.
F4
RESMED INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2009, 2008 and 2007
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Voluntary product recall expenses
Depreciation and amortization
Provision for warranties
Deferred income taxes
Foreign currency options revaluation
Amortization of deferred borrowing costs
Stock-based compensation costs
Tax benefit from stock options exercised
Gain on sale and leaseback of real property
Write-down of cost-method investments
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Accounts payable, accrued expenses, income taxes and other liabilities
June 30,
2009
June 30,
2008
June 30,
2007
$ 146,448
$110,303
$ 66,302
-
53,405
2,219
(26,658)
16,829
558
25,515
(3,870)
-
1,306
(32,897)
(16,141)
20,916
51,247
3,103
59,320
(1,125)
8,883
(4,029)
165
20,741
(3,813)
(5,917)
3,250
(16,083)
9,605
10,642
(57,209)
59,700
47,948
1,542
(18,900)
(1,091)
193
17,505
(12,398)
-
-
(25,612)
(30,467)
(12,035)
(1,581)
Net cash provided by operating activities
238,877
137,836
91,106
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Capitalized interest
Purchases of investment securities
Proceeds from sale of maturing investment securities
Patent registration costs
Proceeds from disposal of business assets and contracts
Business acquisitions
Purchases of cost-method investments
Purchases of foreign currency contracts
Proceeds from exercise of foreign currency contracts
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net
Repayment of borrowings
Proceeds from borrowings, net of borrowing costs
Tax benefit from stock option exercises
Purchases of treasury stock
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds
Interest paid, net of capitalized interest
Fair value of assets acquired in acquisitions
Goodwill on acquisition
Acquisition costs accrued
Cash paid for acquisition, including acquisition costs
(109,692)
1,763
(1,610)
-
-
(4,528)
3,005
(2,394)
(2,267)
(2,439)
8,863
(75,779)
24,711
(1,233)
(6,500)
21,450
(5,639)
2,542
(856)
-
(2,049)
5,500
(77,556)
-
(412)
(21,950)
2,000
(3,965)
-
(1,912)
-
(1,622)
-
(109,299)
(37,853)
(105,417)
24,892
(38,435)
80,137
3,870
(68,593)
21,627
(36,640)
44,000
3,813
(96,557)
38,260
(20,060)
9,590
12,398
(2,092)
1,871
(63,757)
38,096
(36,877)
27,060
14,463
94,572
321,078
63,286
257,792
38,248
219,544
$ 415,650
$321,078
$ 257,792
$ 16,926
5,016
$ 42,151
5,520
$ 65,643
5,426
$
$
698
1,923
(227)
$
-
856
-
-
1,588
324
$
2,394
$
856
$
1,912
See accompanying notes to consolidated financial statements.
F5
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Basis of Presentation
ResMed Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a Delaware corporation formed
in March 1994 as a holding company for the ResMed Group. Through our subsidiaries, we design,
manufacture and market equipment for the diagnosis and treatment of sleep-disordered breathing and other
respiratory disorders, including obstructive sleep apnea. Our manufacturing operations are located in
Australia, Singapore, France and the United States. Major distribution and sales sites are located in the
United States, Germany, France, the United Kingdom, Switzerland, Australia, Norway and Sweden.
(2) Summary of Significant Accounting Policies
(a) Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant
inter-company transactions and balances have been eliminated in
consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Actual results could differ from
management’s estimates.
(b) Revenue Recognition
Revenue on product sales is generally recorded upon shipment, at which time title and risk of loss
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 shipping and handling related expenses
are charged to cost of sales. Taxes assessed by government authorities that are imposed on and
concurrent with revenue-producing transactions, such as sales and value added taxes, are reported on a
net basis (excluded from revenue).
We do not recognize revenues to the extent that we 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
recognize revenues if 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. 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 include certificates of deposit and other highly liquid investments and are stated at
cost, which approximates market. Investments with original maturities of 360 days or less are
considered to be cash equivalents for purposes of the consolidated statements of cash flows.
F6
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(d)
Inventories
Inventories are stated at the lower of cost, determined principally by the first-in, first-out method, or
net realizable value. Finished goods and work-in-process inventories include material, labor and
manufacturing overhead costs. 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 and
leasehold improvements which are amortized over the lease term. Maintenance and repairs are charged
to expense as incurred.
We capitalize interest in connection with the construction of facilities. Actual construction costs
incurred relating to facilities under active development qualify for interest capitalization. Interest
capitalization ceases when the construction of a facility is complete and available for use. During the
years ended June 30, 2009, 2008 and 2007, we capitalized $1.6 million, $1.2 million and $0.4 million,
respectively, of interest relating to such construction costs.
(f)
Intangible Assets
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 or product retirement, the
unamortized costs are written off immediately.
Other intangible assets are amortized on a straight-line basis over their estimated useful lives, which
range from three to nine years. We evaluate the recoverability of intangible assets periodically and take
into account events or circumstances that warrant revised estimates of useful lives or that indicate that
impairment exists. All of our intangible assets are subject to amortization. No impairment of intangible
assets has been identified during any of the periods presented.
(g) Goodwill
We conducted our annual review for goodwill impairment during the final quarter of fiscal 2009. 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 estimated discounted cash flows. Our goodwill
impairment review involved a two-step process as follows:
Step 1- 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’s
fair value, move on to step 2. If a reporting unit’s fair value exceeds the carrying value, no
further work is performed and no impairment charge is necessary.
Step 2- 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’s goodwill with the carrying amount of
the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill is
greater than the implied fair value of its goodwill, an impairment loss must be recognized for
the excess.
F7
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
The results of the review indicated that as part of Step 1 no impaired goodwill exists.
(h) Foreign Currency
The consolidated financial statements of our non–U.S. subsidiaries, whose functional currencies are
other than U.S. dollars, are translated into U.S. dollars for financial reporting purposes. Assets and
liabilities of non–U.S. subsidiaries whose functional currencies are other than the U.S. dollar are
translated at period end exchange rates, and revenue and expense transactions are translated at average
the period. Cumulative translation adjustments are recognized as part of
exchange rates for
comprehensive income, as detailed in Note 6, and are included in accumulated other comprehensive
income in the consolidated balance sheets until such time as the subsidiary is sold or substantially or
completely liquidated. Gains and losses on transactions denominated in other than the functional
currency of the entity are reflected in operations.
(i) Research and Development
All research and development costs are expensed in the period incurred.
(j) Earnings per Share
We calculate earnings per share in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 128, “Earnings per Share” (“SFAS 128”), as amended by SFAS No. 123(R), “Share
Based Payments” (“SFAS 123(R)”). SFAS 128 requires the presentation of “basic” earnings per share
and “diluted” earnings per share. Basic earnings per share is computed by dividing the net income
available to common stockholders by the weighted average number of shares of common stock
outstanding. For purposes of calculating diluted earnings per share the denominator includes both the
weighted average number of shares of common stock outstanding and the number of dilutive common
stock equivalents such as stock options.
The weighted average shares used to calculate basic earnings per share were 75,629,000, 77,378,000
and 76,709,000 for the years ended June 30, 2009, 2008 and 2007, 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 1,484,000,
1,334,000 and 1,544,000 for the years ended June 30, 2009, 2008 and 2007, respectively.
Stock options totaling 7,502,000, 4,944,000 and 3,164,000 for the years ended June 30, 2009, 2008 and
2007, respectively, were not included in the computation of diluted earnings per share as the effect of
exercising these options would have been anti-dilutive.
F8
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
Basic and diluted earnings per share for the years ended June 30, 2009, 2008 and 2007 are calculated as
follows (in thousands except per share data):
Numerator:
Net income
2009
2008
2007
$146,448
$110,303
$66,302
Net income, used in calculating diluted earnings per share
$146,448
$110,303
$66,302
Denominator:
Basic weighted-average common shares outstanding
Effect of dilutive securities:
Stock options
Diluted potential common shares
Diluted weighted average shares
Basic earnings per share
Diluted earnings per share
(k) Financial Instruments
75,629
77,378
76,709
1,484
1,484
1,334
1,334
1,544
1,544
77,113
78,712
78,253
$
$
1.94
1.90
$
$
1.43
1.40
$
$
0.86
0.85
The carrying value of financial instruments, such as cash and cash equivalents, accounts receivable and
accounts payable, approximate their fair value because of their short-term nature. The carrying value of
long-term debt approximates the fair value as the principal amounts outstanding are subject to variable
interest rates that are based on market rates which are regularly reset. 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 in our consolidated statements of income.
F9
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
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, 2009 and June 30, 2008 was
$7.8 million and $5.0 million, respectively, which represents the positive fair value of options held by
us.
We held foreign currency option contracts with notional amounts totaling $191.7 million and $180.6
million at June 30, 2009 and 2008, respectively, to hedge foreign currency items. These contracts
mature at various dates before June 2011.
(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)
Investment 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, 2009 and 2008, the investments in debt securities were classified on the accompanying
consolidated balance sheets as investment securities-available-for-sale.
