01—Abstract
Summary
Summary of the 10-K filed September 15, 1998. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. is a designer, manufacturer and distributor of medical equipment for treating and diagnosing sleep disordered breathing (SDB), primarily obstructive sleep apnea (OSA).
Its products include nasal CPAP and VPAP flow generators, AutoSet automated CPAP and diagnostic systems, and mask systems such as the Mirage. The company sells in over 40 countries through fully owned subsidiaries and independent distributors. For fiscal year ended June 30, 1998, net revenues rose to $66.52 milliona from $49.18 million, and net income rose to $10.61 million from $7.47 million, with diluted earnings per share of $1.41 versus $1.02.
Gross margin improved to 65.3% from 58.7%, aided by manufacturing efficiencies, higher-margin diagnostic and bi-level units, and a 21% devaluation of the Australian dollar, in which its manufacturing costs are denominated. Profitability was held back by other expense of $1.25 millionb, which included foreign currency losses of $4.0 million from hedging structures tied to the Australian dollar decline. Cash and marketable securities fell to $20.7 million from $28.0 million, reflecting construction of a new Sydney manufacturing facility expected to be completed by early calendar 1999.
Operating cash flow was $6.8 millionc for the year. The company faces ongoing patent litigation with Respironics, Inc., including a complaint alleging infringement of three ResMed patents and a separate Australian Trade Practices Act claim seeking approximately $1,000,000 in damages.
The filing also notes that its Australian CPAP patent was revoked in 1994, which has reduced its market share in Australia. The company does not intend to pay cash dividends in the foreseeable future.
02—Key points
Key Highlights
- Net revenues grew 35% to $66.5 million in fiscal 1998, with North America contributing $34.3 million and Europe $23.3 million.
- Net income increased to $10.6 million, or $1.41 per diluted share, compared with $7.5 million, or $1.02 per diluted share, in fiscal 1997.
- Gross margin expanded to 65.3% from 58.7%, driven by manufacturing efficiencies, higher-margin bi-level and diagnostic products, and a 21% Australian dollar devaluation.
- Other expense of $1.25 million reflected foreign currency losses of $4.0 million tied to hedging structures after the Australian dollar weakened.
- Cash and marketable securities declined to $20.7 million from $28.0 million, largely due to construction of a new Sydney manufacturing facility.
- Patent litigation against Respironics, Inc. is ongoing, and an Australian Trade Practices Act claim seeks damages of approximately $1,000,000.
- Long-term debt was eliminated, leaving no long-term debt at June 30, 1998, and stockholders' equity reached $50.8 million.
03—Questions
Frequently Asked Questions
What drove the increase in ResMed's revenue and profitability in fiscal 1998?
Net revenues rose to $66.5 million from $49.2 million, mainly from higher unit sales of flow generators and accessories in America and Europe, plus a shift to higher-priced bi-level products such as the VPAP II ST. Net income rose to $10.6 million, and gross profit increased to $43.5 million from $28.9 million.
How did currency movements affect ResMed's results?
The Australian dollar devalued 21% over fiscal 1998. This helped gross margin because manufacturing costs are denominated in Australian dollars, but the company's foreign currency hedging structures produced losses, contributing to a $1.25 million net other loss. Foreign currency losses were $4.0 million compared with net gains of $1.6 million in fiscal 1997.
What are the main legal risks disclosed in the filing?
ResMed is pursuing patent infringement litigation against Respironics, Inc. over three patents and a fourth patent related to its delay timer, with a partial summary judgment ruling against it on one patent. Respironics and its Australian distributor also filed a claim under the Australian Trade Practices Act seeking damages of approximately $1,000,000 in lost profits, which the company intends to defend.
What is the company's capital spending plan and how is it funded?
ResMed began constructing a new approximately 120,000 square foot manufacturing facility in Sydney in August 1997, expected to be completed by early calendar 1999. The company anticipates spending about $9.0 million on the facility and computer systems over the next twelve months, funded through operating cash flows and existing cash resources, or possibly a sale and leaseback.
Does ResMed pay dividends?
No. The company does not intend to declare any cash dividends in the foreseeable future. It paid a $0.04 cash dividend per share in fiscal 1994 and none in fiscal 1995 through 1998.
04—Continue