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.

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,

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.

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.

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.

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

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:

                                                              Payments Due by Period
In $000's                Total        2010         2011        2012        2013        2014        Thereafter
Long-Term Debt         $ 161,736    $  67,545    $  94,191    $     -     $     -     $     -     $          -
Operating Leases          38,886       12,538        9,970      5,174       2,658       2,079            6,467
Purchase
Obligations               88,968       88,926           22         20           -           -                -
Total Contractual
Obligations            $ 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:

                                   Total                     Amount of Commitment Expiration Per Period
                                  Amounts
In $000's                        Committed       2010          2011          2012      2013     2014      Thereafter
Standby Letters of Credit       $       900    $     900    $         -    $      -    $   -    $   -    $          -
Other commercial commitments            567           98             48           -        -        -             421
Guarantees*                          92,735        1,335         64,851      22,761        -        -           3,788
Total Commercial Commitments    $    94,202    $   2,333    $    64,899    $ 22,761    $   -    $   -    $      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.

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