(o) Warranty
Estimated future warranty costs related to certain products are charged to operations in the period in
which the related revenue is recognized. The liability for warranty costs are included in accrued
expenses in our consolidated balance sheets.
Changes in the liability for product warranty for the year ended June 30, 2009 are as follows (in
thousands):
Balance at July 1, 2008
Warranty accruals for the year ended June 30, 2009
Warranty costs incurred for the year ended June 30, 2009
Foreign currency translation adjustments
Balance at June 30, 2009
F10
$ 6,863
10,957
(8,738)
(787)
$ 8,295
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
(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 exceeds 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, 2009 and June 30, 2008
was $2.2 million and $1.4 million, respectively. We review the carrying value of these investments at
each balance sheet date. In fiscal 2009 and 2008, we recognized $1.3 million and $3.2 million,
respectively, of impairment losses related to our cost-method investments, which include investments
in privately held service companies, research companies and public companies. The expense associated
with this impairment has been included in the other income (expense) line within the consolidated
statements of income. These were based on the determination that the impairments were other-than
temporary. We have determined, subsequent to the impairment charge, that the fair value of our
remaining investments exceed their carrying values.
(r) Stock-based Employee Compensation
We have granted stock options to personnel, including officers and directors, under our 2006 Incentive
Award Plan, as amended (the “2006 Plan”) and the Amended and Restated ResMed Inc. 2006 Incentive
Award Plan (the “2006 Amended Plan”). These options have expiration dates of seven years from the
date of grant and vest over four years. We granted these options with the exercise price equal to the
market value as determined at the date of grant. We have also offered to our personnel, including
officers and directors, the right to purchase shares of our common stock at a discount under our
employee stock purchase plan (“ESPP”).
In accordance with SFAS 123(R) we use the modified prospective method, which requires
measurement of compensation expense of all stock-based awards at fair value on the date of grant and
recognition of compensation expense over the service period for awards expected to vest. Under this
method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of
adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption,
determined under the original provisions of SFAS No. 123 shall be recognized in net income in the
periods after adoption. The fair value of stock options is determined using the Black-Scholes valuation
model. Such value is recognized as expense over the service period, using the graded-attribution
method for stock-based awards granted prior to July 1, 2005 and the straight-line method for stock-
based awards granted after July 1, 2005.
F11
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
The fair value of stock options granted under our stock option plans and purchase rights granted under our
ESPP is estimated on the date of the grant using the Black-Scholes valuation model, assuming no dividends
and the following assumptions:
Stock Options:
Weighted average grant date fair value
Weighted average risk-free interest rate
Dividend yield
Expected option life in years
Volatility
ESPP Purchase rights:
Weighted average risk-free interest rate
Dividend yield
Expected option life
Volatility
2009
Years ended June 30
2008
2007
$
10.58
$
12.87
$
1.9% 2.6-4.6%
-
4.0-4.8
27-38%
-
4.0 - 4.8
27-28%
14.53
4.3-5.1%
-
4.0-5.2
26-30%
1.3% 1.7-5.0%
4.9-5.1%
-
6 months
-
6 months
-
6 months
33-55%
23-33%
30-41%
Expected volatilities are based on a combination of historical volatilities of our stock and the implied
volatilities from tradeable options of our stock corresponding to the expected term of the options. We use a
combination of the historic and implied volatilities as the addition of the implied volatility is more
representative of our future stock price trends. While there is a tradeable market of options on our common
stock less emphasis is placed on the implied volatility of these options due to the relative low volumes of
these traded options and the difference in the terms compared to our employee options. The expected life
represents the weighted average period of time that options granted are expected to be outstanding giving
consideration to vesting schedules and our historical exercise patterns. The risk-free rate is based on the
U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of
the option.
(s) Reclassifications
Certain prior period amounts have been reclassified to conform with the current period classification.
(3) New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which
defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. In February 2008, the FASB issued FASB Staff Position 157-2, Effective Date of FASB
Statement 157 (“FSP 157-2”), which delays the effective date of FAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those items which are recognized or disclosed at fair value in the financial
statements on a recurring basis. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3
“Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active” (“FAS
157-3”), which clarifies the application of SFAS 157 in a market that is not active. FAS 157-3 was effective
upon issue, including prior periods for which financial statements have not been issued. We have adopted
this standard on July 1, 2008 and all related staff positions. The adoption did not have a material impact on
our financial statements.
F12
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) New Accounting Pronouncements, Continued
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS 159”), which allows entities to account for most financial instruments at fair value
rather than under other applicable generally accepted accounting principles (GAAP), such as historical cost.
The accounting results in the instrument being marked to fair value every reporting period with the gain or
loss from a change in fair value recorded in the income statement. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. Based upon our analysis and
implementation of SFAS 159 as it relates to our balance sheet accounts, we did not elect the fair value
option permitted in SFAS 159 for any of our eligible financial assets or liabilities. Therefore, SFAS 159 did
not have any impact on our financial statements.
In June 2007, the FASB ratified EITF No. 07-3, “Accounting for Nonrefundable Advanced Payments for
Goods or Services received for Use in Future Research and Development Activities” (“EITF No. 07-3”).
EITF No. 07-3 requires that non-refundable advance payments for goods and services that will be used or
rendered for future research and development activities should be deferred and capitalized. These amounts
should be expensed as the related goods are delivered or the related services are performed. EITF No. 07-3
is effective for fiscal years beginning after December 15, 2007. We have adopted this standard and it did not
have a material impact on our financial statements.
In December 2007,
the FASB issued SFAS No. 141 (revised), “Business Combinations” (“SFAS
No. 141(R)”). Under the requirements of SFAS No. 141(R), the acquiring entity will be required to
recognize all assets and liabilities acquired in a transaction at their acquisition date fair value. SFAS
No. 141(R) will also change the accounting treatment for specific transactions such as the recognition of
contingent liabilities, the recognition of capitalized in-process research and development, restructuring
costs, the treatment of acquisition related transaction costs and changes in the income tax valuation
allowances. SFAS No. 141(R) is effective for business combinations for which the acquisition date is on or
after July 1, 2009, with early adoption prohibited. The impact on our consolidated financial statements of
SFAS No. 141(R), will depend on whether we engage in such activity, and also upon the nature, terms and
size of the acquisitions we may consummate after the effective date.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial
Statements – An amendment of ARB No.51” (“SFAS No. 160”). SFAS No. 160 outlines the accounting and
reporting requirements for non-controlling interests in consolidated financial statements such as recognizing
non-controlling interests as a component of consolidated stockholder’s equity separate from the parent
equity and net income attributable to non-controlling interests be identified and shown separately on the
face of the consolidated income statement. SFAS No. 160 also revises the accounting for increases and
decreases in a parent’s controlling interest. SFAS No. 160 is effective for fiscal years and interim periods
within those years, beginning after December 15, 2008, with early adoption prohibited. We do not believe
the adoption of this standard will have a material impact on our financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities – an Amendment of FASB Statement 133” (“SFAS No. 161”). SFAS No. 161 requires disclosure
of how and why an entity uses derivative instruments, how derivative instruments and related hedged items
are accounted for and how derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years and interim
periods within those years, beginning after November 15, 2008. We do not believe the adoption of this
standard will have a material impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165
provides rules on recognition and disclosure for events and transactions occurring after the balance sheet
date but before the financial statements are issued or available to be issued. In addition, SFAS No. 165
F13
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) New Accounting Pronouncements, Continued
requires a reporting entity to disclose the date through which subsequent events have been evaluated, as well
as whether that date is the date the financial statements are issued or the date the financial statements are
available to be issued. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009.
We have adopted SFAS No. 165 and have included the required additional disclosures in Note 21,
“Subsequent Events.”
(4)
Investment Securities
The estimated fair value of investment securities as of June 30, 2009 and June 30, 2008 are $4.3 million and
$4.6 million, respectively. These investments are diversified among high credit quality investment grade
securities in accordance with our investment policy. Expected maturities may differ from contractual
maturities because the issuers of the securities may have the right to prepay obligations without prepayment
penalties.
At June 30, 2009, our investment securities of $4.3 million were held in Aaa rated auction securities with
various maturities between July 2039 and November 2047. These investments had regular roll-over or
auction dates at which time the interest rates were re-set or the investments were redeemed for cash. During
the year ended June 30, 2009, there were no auctions with respect to these investments due to the current
liquidity issues surrounding the domestic and global capital markets. We continue to earn interest on these
investments in accordance with the contract until the next auction occurs. During November 2008, we
accepted an offer from UBS that gave us a right to sell our investment securities back to UBS at full par
value after June 29, 2010. However, in the event we need to access the funds invested in these auction rate
securities prior to June 29, 2010 we may not be able to liquidate these securities at the par value. Therefore
given the current market liquidity conditions and our intention to hold these investments until the rights
under the UBS offer can be exercised after June 29, 2010 we have reclassified these securities from current
to non-current assets. We also believe the current lack of liquidity of these investments is temporary and
have therefore recorded the excess of the carrying value over the fair value to comprehensive income within
stockholders’ equity. Additionally, based on our ability to access our cash and cash equivalents, expected
operating cash flows, and other sources of cash, we do not anticipate the current lack of liquidity on these
investments will affect our ability to operate the business in the ordinary course.
