01—Abstract
Summary
Summary of the 10-K filed September 26, 1997. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc., a Delaware corporation headquartered operationally in Sydney, Australia, designs, manufactures and markets equipment for the diagnosis and treatment of sleep disordered breathing, primarily obstructive sleep apnea (OSA).
Its core products are nasal CPAP and VPAP flow generators, mask systems, and accessories, sold in 41 countries through subsidiaries and independent distributors. For fiscal 1997 (year ended June 30, 1997), net revenues rose to $49.2 milliona from $34.6 million, and net income increased to $7.5 million, or $1.02 per share, from $4.5 million, or $0.63 per share. Income from operations was $8.3 million, up from $3.6 million, and gross margin widened to 58.7% from 50.8%, driven by full-year results from the German and French acquisitions, manufacturing efficiencies and higher-margin diagnostic and bi-level units, partly offset by US price competition.
Growth was led by Europe, where net revenues reached $21.5 millionb from $12.4 million, while North America rose to $21.3 million from $16.8 million. Australia and the rest of the world were $6.4 million, down from $5.3 million in fiscal 1996, and the filing notes that ResMed's dominant Australian market share has declined since a patent was revoked in 1994. Operating cash flow was $9.5 million, and cash and marketable securities totaled $28.0 million at June 30, 1997.
The company has no cash dividend plans, and it faces ongoing patent litigation with Respironics, Inc., as well as a roughly $730,000c Australian Trade Practices Act damages claim by Respironics and its distributor. Investors should weigh the strong top-line and margin expansion against concentration risk in a few products and key single-source components, heavy reliance on third-party reimbursement, and the costs and uncertain outcomes of ongoing patent litigation. The company also disclosed an agreement in August 1997 to buy land for a new Australian operations center for about $3.6 million.
02—Key points
Key Highlights
- Net revenues rose 42.3% to $49.2 million in fiscal 1997 from $34.6 million in fiscal 1996.
- Net income increased to $7.5 million, or $1.02 per share, from $4.5 million, or $0.63 per share, in fiscal 1996.
- Gross profit increased to $28.9 million, with gross margin improving to 58.7% from 50.8%, reflecting full-year profitability of the German and French subsidiaries and better manufacturing efficiencies.
- Europe net revenues grew to $21.5 million from $12.4 million, and North America net revenues grew to $21.3 million from $16.8 million.
- Operating cash flow was $9.5 million in fiscal 1997, up from $3.5 million, and cash plus marketable securities reached $28.0 million at June 30, 1997.
- Patent litigation against Respironics, Inc. continues, including a July 1, 1997 partial summary judgment against ResMed on one of four patents, which the company intends to appeal.
- The company does not intend to pay cash dividends in the foreseeable future and reported approximately 2,046 beneficial holders as of September 25, 1997.
03—Questions
Frequently Asked Questions
What does ResMed sell and where?
ResMed designs, manufactures and markets equipment for treating sleep disordered breathing, mainly obstructive sleep apnea. Its products include CPAP and VPAP flow generators, mask systems, humidifiers and diagnostic products, sold in 41 countries through subsidiaries and independent distributors. Flow generators accounted for about 67% of net revenues in fiscal 1997.
How did ResMed's profitability change in fiscal 1997?
Income from operations rose to $8.3 million from $3.6 million, and net income rose to $7.5 million from $4.5 million. Gross margin increased to 58.7% from 50.8%, aided by full-year results from the German and French acquisitions and higher-margin diagnostic and bi-level products, partly offset by price competition in the United States.
What are the main legal risks?
ResMed is engaged in patent litigation with Respironics, Inc. in the United States, where a July 1, 1997 court ruling granted Respironics partial summary judgment on one of four patents in suit, which ResMed plans to appeal. Respironics and its Australian distributor also seek about $730,000 in damages under the Australian Trade Practices Act. The filing notes that outcomes are uncertain.
What risks does the filing highlight for investors?
The filing cites intense competition from better-resourced rivals, dependence on third-party reimbursement and its potential to reduce prices, reliance on sales outside North America, currency exposure, quarterly earnings fluctuations, and single-source suppliers for two key CPAP and VPAP components. It also notes declining market share in Australia following the 1994 revocation of its original patent.
Does ResMed pay dividends, and what are its capital plans?
ResMed does not intend to declare cash dividends in the foreseeable future. In August 1997 it agreed to buy a 173,000 square foot parcel near its Australian facility for about $3.6 million, planning to develop an Australian operations center from fiscal 1999, financed by cash reserves or a sale and leaseback.
04—Continue