Special Note Regarding Forward-Looking Statements

This report contains or may contain certain forward-looking statements and information that are based on the beliefs of our management as well as estimates and assumptions made by, and information currently available to, our management. All statements other than statements regarding historical facts are forward-looking statements. The words "believe," "expect," "anticipate," "will continue," "will," "estimate," "plan," "future" and other similar expressions, and negative statements of such expressions, generally identify forward-looking statements, including, in particular, statements regarding the development and approval of new products and product applications, market expansion, pending litigation and the development of new markets for our products, such as cardiovascular and stroke markets. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these forward-looking statements. Such forward-looking statements reflect the views of our management at the time such statements are made and are subject to a number of risks, uncertainties, estimates and assumptions, including, without limitation, and in addition to those identified in the text surrounding such statements, those identified in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 and elsewhere in this report.

In addition, important factors to consider in evaluating such forward-looking statements include changes or developments in healthcare reform, social, economic, market, legal or regulatory circumstances, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors, the actions or omissions of third parties, including suppliers, customers, competitors and governmental authorities and various other factors. Should any one or more of these risks or uncertainties materialize, or underlying estimates or assumptions prove incorrect, actual results may vary significantly from those expressed in such forward-looking statements, and there can be no assurance that the forward-looking statements contained in this report will in fact occur.

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described in our annual report on Form 10-K, in addition to the other cautionary statements and risks described elsewhere in this report and in our other filings with the SEC, including our subsequent reports on Forms 10-Q and 8-K. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on us, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock will likely decline and you may lose all or part of your investment.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following is an overview of our results of operations for the quarter ended September 30, 2009. 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 condensed 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 quarter ended September 30, 2009 we continued our efforts to build awareness of the consequences of untreated SDB, and to grow our business in this market. In our efforts we have attempted to raise awareness through market and clinical initiatives highlighting the relationship between sleep-disordered breathing/obstructive sleep apnea and co-morbidities such as cardiac disease, diabetes, hypertension and obesity as well as the dangers of sleep apnea in regard to occupational health and safety, especially in the transportation industry.

We are committed to ongoing investment in research and development and product enhancements. During the quarter ended September 30, 2009 we invested $17.9 million on research and development activities. Since the development of Continuous Positive Airway Pressure ("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. Our new product release schedule remains active across both our mask and flow generator categories. We have recently introduced the ApneaLink™ Plus, our type 3 device for home sleep testing, the Swift™ FX mask in Europe and the Mirage™ SoftGel mask in the Americas. We are also taking steps to drive further awareness in the primary care community of the health dangers of sleep-disordered breathing through educational programs. These efforts should further increase awareness of both doctors and patients with respect to the relationship between SDB/obstructive sleep apnea and co-morbidities.

During the quarter ended September 30, 2009, our net revenue increased by 13% when compared to the quarter ended September 30, 2008. Gross margin was 60.8% for the quarter ended September 30, 2009 compared to 58.3% for the quarter ended September 30, 2008. Diluted earnings per share for the quarter ended September 30, 2009 increased to $0.55 per share, up from $0.36 per share in the quarter ended September 30, 2008.

Total operating cash flow for the quarter ended September 30, 2009, was $64.1 million compared to $67.9 million for the quarter ended September 30, 2008. At September 30, 2009, our cash and cash equivalents totaled $477.8 million, our total assets were $1.6 billion and our stockholders' equity was $1.2 billion.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Revenue

Net revenue increased for the quarter ended September 30, 2009 to $247.0 million compared to $217.9 million for the quarter ended September 30, 2008, an increase of $29.1 million or 13%. The increase in net revenue is primarily 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 $5.3 million during the quarter ended September 30, 2009. Excluding the impact of unfavorable foreign currency movements, net revenue for the quarter ended September 30, 2009 increased by 16% compared to the quarter ended September 30, 2008.