(5)
Inventories
Inventories, net were comprised of the following as of June 30, 2009 and 2008 (in thousands):
Raw materials
Work in progress
Finished goods
2009
2008
$ 53,392
2,500
101,539
$ 58,768
2,165
97,318
$157,431
$158,251
F14
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Comprehensive Income
The components of comprehensive income, net of tax, were as follows (in thousands):
Net income
Foreign currency translation (losses)/gains
Unrealised loss on investment securities
Comprehensive income
2009
2008
$ 146,448
$110,303
(101,631) $ 92,401
(385)
(361)
$ 44,456
$202,319
We do not provide for U.S. income taxes on foreign currency translation adjustments since we do not
provide for such taxes on undistributed earnings of foreign subsidiaries.
(7) Property, Plant and Equipment
Property, plant and equipment is comprised of the following as of June 30, 2009 and 2008 (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
2009
2008
$ 88,146
90,243
33,297
2,661
63,227
19,404
56,224
232,530
-
$ 83,543
85,856
36,126
3,099
64,506
22,609
63,615
169,076
37,073
585,732
(208,119)
565,503
(208,446)
$ 377,613
$ 357,057
(8) Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the year ended June 30, 2009, were as follows:
(In thousands)
Balance at July 1, 2008
Foreign currency translation adjustments
Business acquisition
Disposal of business assets and contracts
Balance at June 30, 2009
F15
2009
$234,647
(22,623)
1,923
(778)
$213,169
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Goodwill and Other Intangible Assets, Continued
Patents and other intangibles is comprised of the following as of June 30, 2009 and June 30, 2008:
(In thousands)
Developed/core product technology
Accumulated amortization
June 30,
2009
June 30,
2008
$ 34,388
(20,215)
$ 38,607
(17,181)
Developed/core product technology, net of accumulated amortization
14,173
21,426
Trade names
Accumulated amortization
Trade names, net of accumulated amortization
Customer relationships
Accumulated amortization
Customer relationships, net of accumulated amortization
Patents
Accumulated amortization
Patents, net of accumulated amortization
2,200
(1,103)
2,049
(912)
1,097
1,137
15,560
(7,363)
19,205
(7,341)
8,197
11,864
31,830
(20,274)
31,626
(19,282)
11,556
12,344
Patents and other intangibles, net of accumulated amortization
$ 35,023
$ 46,771
Intangible assets consist of patents, customer relationships,
trade names and developed/core product
technology and are amortized over the estimated useful life of the assets, generally between three and nine
years. There are no expected residual values related to these intangible assets.
Amortization expense related to identifiable intangible assets, including patents, for the year ended June 30,
2009 was $10.7 million. Estimated annual amortization expense for the years ending June 30, 2009 through
June 30, 2014, is shown below (in thousands):
Fiscal Year
2010
2011
2012
2013
2014
Amortization expense
$11,069
10,464
8,979
2,861
543
F16
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Accrued Expenses
Accrued expenses at June 30, 2009 and 2008 consist of the following (in thousands):
Product warranties
Consulting and professional fees
Value added taxes and other taxes due
Employee related costs
Marketing and promotional programs
Customer advance
Voluntary product recall (Note 19)
Other
(10) Long-term Debt
Long-term debt at June 30, 2009 and 2008 consists of the following (in thousands):
Long-term loan
Capital lease
Current portion of long-term debt
Long-term loan
Capital lease
Non-current portion of long-term debt
Revolving Facility
2009
2008
$ 8,295
5,352
8,075
37,530
2,009
1,210
-
4,547
$ 6,863
3,638
7,707
32,405
4,160
1,358
1,028
4,179
$67,018
$61,338
2009
2008
$67,545
-
$43,775
90
$67,545
$43,865
$94,191
-
$93,314
475
$94,191
$93,789
On February 27, 2009, ResMed Inc., and our wholly-owned subsidiaries, ResMed Corp., ResMed EAP
Holdings Inc. and ResMed Motor Technologies Inc., entered into a Third Amendment to the March 1, 2006
Second Amended and Restated Revolving Loan Agreement with Union Bank of California, N.A.
The loan agreement was amended in order that the revolving commitment at $65 million remain unchanged
as otherwise it would have been reduced to $55 million as of March 1, 2009. The entire outstanding
principal amount must be repaid in full before March 1, 2011. The outstanding principal amount due under
the loan will bear interest at a rate equal to LIBOR plus 0.75% to 1.00% (depending on the applicable
leverage ratio). At June 30, 2009, there was $64.1 million outstanding under this loan facility.
The obligations of ResMed Corp., ResMed Motor Technologies Inc. and ResMed EAP Holdings Inc. under
the Loan Agreement are secured by substantially all of the personal property of each of ResMed Corp.,
ResMed Motor Technologies Inc. and ResMed EAP Holdings Inc., and are guaranteed by ResMed Inc.
under an Amended and Restated Continuing Guaranty and Pledge Agreement, which guaranty is secured by
a pledge of the equity interests in ResMed Corp., ResMed Motor Technologies Inc. and ResMed EAP
Holdings Inc. held by ResMed Inc. The Loan Agreement also contains customary covenants, including
F17
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Long-term Debt, Continued
certain financial covenants and an obligation that ResMed Inc. maintain certain financial ratios, including a
maximum ratio of total debt to EBITDA (as defined in the Loan Agreement), a fixed charge coverage ratio,
a minimum tangible net worth, and a minimum ResMed Corp., ResMed Motor Technologies Inc. and
ResMed EAP Holdings Inc. EBITDA.
In the third amendment, the loan agreement was also amended for specific provisions related to these
obligations to maintain certain financial covenants. The minimum fixed charge coverage ratio was revised
to exclude capital expenditures related to construction of our new headquarters building. The requirement
that ResMed Corp. and ResMed Motor Technologies Inc. maintain minimum earnings before interest, taxes,
depreciation and amortization, or EBITDA, was increased to $15 million. Finally, the requirement that we
meet certain minimum liquidity was eliminated.
The entire principal amount of the revolving loan and any accrued but unpaid interest may be declared
immediately due and payable in the event of the occurrence of an event of default as defined in the Loan
Agreement. Events of default
include, among other items, failure to make payments when due, the
occurrence of a material default in the performance of any covenants in the Loan Agreement or related
document or a 35% or more change in control of ResMed Inc., ResMed Corp., ResMed Motor Technologies
Inc. or ResMed EAP Holdings Inc. At June 30, 2009, we were in compliance with our debt covenants.
Syndicated Facility
On June 8, 2006, our wholly owned Australian subsidiary, ResMed Limited, entered into a Syndicated
Facility Agreement with HSBC Bank Australia Limited as original financier, facility agent and security
trustee, that provides for a loan in three tranches (the “Syndicated Facility Agreement”).
Tranche A is a Euro (“EUR”) 50 million five-year term loan facility that refinanced all amounts outstanding
under a syndicated facility agreement dated May 16, 2005, between ResMed Limited and HSBC Bank
Australia Limited, to fund the obligations of our wholly owned French subsidiary ResMed SAS under its
to LIBOR for deposits
agreement
denominated in EUR plus a margin of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA
of ResMed Inc. and its subsidiaries (the “ResMed Group”) for the most recently completed fiscal year for
the applicable interest period.
to acquire Saime SAS. Tranche A bears interest at a rate equal
Payments of principal must be made to reduce the total outstanding principal amount of Tranche A to EUR
27.5 million on June 30, 2009, EUR 15 million on December 31, 2009, and the entire outstanding principal
amount must be repaid in full on June 8, 2011. At June 30, 2009, the Tranche A facility loan had an amount
outstanding of EUR 27.5 million, equivalent to approximately U.S. dollars (“USD”) 38.6 million.
Tranche B is a USD 15 million term loan facility that may only be used for the purpose of financing capital
expenditures and other asset acquisitions by the ResMed Group. Tranche B bears interest at a rate equal to
LIBOR for deposits denominated in EUR, Australian dollars, USD or British Pounds Sterling plus a margin
of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of the ResMed Group for the most
recently completed fiscal year for the applicable interest period. The entire principal amount must be repaid
in full on June 8, 2011. At June 30, 2009 there was $9.0 million outstanding under this loan facility.
Tranche C was a USD 60 million term loan facility that could only be used for the purpose of the payment
by ResMed Limited of a dividend to ResMed Holdings Limited, which would ultimately be paid to ResMed
Inc. Tranche C bears interest at a rate equal to LIBOR for deposits denominated in EUR, Australian dollars
or USD plus a margin of 0.70% or 0.80%, depending on the ratio of the total debt to EBITDA of the
F18
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Long-term Debt, Continued
ResMed Group for the most recently completed fiscal year for the applicable interest period. The entire
outstanding principal amount had to be repaid in full by June 8, 2009. At June 30, 2009, there were no
amounts outstanding under this loan facility.
