01—Abstract
Summary
Summary of the 10-K filed August 17, 2010. Cited figures are marked; the original filing is the authoritative source.
ResMed Inc. (NYSE: RMD) filed its annual report on Form 10-K for the fiscal year ended June 30, 2010.
The company develops, manufactures and distributes medical equipment for treating, diagnosing and managing sleep-disordered breathing (SDB), including obstructive sleep apnea (OSA), and reports a single operating segment. Net revenues rose 19% to $1,092.4 milliona from $920.7 million, gross profit increased to $655.5 million (60% of revenue, unchanged year over year), and net income grew to $190.1 million, or $2.45 per diluted share, from $146.4 million, or $1.90 per diluted share. Income from operations reached $240.4 million, and operating cash flow was $188.2 million, down from $238.9 million, which management attributed primarily to higher income tax payments.
Balance sheet strength improved, with cash and cash equivalents of $488.8 millionb, total assets of $1.63 billion, and stockholders' equity of $1.29 billion. Long-term debt was eliminated from non-current liabilities, leaving $121.7 million of debt classified as current, mainly the revolving facility and syndicated facility tranches maturing in 2010 and 2011. The company repurchased 2,519,843 shares for $135.8 million during the year.
On August 5, 2010, the Board approved a two-for-one stock split payable as a 100% stock dividend, with shareholders of record on August 17, 2010 receiving one additional share for each share held. Key risks highlighted in the filing include competition, reimbursement pressure, and proposed U.S. Medicare competitive bidding, where CMS's first-round average reduction for CPAP and respiratory assist devices is stated as approximately 32%. The filing also cites the PPACA's 2.3% medical device excise tax beginning in 2013, foreign currency exposure, a German tax audit, an April 2007 S8 flow generator recall with total cost of $62.8 millionc, and pending litigation with the University of Sydney and Vaughn Medical Equipment Repair Service.
02—Key points
Key Highlights
- Net revenues increased 19% to $1,092.4 million in fiscal 2010, from $920.7 million in fiscal 2009; excluding favorable currency movements, sales increased 17%.
- Net income rose to $190.1 million, or $2.45 per diluted share, compared with $146.4 million, or $1.90 per diluted share, in fiscal 2009.
- Gross profit increased to $655.5 million, with gross margin at 60% in both fiscal 2010 and 2009; selling, general and administrative expenses were 30% of net revenue.
- Research and development spending rose to $75.2 million, or 7% of revenue, and the company launched products including the S9 AutoSet and Elite flow generators and the Swift FX and Mirage SoftGel masks.
- Operating cash flow fell to $188.2 million from $238.9 million, primarily due to higher income tax payments; cash and cash equivalents ended the year at $488.8 million.
- The Board approved a two-for-one stock split payable as a 100% stock dividend, with record date August 17, 2010; the company repurchased 2,519,843 shares for $135.8 million during fiscal 2010.
- CMS's proposed first round of Medicare competitive bidding, announced July 2, 2010, shows an average reduction of approximately 32% from current Medicare payment rates for CPAP and respiratory assist devices, a material reimbursement risk.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, ResMed kept $0.17.
- Revenue$1.09B100.0%
- Cost of revenue−$436.9M40.0%
- Gross profit$655.5M60.0%
- Operating costs−$415.1M38.0%
- Operating income$240.4M22.0%
- Interest, other & tax−$50.3M4.6%
- Net income$190.1M17.4%
Where FY2010 revenue went
$1.09B- Cost of revenue: $436.9M, 40% of revenue
- SG&A: $328.9M, 30% of revenue
- Net income: $190.1M, 17% of revenue
- R&D: $75.2M, 6.9% of revenue
- Other operating costs: $11.0M, 1.0% of revenue
- Interest, other & tax: $50.3M, 4.6% of revenue
Kept 17% as net incomeOther operating costs $11.0M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed August 17, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $1.09B$920.74M | +18.6% |
| Cost of Revenue | $436.87M$366.93M | +19.1% |
| Gross Profit | $655.48M$553.80M | +18.4% |
| R&D Expenses | $75.20M$63.06M | +19.3% |
| SG&A Expenses | $328.86M$289.88M | +13.4% |
| Operating Expenses | $415.10M$363.49M | +14.2% |
| Operating Income | $240.38M$190.31M | +26.3% |
| Interest Expense | $2.67M— | — |
| Net Income | $190.09M$146.45M | +29.8% |
| EPS (Basic) | $1.26$0.97 | +29.9% |
| EPS (Diluted) | $1.23$0.95 | +29.5% |
| Shares Outstanding (Basic) | 150.91M151.26M | −0.2% |
| Shares Outstanding (Diluted) | 155.10M154.23M | +0.6% |
05—Questions
Frequently Asked Questions
What drove the increase in ResMed's revenue and earnings in fiscal 2010?
Net revenue rose $171.6 million, or 19%, to $1,092.4 million, driven by higher unit sales of flow generators, masks and accessories. North and Latin America revenue grew 20% to $590.4 million, and markets outside North and Latin America grew 17% to $502.0 million. The company attributed growth to increased public and physician awareness of SDB and to recent product releases, including the S9 AutoSet and Elite flow generators and the Swift FX and Mirage SoftGel masks.
How significant is the proposed Medicare competitive bidding program to ResMed?
The filing states that CMS announced on July 2, 2010 a single payment amount for round 1 of competitive bidding covering 9 competitive bidding areas, with an average reduction from current Medicare payment rates of approximately 32% for CPAP and respiratory assist devices. If implemented, the changes would take effect January 1, 2011, and round 2 would expand to 91 areas effective January 1, 2013. The company states it cannot predict which proposals CMS will adopt or their impact on its business.
What is ResMed's balance sheet and capital return position at June 30, 2010?
Cash and cash equivalents were $488.8 million, total assets were $1,626.4 million, and stockholders' equity was $1,287.5 million. Long-term debt, less current maturities, was zero at June 30, 2010, compared with $94.2 million a year earlier, while current portion of long-term debt was $121.7 million. During fiscal 2010, the company repurchased 2,519,843 shares for $135.8 million, leaving 7,401,139 shares available under the existing program. The company has not paid cash dividends since its initial public offering and does not currently intend to pay them.
What are the main risks to ResMed's business identified in the filing?
Key risks include intense competition from companies with greater resources, including Philips, DeVilbiss, Nellcor Puritan Bennett and Fisher & Paykel; dependence on home healthcare dealers and sleep clinics; reimbursement pressure from government and private payers; foreign currency exposure, since roughly half of revenue is generated outside the United States; and FDA regulation. The filing also discusses the PPACA's 2.3% medical device excise tax beginning in 2013, an ongoing German tax audit, and the April 2007 voluntary recall of approximately 300,000 S8 flow generators, which cost $62.8 million.
What is the status of the stock split announced in August 2010?
On August 5, 2010, the Board approved a two-for-one split of common stock, payable as a 100% stock dividend. Shareholders of record on August 17, 2010 were to receive one additional share for every share held. The shares were to be distributed on or about August 30, 2010, and trading on a post-split basis was expected to begin on the NYSE on August 31, 2010 or one day after the distribution date. Pro forma, common shares outstanding at June 30, 2010 would have been 151.3 million, and pro forma basic EPS for fiscal 2010 would have been $1.26.
06—Continue