01—Abstract
Summary
Summary of the 10-K filed August 28, 2008. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. (NYSE: RMD) reported record results for the fiscal year ended June 30, 2008.
Net revenues rose 17% to $835.4 milliona from $716.3 million, and net income was $110.3 million, or $1.40 per diluted share, compared with $66.3 million, or $0.85 per diluted share, in fiscal 2007. The prior year included a $59.7 million charge for a voluntary worldwide recall of early production S8 flow generators. Gross profit as a percentage of net revenue increased to 59% from 54%.
Excluding the recall expenses, diluted earnings per share were $1.43b, up 4% from $1.38. Management attributed the revenue growth to higher unit sales of flow generators, masks and accessories, and to new full face masks. Movements in international currencies added approximately $42.7 million to revenue.
Cash generated from operations was $137.8 millionc, a 51% increase over the prior year, and cash and cash equivalents were $321.1 million at June 30, 2008. The company repurchased 2,570,700 shares for $99.5 million during the year and has not paid cash dividends since its initial public offering. Total debt was $137.7 million, all at variable interest rates.
Research and development spending was $60.5 milliond, or 7% of revenue. The company also began construction of a new corporate headquarters in San Diego, which it expects to complete in the final quarter of fiscal 2009. The filing identifies several risks.
Sales outside North and Latin America accounted for approximately 51% of net revenues in fiscal 2008. The company faces competition from larger rivals, including Philips, DeVilbiss, Nellcor Puritan Bennett and Fisher & Paykel Healthcare. Reimbursement changes and the Medicare competitive bidding program for durable medical equipment could affect pricing.
The S8 recall's final cost could exceed current estimates. A German tax audit and a University of Sydney intellectual property lawsuit remain ongoing.
02—Key points
Key Highlights
- Net revenues increased 17% to $835.4 million in fiscal 2008, from $716.3 million in fiscal 2007.
- Net income was $110.3 million, or $1.40 per diluted share, versus $66.3 million, or $0.85 per diluted share, a year earlier. Excluding recall expenses, diluted EPS was $1.43, up 4% from $1.38.
- Gross profit as a percentage of net revenue rose to 59% from 54%, mainly because fiscal 2007 included $59.7 million of voluntary product recall expenses.
- Cash provided by operating activities was $137.8 million, a 51% increase, and cash and cash equivalents totaled $321.1 million at June 30, 2008.
- The company repurchased 2,570,700 shares for $99.5 million during fiscal 2008 under its share buy-back program.
- Research and development expenses were $60.5 million, or 7% of revenue, and the company has 'approximately 2,700' employees.
- The S8 flow generator recall now has cumulative charges of $59.7 million in fiscal 2007 and an additional $3.1 million in fiscal 2008, and the company states the total cost could significantly exceed its estimates.
03—Questions
Frequently Asked Questions
What drove the revenue growth in fiscal 2008?
The filing attributes the 17% increase in net revenue to higher unit sales of flow generators, masks and accessories, and to strong contributions from new full face masks. Favorable currency movements added approximately $42.7 million. Excluding currency effects, sales increased 11%.
How did the product recall affect results?
The company recognized $59.7 million of recall expenses in fiscal 2007 and an additional $3.1 million in fiscal 2008 for the worldwide recall of approximately 300,000 early production S8 flow generators. The recall accrual was $1.0 million at June 30, 2008. The company says it cannot assure that the total cost will not significantly exceed its estimates.
Where does ResMed generate its sales?
Sales in North and Latin America accounted for 49% of net revenues in fiscal 2008, Europe for 43%, and Asia Pacific and the rest of the world for 8%. The company manufactures substantially all of its products outside the U.S., with its principal manufacturing facility in Sydney, Australia.
Does ResMed pay dividends, and how much capital did it return to shareholders?
ResMed has not paid any cash dividends since its initial public offering and does not intend to pay them in the foreseeable future. In fiscal 2008 it repurchased 2,570,700 shares at a cost of $99.5 million. Cumulatively, it has repurchased 4,875,618 shares at a cost of $143.0 million.
What are the main competitive and regulatory risks?
The filing names Philips, DeVilbiss, Nellcor Puritan Bennett and Fisher & Paykel Healthcare as primary competitors, some with greater resources than ResMed. Its products depend on reimbursement from government and private payers, and Medicare plans to implement competitive bidding for durable medical equipment. The company also faces FDA regulation, and its products are sold outside the U.S. under varying regulatory regimes.
04—Continue