Simultaneous with the Syndicated Facility Agreement, ResMed Limited entered into a working capital
agreement with HSBC Bank Australia Limited for revolving, letter of credit and overdraft facilities up to a
total commitment of 6.5 million Australian dollars, and ResMed (UK) Limited entered into a working
capital agreement with HSBC Bank plc for a revolving cash advance facility for a total commitment of up to
3 million British Pounds Sterling. At June 30, 2009, there were no amounts outstanding under any of these
arrangements.
First Amended and Restated Syndicated Facility Agreement
On September 30, 2008, our wholly-owned Australian subsidiary, ResMed Limited, agreed to amend and
restate the Syndicated Facility Agreement entered into on June 8, 2006. The amended and restated
agreement (“First Amended and Restated Syndicated Facility Agreement”) with the Hong Kong and
Shanghai Banking Corporation, Sydney Branch as financier and HSBC Bank Australia Limited as facility
agent and security trustee, provides for an additional Tranche D term loan facility in the amount of USD
50 million. The financier has the right to assign part or all of its rights and/or obligations under the First
Amended and Restated Syndicated Facility Agreement to other financial institutions.
The additional USD 50 million loan facility will be used for general corporate purposes. The additional loan
facility bears interest at a rate equal to LIBOR for deposits denominated in US dollars, plus a margin of
0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of ResMed Inc. and subsidiaries for the
most recently completed fiscal year for the applicable interest period. The entire principal amount of the
additional loan facility must be repaid in full by September 30, 2009. At June 30, 2009 there was USD 50.0
million outstanding under this loan facility.
The loan facility is secured by a pledge of one hundred percent of the shares of ResMed Inc.’s subsidiary,
Saime SAS, pursuant to a pledge agreement. The Syndicated Facility Agreement also contains customary
covenants, including certain financial covenants and an obligation that ResMed Limited maintains certain
financial ratios, including a minimum debt service cover ratio, a maximum ratio of total debt to EBITDA
and a minimum tangible net worth. The entire principal amount of the loan and any accrued, but unpaid,
interest may be declared immediately due and payable in the event of the occurrence of an event of default
as defined in the Syndicated Facility Agreement. Events of default include, among other items, failure to
make payments when due, breaches of representations, warranties or covenants, the occurrence of certain
insolvency events, the occurrence of an event or change which could have a material adverse effect on
ResMed Limited and its subsidiaries, and if ResMed Inc. ceases to control ResMed Limited, ResMed Corp.,
ResMed SAS, ResMed GmbH & Co. KG, ResMed (UK) Limited, Take Air Medical Handels-GmbH or
Saime SAS.
F19
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Long-term Debt, Continued
The obligations of ResMed Limited under the loan facility are subject to two guarantee and indemnity
agreements, one on behalf of ResMed Inc. and its U.S. subsidiary, ResMed Corp., and another on behalf of
ResMed’s international subsidiaries, ResMed SAS (other than Tranche C), ResMed GmbH & Co. KG,
ResMed (UK) Limited and Take Air Medical Handels-GmbH. At June 30, 2009, we were in compliance
with our debt covenants.
Details of contractual debt maturities at June 30, 2009 are as follows (in thousands):
Total
2010
Payments Due by Period
2013
2012
2011
Thereafter
Long-Term Debt
$161,736
$67,545
$94,191
$-
$-
$-
(11) Restructuring Expenses
Restructuring expenses incurred during the year ended June 30, 2009 were $Nil compared to $2.4 million
and $Nil incurred during the years ended June 30, 2008 and June 30, 2007, respectively. Restructuring
expenses consisted predominantly of expenses associated with the Company’s decision to streamline
European management including the closure of part of the European headquarters in Basel, Switzerland and
two regional offices in the Netherlands. The restructuring expenses mainly comprises employee termination
costs, leasehold improvement write-downs and property lease exit costs. Following is a summary of the
restructuring liabilities that were recorded during the years ended June 30, 2007, June 30, 2008 and June 30,
2009 (in thousands):
Balance at June 30, 2006
Restructuring expenses
Cash payments
Foreign currency translation
Balance at June 30, 2007
Restructuring expenses
Cash payments
Foreign currency translation
Balance at June 30, 2008
Restructuring expenses
Cash payments
Foreign currency translation
Balance at June 30, 2009
Accrued
employee
costs
Other
accrued
costs
Total
accrued
costs
$ 38
-
(8)
2
$
$
100
-
(87)
3
138
-
(95)
5
$ 32
$
16
$
48
976
(915)
4
1,402
(1,386)
66
2,378
(2,301)
70
$ 97
$
98
$
195
-
(97)
-
-
(98)
-
-
(195)
-
$
-
$
-
$
-
(12) Stockholders’ Equity
Common Stock. On May 27, 2009, our Board of Directors approved a new share repurchase program,
authorizing us to acquire up to an aggregate of 10.0 million shares of ResMed Inc. common stock. The
program allows us to repurchase shares of our common stock from time to time for cash in the open market,
or in negotiated or block transactions, as market and business conditions warrant.
F20
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stockholders’ Equity, Continued
This program cancels and replaces our previous share repurchase program previously authorized on June 6,
2002 for 8.0 million shares. The new program authorizes us to purchase in addition to the shares we
repurchased under our previous program. There is no expiration date for this program. All share repurchases
after May 29, 2009 will be executed in accordance with this program
During fiscal years 2009 and 2008, the Company repurchased 1,826,307 and 2,570,700 shares at a cost of
$65.7 million and $99.5 million, respectively. Of the shares repurchased during fiscal year 2009, 1,747,289
were repurchased under our previous program and 79,018 were repurchased under our new program. As of
June 30, 2009, we have repurchased a total of 6.7 million shares at a cost of $208.7 million. 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.
Preferred Stock.
preferred stock. No such shares were issued or outstanding at June 30, 2009.
In April 1997, the Board of Directors authorized 2,000,000 shares of $0.01 par value
Stock Purchase Rights.
In April 1997, the Company implemented a plan to protect stockholders’ rights
in the event of a proposed takeover of the Company. Under the plan, each share of the Company’s
outstanding common stock carries one right to purchase Series A Junior Participating Preferred Stock (the
“Right”). The Right enables the holder, under certain circumstances, to purchase common stock of the
Company or of the acquiring person at a substantially discounted price ten days after a person or group
publicly announces it has acquired or has tendered an offer for 20% or more of the Company’s outstanding
common stock. The plan and its accompanying Rights expired pursuant to their terms in April 2007 and the
Rights are no longer outstanding.
Stock Options. We have granted stock options to personnel,
in
accordance with the 2006 Plan and the 2006 Amended Plan, which was approved at the annual meeting of
the stockholders of RedMed Inc. on November 20, 2008. These options have expiration dates of seven years
from the date of grant and vest over four years. We have granted these options with an exercise price equal
to the market value as determined at the date of grant.
including officers and directors,
The maximum number of shares of our common stock authorized for issuance under the 2006 Amended
Plan is 9,900,000, an increase from 7,800,000 shares formerly authorized for issuance under the 2006 Plan.
The number of securities remaining available for future issuance under the 2006 Amended Plan at June 30,
2009 is 3,380,475. The number of shares of our common stock available for issuance under the 2006
Amended Plan will be reduced by (i) two and four tenths (2.4) shares, an increase from two and one tenth
(2.1) shares, for each one share of common stock delivered in settlement of any “full-value award,” which is
any award other than a stock option, stock appreciation right or other award for which the holder pays the
intrinsic value and (ii) one share for each share of common stock delivered in settlement of all other awards.
The maximum number of shares, which may be subject to awards granted under the 2006 Amended Plan to
any individual during any calendar year, may not exceed 1,500,000 shares of our common stock, an increase
from 1,000,000 shares under the 2006 Plan.
At June 30, 2009, there was $50.0 million in unrecognized compensation costs related to unvested stock
options. This is expected to be recognized over a weighted average period of 2.6 years. The aggregate
intrinsic value of the options outstanding and the options exercisable at June 30, 2009 was $78.6 million and
F21
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stockholders’ Equity, Continued
$56.3 million, respectively. The aggregate intrinsic value of the options exercised during the years ended
June 30, 2009, 2008 and 2007 was $17.8 million, $18.7 million and $48.3 million, respectively. The
following table summarizes option activity during the year ended June 30, 2009:
Weighted
Average
Exercise
Price
2008
Weighted
Average
Exercise
Price
2007
Weighted
Average
Exercise
Price
2009
9,683,816 $34.69
31.81
2,490,950
21.96
(923,964)
42.09
(451,500)
10,799,302 $34.82
8,406,483 $31.43
42.34
2,469,650
20.72
(786,523)
41.70
(405,794)
9,683,816 $34.69
8,102,892 $24.26
46.38
2,353,650
18.70
(1,747,330)
31.98
(302,729)
8,406,483 $31.43
Outstanding at beginning
of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercise price range of
granted options
$31.04-$43.35
$38.63-$51.31
$40.25-$52.58
Options exercisable at end
of year
5,453,047 $31.61
4,884,485 $26.76
4,001,157 $21.69
The following table summarizes information about stock options outstanding at June 30, 2009.
Range of
Exercise Prices
Number Outstanding
at June 30, 2009
Weighted Average
Remaining
Contractual
Life In Years
Number
Exercisable at
June 30, 2009
Weighted Average
Remaining
Contractual
Life In Years
$ 0 - $10
$11 - $20
$21 - $30
$31 - $40
$41 - $50
$51 - $60
10,200
1,173,185
1,479,803
3,929,539
4,191,575
15,000
10,799,302
0.08
3.21
4.04
6.33
4.93
4.74
5.13
10,200
1,173,185
1,479,803
1,163,814
1,617,670
8,375
5,453,047
0.08
3.21
4.04
6.13
4.71
4.65
4.50
Employee Stock Purchase Plan (“ESPP”). 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’ 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. On August 21, 2006, the Board of Directors
approved a reduction in the number of shares available for grant under the ESPP to 500,000 shares, effective
as of November 9, 2006, the date of the shareholder approval of the 2006 Plan. The number of securities
remaining available for future issuance under the ESPP at June 30, 2009 is 102,000.
During fiscal year 2009, we issued 178,000 shares to our employees in two offerings and we recognized
$2.0 million of stock compensation expense associated with the ESPP.
F22
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Other, net
Other, net in the consolidated statements of income is comprised of the following for the years ended
June 30, 2009, 2008 and 2007 (in thousands):
Gain on foreign currency transactions and hedging
Gain on sale of real property
Gain on sale of plant and equipment
Impairment of cost method investments
Gain/(loss) on sale of business assets and contracts
Other
2009
2008
2007
$ 2,388
-
163
(1,306)
(176)
99
$ 1,121
5,917
365
(3,250)
230
444
$1,203
-
291
-
-
(161)
$ 1,168
$ 4,827
$1,333
(14) Income Taxes
Income before income taxes for the years ended June 30, 2009, 2008 and 2007, was taxed under the
following jurisdictions (in thousands):
U.S.
Non-U.S.
The provision for income taxes is presented below (in thousands):
Current:
Federal
State
Non-U.S.
Deferred:
Federal
State
Non-U.S.
Provision for income taxes
2009
2008
2007
$ (13,755) $ 31,783
126,072
215,439
$21,219
76,754
$201,684
$157,855
$97,973
2009
2008
2007
$ 4,129
1,386
76,379
$11,077
994
26,598
$ 5,973
984
43,614
81,894
38,669
50,571
(10,277)
(765)
(15,616)
(2,379)
(143)
11,405
(977)
(225)
(17,698)
(26,658)
8,883
(18,900)
$ 55,236
$47,552
$ 31,671
F23
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Taxes, Continued
The provision for income taxes differs from the amount of income tax determined by applying the
applicable U.S. federal income tax rate of 35% (35% for 2008 and 34% for 2007) to pretax income as a
result of the following (in thousands):
Taxes computed at statutory U.S. rate
Increase (decrease) in income taxes resulting from:
State income taxes, net of U.S. tax benefit
Non-deductible expenses
Research and development credit
Tax effect of dividends
Change in valuation allowance
Effect of non-U.S. tax rates
Foreign tax credits
Stock-based compensation expense
Other
2009
2008
2007
$ 70,590
$55,249
$33,311
346
748
(4,916)
55,575
(9,435)
(17,559)
(43,271)
2,488
670
1,578
910
(5,646)
2,346
1,474
(7,493)
(2,230)
627
737
982
874
(4,092)
1,438
1,580
(2,425)
(1,907)
1,692
218
$ 55,236
$47,552
$31,671
F24
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Taxes, Continued
Deferred tax assets and liabilities are classified as current or non-current according to the classification of
the related asset or liability. The components of the Company’s deferred tax assets and liabilities at June 30,
2009 and 2008 are as follows (in thousands):
2009
2008
$ 4,460
-
3,857
2,181
1,689
2,479
2,355
1,597
290
26,638
17,515
860
1,240
3,277
$ 4,930
397
2,003
1,658
1,041
3,632
10,693
2,626
1,061
23,693
11,985
-
-
2,994
68,438
66,713
(4,706)
(14,513)
$ 63,732
$ 52,200
-
-
(11,528)
-
(6,319)
(662)
(15,433)
(1,752)
(11,528)
(24,166)
$ 52,204
$ 28,034
Deferred tax assets:
Employee benefit obligations
Voluntary product recall accrual
Inventories
Provision for warranties
Provision for doubtful debts
Net operating loss carryforwards
Foreign tax credits
Patent costs
Capital loss carryover
Intercompany profit in inventories
Stock-based compensation expense
Unrealized foreign exchange losses
Property, plant and equipment
Other
Less valuation allowance
Deferred tax assets
Deferred tax liabilities:
Unrealized foreign exchange gains
Property, plant and equipment
Goodwill and other intangibles
Other
Deferred tax liabilities
Net deferred tax asset
F25
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Taxes, Continued
The net deferred tax assets and liabilities have been reported in the consolidated balance sheets at June 30,
2009 and 2008 as follows (in thousands):
Current deferred tax asset
Non-current deferred tax asset
Current deferred tax liability
Non-current deferred tax liability
Net deferred tax asset
2009
2008
$ 44,368
19,364
(391)
(11,137)
$ 31,355
16,162
(1,150)
(18,333)
$ 52,204
$ 28,034
As of June 30, 2009, the Company had $13,498,000 of non-U.S. net operating loss carryforwards, which
expire in various years through 2025 or carry forward indefinitely. The Company also has foreign tax credit
carryforwards of $2,355,000. The foreign tax credit carryforwards have expiration dates through 2018.
The valuation allowance at June 30, 2009, relates to a provision for uncertainty as to the utilization of
foreign tax credits of $2,355,000, net operating loss carryforwards for certain non-U.S. countries of
$1,849,000, capital loss items of $483,000 and other deferred tax assets of $19,000. We believe that it is
more likely than not that the benefits of deferred tax assets, net of any valuation allowance, will be realized.
The Company has not provided for U.S. income and foreign withholding taxes on undistributed earnings
from non-U.S. subsidiaries indefinitely invested outside the United States as of June 30, 2009. The total
amount of these undistributed earnings at June 30, 2009 amounted to approximately $635 million. Should
the Company repatriate foreign earnings, the Company would have to adjust the income tax provision in the
period management determined that the Company would repatriate earnings.
We follow the principles of FIN No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of
FASB Statement No. 109” and FSP FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48”
(“FIN 48”), which clarify the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement
of a tax position taken, or expected to be taken in a tax return. FIN 48 requires recognition of tax benefits
that satisfy a greater than 50% probability threshold and also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
A reconciliation of the amount of unrecognized tax benefits from July 1, 2008 to June 30, 2009 is as follows
(in thousands):
Gross UTB balance at July 1, 2008
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Reductions due to lapse of applicable statute of limitations
Gross UTB balance at June 30, 2009
$ 4,108
1,033
(67)
-
(1,714)
$ 3,360
Included in the balance at June 30, 2009, are tax positions of $1.5 million that, if recognized, would affect
the Company’s effective tax rate. Also included in the balance is $1.9 million of temporary differences, for
which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such
F26
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Income Taxes, Continued
deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the
disallowance of the shorter deductibility period would not affect the annual effective tax rate but would
accelerate the payment of cash to the taxing authority to an earlier period.
For fiscal year ending June 30, 2009, the Company recognized a benefit of $0.1 million ($0.1 million, net of
tax benefit) of interest and penalties related to uncertain tax positions in income tax expense. As of June 30,
2009, the Company has accrued approximately $1.0 million ($0.6 million net of tax benefit) for interest and
penalties related to uncertain tax positions.
We file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and in many
state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examination for tax
years prior to fiscal year 2005, and no longer subject to state income tax examinations for the tax years prior
to fiscal year 2004. With few exceptions, including the German tax assessment discussed in Note 18, we are
no longer subject to foreign income tax examinations for fiscal years before 2002.
Within the next 12 months, we anticipate a potential decrease of approximately $1.1 million in the
unrecognized tax benefit relating to the timing of certain amortization deductions due to a statute of
limitation expiration. This will not have an impact on the effective tax rate other than the potential reduction
in accrued interest as any change will be offset by a similar adjustment to our deferred tax balances. We do
not anticipate any other significant changes within the next 12 months.
(15) Employee Retirement Plans
The Company contributes to a number of employee retirement plans for the benefit of its employees. Details
of the main plans are 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. The Company contributes to the
plans at the rate of 9% of the salaries of all Australian employees. Total Company contributions to the plans
for the years ended June 30, 2009, 2008 and 2007, were $4,186,000, $5,907,000 and $4,798,000,
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 plan at the rate of 5% of the salaries of all United Kingdom employees. Total Company
contributions to the plan were $164,000, $273,000 and $243,000 in fiscal 2009, 2008 and 2007,
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 the employee’s salary. Total Company contributions to the plan were
$1,756,000, $1,259,000 and $760,000 in fiscal 2009, 2008 and 2007, respectively.
(4) Switzerland - The Company sponsors a fixed return defined contribution fund for each permanent Swiss
employee. As part of the Company’s contribution to the fund, the Company guarantees a fixed 3% net return
on accumulated contributions per annum. The Company contributes to the plan at variable rates that have
averaged 10% of salaries over the last three years. Total Company contributions to the plan were $375,000,
$343,000 and $259,000 in fiscal 2009, 2008 and 2007, respectively.
F27
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Segment Information
The Company operates solely in the sleep-disordered breathing sector of the respiratory medicine industry.
The Company therefore believes that, given the single market focus of its operations and the inter-
dependence of its products, 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, 2009, 2008 and 2007, is summarized below (in thousands):
U.S.A
Germany
Australia
France
Rest of
World
Total
2009
Revenue from external customers
$493,402
132,220
21,037
106,343
167,733
$920,735
Long lived assets
$142,387
20,434
212,343
4,357
7,607
$387,128
2008
Revenue from external customers
$409,646
132,218
22,783
100,740
170,010
$835,397
Long lived assets
$ 72,970
18,612
248,735
6,516
22,347
$369,180
2007
Revenue from external customers
$376,699
107,938
19,846
75,984
135,865
$716,332
Long lived assets
$ 60,224
17,813
218,537
8,083
16,027
$320,684
Net revenues from external customers are based on the location of the customer. Long-lived assets of
geographic areas are those assets used in the Company’s operations in each geographical area and excludes
intangibles, deferred tax assets and goodwill.
(17) Commitments
The Company leases buildings, motor vehicles and office equipment under operating leases. Several of
these leases include options for renewal and in most cases, management expects that in the normal course of
business, leases will be renewed or replaced by other leases. Rental charges for operating leases are
expensed on a straight-line basis over the lease term taking into account rent concessions or holidays. Rent
expenses under operating leases for the years ended June 30 2009, 2008 and 2007 were approximately $14.9
million, $9.1 million and $8.2 million, respectively. At June 30, 2009 the Company had the following future
minimum lease payments under non-cancelable operating leases (in thousands):
Years
2010
2011
2012
2013
2014
Thereafter
Total minimum lease payments
F28
Operating Leases
$12,538
9,970
5,174
2,658
2,079
6,467
$38,886
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Commitments, Continued
Excluding lease commitments details of contractual obligations at June 30, 2009 are as follows (in
thousands):
In $000’s
Total
2010
2011
2012
2013
2014
Thereafter
Payments Due by Period
Long-Term Debt
Purchase Obligations
$161,736 $ 67,545 $94,191 $ -
22 $20
$ 88,968 $ 88,926 $
Total Contractual Obligations
$250,704 $156,471 $94,213 $20
$-
$-
$-
$-
$-
$-
$-
$-
$-
Details of other commercial commitments at June 30, 2009 are as follows:
In $000’s
Total
Amounts
Committed
Amount of Commitment Expiration Per Period
2010
2011
2012
2013
2014
Thereafter
Standby Letters of Credit
Other commercial commitments
Guarantees*
900
$
$
567
$92,735
$ 900 $
98
1,335
- $
48
64,851
-
-
22,761
Total Commercial Commitments
$94,202
$2,333 $64,899 $22,761
$-
-
-
$-
$-
-
-
$-
$
-
421
3,788
$4,209
* The above guarantees mainly relate to security provided as part of our Syndicated Facility Agreement and requirements under
contractual obligations with insurance companies transacting with our German subsidiaries.
(18) Legal Actions and Contingencies
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.
During September and October 2004, we began receiving tax assessment notices for the audit of one of our
German subsidiaries by the German tax authorities for the years 1996 through 1998. Certain aspects of these
assessment notices are being contested and appealed to the German tax authority office. As the outcome of
the appeal cannot be predicted with certainty, any tax issues resolved in a manner not consistent with our
expectations may require us to adjust our provision for income tax in the period of resolution.
In February 2007, the University of Sydney commenced legal action in the Federal Court of Australia
against us, claiming breach of a license agreement and infringement of certain intellectual property. The
claim has been amended to include an allegation of breach of confidentiality. The university is seeking
various types of relief, including an injunction against manufacturing, supplying, offering for sale, selling or
exporting certain mask devices, payment of license fees, damages or an account of profits, interest, costs
and declaration of a constructive trust over and assignment of certain intellectual property. In October 2007,
we filed a defense denying the university’s claim, as well as a cross-claim against the university seeking an
order for rectification of the contract and alleging the university violated the Australian Trade Practices Act.
The matter is ongoing. We have not recognized a liability in relation to this matter at June 30, 2009 and we
do not expect the outcome of this matter to have a material adverse effect on our consolidated financial
statements.
F29
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(19) Voluntary Product Recall Expenses
On April 23, 2007, we initiated a worldwide voluntary recall of approximately 300,000 units of our early
production S8 flow generators used for the treatment of obstructive sleep apnea. In S8 devices manufactured
between July 2004 and May 15, 2006, there is a remote potential for a short circuit in the power supply
connector. The initial estimated cost of this action was $59.7 million which was recognized as a charge to
cost of sales in the consolidated statement of income year ended June 30, 2007. During the years ended
June 30, 2009 and June 30, 2008 we recognized additional charges of $Nil and $3.1 million, respectively,
due to an increase in return rates and consulting charges. These costs represented our best estimate of
probable costs based on available data and accounted for factors such as expected return rates for the
affected units, unit replacement costs, legal, consulting, logistical and temporary contractor expenses
directly associated with the recall. We expect negligible additional costs associated with the recall and at
June 30, 2009 there is no remaining recall accrual.
Following is a summary of the liabilities related to the voluntary product recall that were recorded during
the year ended June 30, 2009 (in thousands):
Balance at June 30, 2007
Voluntary product recall expenses
Cash payments
Foreign currency translation
Balance at June 30, 2008
Voluntary product recall expenses
Cash payments
Foreign currency translation
Balance at June 30, 2009
Total accrued costs
$ 45,098
3,103
(48,477)
1,304
$ 1,028
-
(948)
(80)
$
-
F30
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Fair Value Measurements
On July 1, 2008 we adopted the provisions of FASB Statement No. 157, “Fair Value Measurements”
(“SFAS 157”) for financial assets and liabilities recognized on a recurring basis. In accordance with FASB
Staff Position 157-2, Effective date of FASB Statement 157, we have deferred the applications of FAS 157
for our nonfinancial assets and liabilities until fiscal year 2010. SFAS 157 defines fair value, establishes a
framework for measuring fair value and expands the disclosure requirements for fair value measurements.
The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our
consolidated financial statements.
In determining the fair value measurements of our financial assets and liabilities, we consider the principal
and most advantageous market in which we transact and consider assumptions that market participants
would use when pricing the financial asset or liability. In accordance with SFAS 157, we maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
hierarchies of inputs required by SFAS157 are as follows:
• Level 1:
Input prices quoted in an active market for identical financial assets or liabilities;
• Level 2:
Inputs other than prices quoted in Level 1, such as prices quoted for similar financial
assets and liabilities in active markets, prices for identical assets and liabilities in
markets that are not active or other inputs that are observable or can be corroborated by
observable market data
• Level 3:
Input prices quoted that are significant to the fair value of the financial assets or
liabilities which are not observable nor supported by an active market
The following table summarizes our financial assets and liabilities using the valuation input hierarchy (in
thousands):
Cash and cash equivalents
Investment securities
Cost-method investments
Foreign currency options
Level 1
Level 2
Level 3
Total
$415,650
-
-
-
$
-
4,254
-
7,815
$415,650
$12,069
$
-
-
2,201
-
$2,201
$415,650
4,254
2,201
7,815
$429,920
We determine the fair value of our financial assets as follows:
Cash and cash equivalents - The valuation used for our cash and other money market funds are derived from
quoted market prices due to their short term nature and there is an active market for these financial
instruments.
Investment securities - These securities represent our auction rate securities as described in Note 3. At
June 30, 2009, we had investments totaling $5.0 million at par value with an estimated fair value of $4.3
million. The value of these securities are calculated by third party valuation models based on observable
market prices and inputs including future cash flows, yields and spreads.
Cost-method investments - These investments include our holdings in privately held service companies and
research companies that are not exchange traded and therefore not supported with observable market prices.
However, these investments are valued by reference to their net asset values which can be market supported
and observable inputs including future cash flows.
F31
RESMED INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(20) Fair Value Measurements, Continued
Foreign currency options - These financial instruments are valued using third party valuation models based
on market observable inputs, including interest rate curves, on market spot currency prices, volatilities and
credit risk.
The following table shows a reconciliation of the year ended June 30, 2009 for fair value measurements
using significant unobservable inputs (thousands):
Balance at July 1, 2008
Purchases
Impairment
Foreign currency translation
Balance at June 30, 2009
(21) Subsequent Events
Cost-Method Investments
$ 1,405
2,267
(1,306)
(165)
$ 2,201
In accordance with SFAS No. 165, we have evaluated any events or transactions occurring after June 30,
2009, the balance sheet date, through August 20, 2009, the date that consolidated financial statements were
issued, and noted that there have been no such events or transactions which would impact our consolidated
financial statements for the year ended June 30, 2009.
F32
SCHEDULE II
RESMED INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JUNE 30, 2009, 2008 AND 2007
(in thousands)
Year ended June 30, 2009
Applied against asset account
Allowance for doubtful accounts
Year ended June 30, 2008
Applied against asset account
Allowance for doubtful accounts
Year ended June 30, 2007
Applied against asset account
Allowance for doubtful accounts
Balance
at
Beginning
of Period
Charged
to costs
and
expenses
Other
(deductions)
Balance
at end
of
period
$4,935
4,070
(1,624)
$7,381
$4,704
1,238
(1,007)
$4,935
$4,645
1,173
(1,114)
$4,704
See accompanying report of independent registered public accounting firm.
RESMED INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED August 18, 2009
ResMed Inc.
/s/ KIERAN T. GALLAHUE
Kieran T. Gallahue
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
DATE
/S/ KIERAN T. GALLAHUE
Kieran T. Gallahue
/S/ BRETT A. SANDERCOCK
Brett A. Sandercock
President and Chief Executive Officer
(Principal Executive Officer)
August 18, 2009
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
August 18, 2009
/S/ PETER C. FARRELL
Executive Chairman of the Board
August 18, 2009
Peter C. Farrell
/S/ CHRISTOPHER G. ROBERTS
Director
August 18, 2009
Christopher G. Roberts
/S/ MICHAEL A. QUINN
Director
August 18, 2009
Michael A. Quinn
/S/ GARY W. PACE
Director
August 18, 2009
Gary W. Pace
/S/ RICHARD SULPIZIO
Director
August 18, 2009
Richard Sulpizio
/S/ RON TAYLOR
Ron Taylor
Director
August 18, 2009
/S/
JOHN P. WAREHAM
Director
August 18, 2009
John P. Wareham
S-1
RESMED INC. AND SUBSIDIARIES
EXHIBIT INDEX
The following documents are filed as part of this report:
(a)
(b)
3.1
3.2
3.3
4.1
Consolidated Financial Statements and Schedules – The index to the consolidated financial statements
and schedule of the Company and its consolidated subsidiaries are set forth in the “Index to
Consolidated Financial Statements” under Item 8 of this report.
Exhibit Lists
First Restated Certificate of Incorporation of Registrant, as amended (15)
Third Restated By-laws of Registrant(12)
Fourth Amended and Restated Bylaws of ResMed Inc. (17)
Form of certificate evidencing shares of Common Stock(1)
10.1*
1995 Stock Option Plan(1)
10.2*
1997 Equity Participation Plan(3)
10.3
10.5
10.6
10.7
Licensing Agreement between the University of Sydney and ResMed Ltd dated May 17, 1991, as
amended(1)
Loan Agreement between the Australian Trade Commission and ResMed Ltd dated May 3, 1994(1)
Lease for 10121 Carroll Canyon Road, San Diego CA 92131-1109, USA(4)
Sale and Leaseback Agreements for 97 Waterloo Rd, North Ryde, Australia(5)
10.8*
Employment Agreement dated May 14, 2002, between Servo Magnetics Inc. and Leslie Hoffman(6)
10.9
Agreement for the purchase of Lot 6001, Norwest Business Park, Baulkham Hills, Australia(6)
10.10* 2003 Employee Stock Purchase Plan(7)
10.11
Loan Agreement between ResMed Limited and HSBC Bank Australia Limited (11)
10.12
Securities Sale Agreement Financiere Ace S.A.S. dated as of May 4, 2005 (11)
10.13
10.14
10.15
10.16
10.17
10.18
First Amended and Restated Loan Agreement, dated as of November 1, 2005, by and among ResMed
Corp., ResMed EAP Holdings Inc. and Union Bank of California, N.A. (8)
Security Agreement, dated as of November 1, 2005, by and between ResMed EAP Holdings Inc. and
Union Bank of California, N.A. (8)
Continuing Guaranty, dated as of November 1, 2005, by and between ResMed Corp. and ResMed EAP
Holdings Inc and Union Bank of California, N.A. (8)
Commercial Promissory Note, dated as of November 1, 2005, made by ResMed Corp. and ResMed EAP
Holdings Inc. (8)
Commercial Promissory Note, dated as of November 1, 2005, made by ResMed Corp. and ResMed EAP
Holdings Inc. (8)
Second Amended and Restated Revolving Loan Agreement, dated as of March 13, 2006, among
ResMed Corp., Motor Technologies Inc., ResMed EAP Holdings Inc. and Union Bank of California,
N.A. (9)
10.19
Syndicated Facility Agreement, dated as of June 8, 2006, by and between ResMed Limited and HSBC
Bank Australia Limited (10)
10.20 Deed of Guarantee and Indemnity, dated as of June 8, 2006, by and among HSBC Bank Australia
Limited, ResMed Limited, ResMed SAS, ResMed GmbH & Co. KG, ResMed (UK) Limited and Take
Air Medical Handels-GmbH (10)
10.21 Deed of Guarantee and Indemnity, dated as of June 8, 2006, by and among HSBC Bank Australia
Limited, ResMed Inc., ResMed Corp. and ResMed Limited (10)
10.22 Working Capital Agreement, dated as of June 8, 2006, by and among ResMed (UK) Limited and HSBC
Bank plc (10)
10.23 Working Capital Agreement, dated as of June 8, 2006, by and among ResMed Limited and HSBC Bank
Australia Limited (10)
10.24* ResMed Inc. 2006 Incentive Award Plan (16)
10.25* Amendment No. 1 to the ResMed Inc. 2006 Incentive Award Plan (13)
10.26* 2006 Grant agreement for Board of Directors (13)
10.27* 2006 Grant agreement for Executive Officers (15)
10.28* 2006 Grant agreement for Australian Executive Officers (15)
10.29* Form of Executive Agreement (14)
10.30
Second Amendment to Second Amended and Restated Revolving Loan Agreement dated January 28,
2008 (18)
10.31
Lease Agreement between ResMed Corp. and Poway Danielson, LP (19)
10.32
First Amended and Restated Syndicated Facility Agreement dated September 30, 2008 (20)
10.33 Amendment and Restatement Agreement, dated as of September 30, 2008, by and between ResMed
Limited; The Hong Kong and Shanghai Banking Corporation, Sydney Branch; and HSBC Bank
Australia Limited (20)
10.34 US Guarantee Consent Deed, dated as of September 17, 2008, by and among HSBC Bank Australia
Limited, ResMed Inc., ResMed Corp. and ResMed Limited (20)
10.35
International Guarantee Consent Deed, dated as of September 30, 2008, by and among HSBC Bank
Australia Limited, ResMed Limited, ResMed SAS, ResMed GmbH & Co. KG, ResMed (UK) Limited
and Take Air Medical Handels-GmbH (20)
10.36* Amended and Restated 2006 Incentive Award Plan dated November 20, 2008 (21)
10.37 Departure of Directors or Certain Officers dated December 12, 2008 (22)
10.38
Third Amendment to the March 1, 2006 Second Amended and Restated Revolving Loan Agreement (23)
10.39 Approval of new share repurchase program dated May 29, 2009 (24)
10.40
Form of Indemnification Agreements for our directors and officers (25)
10.41
Form of Access Agreement for directors (26)
10.42* Updated Form of Executive Agreement (9)
21.1
23.1
31.1
31.2
32.1
Subsidiaries of the Registrant (9)
Independent Registered Public Accounting Firm’s Consent and Report on Schedule (9)
Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (9)
Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 (9)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (9)
* Management contract or compensatory plan or arrangement
(1) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (No. 33-91094) declared effective on June 1, 1995.
(2) Incorporated by reference to the Registrant’s Registration Statement on Form 8-A12G filed on April 25, 1997.
(3) Incorporated by reference to the Registrant’s 1997 Proxy Statement.
(4) Incorporated by reference to the Registrant’s Report on Form 10-K dated June 30, 1998.
(5) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2001.
(6) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2002.
(7) Incorporated by reference to the Registrant’s 2003 Definitive Proxy Statement dated October 13, 2007.
(8) Incorporated by reference to the Registrant’s Form 8-K dated November 8, 2005.
(9) Filed herewith.
(10) Incorporated by reference to the Registrant’s Form 8-K dated June 8, 2006.
(11) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2005.
(12) Incorporated by reference to the Registrant’s Report on Form 8-K dated February 23, 2007.
(13) Incorporated by reference to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006.
(14) Incorporated by reference to the Registrant’s Report on Form 8-K dated July 9, 2007.
(15) Incorporated by reference to the Registrant’s Report on Form 10-K for the year ended June 30, 2007
(16) Incorporated by reference to the Registrant’s Report on Form 8-K dated November 9, 2006.
(17) Incorporated by reference to the Registrants’ Report on Form 8-K filed on December 14, 2007
(18) Incorporated by reference to the Registrants’ Report on Form 8-K filed on February 6, 2008.
(19) Incorporated by reference to the Registrants’ Report on Form 8-K filed on March 27, 2008.
(20) Incorporated by reference to the Registrant’s Definitive Proxy Statement filed October 6, 2008.
(21) Incorporated by reference to the Registrant’s Definitive Proxy Statement filed October 15, 2008.
(22) Incorporated by reference to the Registrant’s Report on Form 8-K filed on December 15, 2008.
(23) Incorporated by reference to the Registrant’s Report on Form 8-K filed on March 5, 2009.
(24) Incorporated by reference to the Registrant’s Report on Form 8-K filed on June 4, 2009.
(25) Incorporated by reference to the Registrant’s Report on Form 8-K filed on June 24, 2009.
[THIS PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT 21.1
RESMED INC.
SUBSIDIARIES OF THE REGISTRANT
ResMed Corp. (a Minnesota corporation)
ResMed US Assembly Inc. (a Delaware corporation)
ResMed (Malaysia) Sdn Bhd (a Malaysian Corporation) (2)
ResMed (UK) Limited (a United Kingdom corporation) (1)
ResMed (EPN) Limited (a United Kingdom corporation) (1)
ResMed Asia Pacific Limited (incorporated under the laws of New South Wales, Australia) (1)
ResMed Deutschland GmbH (a German corporation, formerly ResMed Beteiligungs GmbH) (3)
ResMed EAP Holdings Inc. (a Delaware corporation)
ResMed Finland OY (a Finland corporation) (2)
ResMed Holdings Limited (incorporated under the laws of New South Wales, Australia)
ResMed Hong Kong Limited (a Hong Kong corporation) (2)
ResMed Germany Inc. (a Delaware corporation, formerly ResMed International Inc.)
ResMed KK (a Japanese corporation) (2)
ResMed Limited (incorporated under the laws of New South Wales, Australia) (1)
ResMed Asia Operations Pty Ltd (incorporated under the laws of New South Wales, Australia) (1)
ResMed New Zealand Limited (a New Zealand Corporation) (2)
ResMed GmbH Verwaltung (a German corporation)
ResMed GmbH and Co KG (a German corporation) (4)
ResMed SAS (a French corporation) (2)
ResMed Singapore Pte Ltd (a Singaporean corporation) (2)
ResMed Spain SL (a Spanish corporation) (2)
ResMed Sweden AB (a Swedish corporation) (2)
ResMed Motor Technologies Inc. (a Delaware corporation) (Formerly Servo Magnetics Inc.)
ResMed Schweiz AG (A Swiss corporation, formerly Labhardt AG) (2)
ResMed Austria Medizintechnik GmbH (an Austrian corporation) (2)
MAP Medizin-Technologie GmbH (a German corporation) (4)
MAP Beteiligungs GmbH (a German corporation) (5)
Take Air Medical Handels GmbH (a German corporation) (6)
OCA Beteiligung AG (a Luxembourg corporation) (6)
ResMed Medizintechnik GmbH (a German corporation) (9)
ResMed Brasil Ltda (a Brazilian corporation) (7)
ResMed Norway AS (a Norwegian corporation, formerly PolarMed AS) (2)
ResMed Nederland BV (a Netherlands corporation) (2)
ResMed Paris SAS (a French corporation) (8)
ResMed Property Trust (incorporated under the laws of New South Wales, Australia) (1)
ResMed Mexico, S de R.L. de C.V. (2)
ResMed India Private Ltd (2)
ResMed (Beijing) Commercial Co., Ltd (2)
ResMed Enterprise Management (Shenzhen) Co., Ltd (2)
(1) A subsidiary of ResMed Holdings Limited
(2) A subsidiary of ResMed EAP Holdings Inc.
(3) A subsidiary of ResMed Germany Inc.
(4) A subsidiary of ResMed Deutschland GmbH
(5) A subsidiary of MAP Medizin-Technologie GmbH
(6) A subsidiary of ResMed Paris SAS
(7) A subsidiary of ResMed Corp.
(8) A subsidiary of ResMed SAS
(9) A subsidiary of ResMed GmbH and Co KG
EXHIBIT 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
The Board of Directors and Stockholders
ResMed Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-08013, 333-88231,
333-115048 and 333-156065) on Form S-8 and the registration statements (Nos. 333-70500 and 333-100825) on
Form S-3 of ResMed Inc. of our reports dated August 20, 2009, with respect to the consolidated balance sheets of
ResMed Inc. as of June 30, 2009 and 2008, and the related consolidated statements of income, stockholders’
equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30,
2009, and the related financial statement schedule, and the effectiveness of internal control over financial
reporting as of June 30, 2009, which reports appear in the June 30, 2009 annual report on Form 10-K of ResMed
Inc.
/s/ KPMG LLP
San Diego, California
August 20, 2009
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kieran T. Gallahue, certify that:
1.
I have reviewed this annual report on Form 10-K of ResMed Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial
reporting to be designed under our supervision,
to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for external purposes in
accordance with generally accepted accounting practices; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
August 18, 2009
/s/ KIERAN T. GALLAHUE
Kieran T. Gallahue
Chief Executive Officer
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Brett Sandercock, certify that:
1.
I have reviewed this annual report on Form 10-K of ResMed Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal controls over financial
reporting to be designed under our supervision,
to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for external purposes in
accordance with generally accepted accounting practices; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
August 18, 2009
/s/ BRETT A. SANDERCOCK
Brett A. Sandercock
Chief Financial Officer
EXHIBIT 32.1
The following certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350
and in accordance with SEC Release No. 33-8238. These certifications shall not be deemed “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be incorporated by reference in
any filing of the Company under the Securities Act of 1933, as amended, whether made before or after the date
hereof, regardless of any general incorporation language in such filing.
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
officer of ResMed Inc., a Delaware corporation (the “Company”), hereby certifies, to his knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended June 30, 2009 (the
“Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 18, 2009
/s/ KIERAN T. GALLAHUE
Kieran T. Gallahue
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to ResMed Inc. and will be
retained by ResMed Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned
officer of ResMed Inc., a Delaware, corporation (the “Company”), hereby certifies, to his knowledge, that:
(i)
the accompanying Annual Report on Form 10-K of the Company for the year ended June 30, 2009 (the
“Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: August 18, 2009
/s/ BRETT A. SANDERCOCK
Brett A. Sandercock
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to ResMed Inc. and will be
retained by ResMed Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
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Res Med
We are a global leader in the development,
manufacturing and marketing of innovative
medical products for the treatment and
management of respiratory disorders, with
a focus on sleep-disordered breathing.
We sell a comprehensive range of products
in more than 70 countries worldwide through
direct offices and a network of distributors.
We are dedicated to developing innovative
products to improve the lives of those who
suffer from these conditions and to increasing
awareness among patients and healthcare
professionals of the potentially serious
health consequences of untreated
sleep-disordered breathing.
Transfer Agent and Registrar
Inquiries regarding transfer requirements,
lost certificates and changes of address
should be directed to:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Tel: (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
750 B Street, Suite 1500
San Diego, CA 92101 USA
To directly receive copies of company news,
copies of the annual report on Form 10-K as
filed with the Securities and Exchange Com-
mission without charge, please contact:
Constance Bienfait
Director, Investor Relations
ResMed Inc.
9001 Spectrum Center Blvd
San Diego, CA
Tel: (858) 836-5971
Fax: (858) 836-5517
Email: investorrelations@resmed.com
Brett Sandercock
Chief Financial Officer
ResMed Inc.
1 Elizabeth Macarthur Drive
Bella Vista NSW 2153 Australia
Tel: +61 2 8884 1000
Fax: +61 2 8883 3114
Annual Meeting of Shareholders
Date: November 18, 2009
Time: 10:00 AM
U.S. Time: November 17, 2009, 3:00 PM
Location: 1 Elizabeth Macarthur Drive
Bella Vista NSW Australia
Locations
USA
ResMed Inc.
ResMed Corp.
ResMed Motor Technologies Inc.
Australia
ResMed Limited
ResMed Asia Pacific Limited
Hong Kong
ResMed Hong Kong Limited
India
ResMed India Private Limited
Japan
ResMed KK
Austria
ResMed Austria Medizintechnik GmbH
Mexico
RedMed Mexico S. de R.L. de C.V.
Brazil
ResMed do Brasil Representacao
de Produtos Medicos Ltda.
Netherlands
ResMed Netherlands BV
China
ResMed (Beijing) Commercial Co., Ltd.
ResMed Enterprise Management
(Shenzhen) Co., Ltd.
New Zealand
ResMed NZ Limited
Norway
ResMed Norway AS
Finland
ResMed Finland Oy
France
ResMed SAS
ResMed Paris SAS
Germany
ResMed Gmbh & Co. KG
Take Air Medical Handels GmbH
ResMed Medizintechnik GmbH
Singapore
ResMed Asia Operations Pty Limited
Sweden
ResMed Sweden AB
Switzerland
ResMed Schweiz AG
UK
ResMed (UK) Limited
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ResMed
Global leaders in sleep and respiratory medicine
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ResMed
2009 Annual Report
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