Net revenue in North and Latin America increased for the quarter ended September 30, 2009 to $134.7 million from $113.6 million for the quarter ended September 30, 2008, an increase of 19%. We believe 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 S bilevel flow generator and masks. Net international revenue, which includes all markets outside North and Latin America, for the quarter ended September 30, 2009 increased to $112.3 million from $104.3 million compared to the three months, ended September 30, 2008, an increase of 8%. Movements in international currencies against the U.S. dollar negatively impacted international revenues by approximately $5.3 million during the quarter ended September 30, 2009. Excluding the impact of movements in international currencies, international sales grew by 13% compared to the quarter ended September 30, 2008. This international sales growth predominantly reflects growth in the overall sleep-disordered breathing market and growth generated from our recent product releases, including the S8II flow generator, VPAP IV bilevel flow generator and masks.

Revenue from the sales of flow generators, including humidifiers, for the quarter ended September 30, 2009 totaled $140.6 million, an increase of 12% compared to the quarter ended September 30, 2008 of $125.5 million, including increases of 14% in North and Latin America and 10% elsewhere. Revenue from the sales of masks, motors and other accessories for the quarter ended September 30, 2009 totaled $106.4 million, an increase of 15% compared to the quarter ended September 30, 2008 of $92.4 million, including increases of 23% in North and Latin America and 3% elsewhere. Excluding the impact of favorable currency movements, international revenue increased by 15% and 8% for revenue of flow generators and masks, motors and other accessories, respectively for the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008. We believe these increases primarily reflect growth in the overall sleep-disordered breathing market and contributions from new products.

The following table summarizes the percentage movements in our net revenue for the three months ended September 30, 2009 compared to the three months ended September 30, 2008:

                              North and            International       Total         International           Total
                            Latin America                                              (Constant           (Constant
                                                                                      Currency) *          Currency)
Flow generators                    14%                     10%           12%                 15%               15%
Masks, motors and other
accessories                        23%                      3%           15%                  8%               17%
Total                              19%                      8%           13%                 13%               16%

* Constant currency numbers exclude the impact of movements in international currencies.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Gross Profit

Gross profit increased for the quarter ended September 30, 2009 to $150.2 million from $127.1 million for the quarter ended September 30, 2008, an increase of $23.1 million or 18%. Gross profit as a percentage of net revenue for the quarter ended September 30, 2009 increased to 60.8% from 58.3% for the quarter ended September 30, 2008.

The increase in gross margins for the quarter ended September 30, 2009 is primarily due to cost savings attributable to manufacturing and supply chain improvements, a favorable change in product mix as sales of our higher margin products represented a higher proportion of our sales and 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased for the quarter ended September 30, 2009 to $76.8 million from $71.3 million for the quarter ended September 30, 2008, an increase of $5.4 million or 8%. Selling, general and administrative expenses, as a percentage of net revenue, were 31% for the quarter ended September 30, 2009 compared to 33% for the quarter ended September 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 our expenditure by approximately $2.6 million for the three months ended September 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 at approximately 31%.

Research and Development Expenses

Research and development expenses increased for the three months ended September 30, 2009 to $17.9 million from the $17.3 million for the three months ended September 30, 2008, an increase of $0.6 million or 4%. Research and development expenses, as a percentage of net revenue, were 7% for the three months ended September 30, 2009 compared to 8% for the three months ended September 30, 2008.

The increase in research and development expenses was primarily due to an increase in charges for consulting fees and an increase in clinical trials. The increase in research and development expenses was partly offset by the net depreciation of international currencies against the U.S. dollar, which lowered our expenses by approximately $1.0 million for the three months ended September 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%.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets for the three months ended September 30, 2009 totaled $1.8 million, respectively, as compared to $1.9 million for the three months ended September 30, 2008, respectively. The decrease in amortization expense is mainly attributable to the appreciation of the U.S. dollar against the Euro as the majority of the acquired intangible assets are denominated in Euros.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Donations to Foundation

During the three months ended September 30, 2009 and 2008, we donated $1.0 million and $Nil, respectively, to the ResMed Foundation. The Foundation was established primarily to promote research into the deleterious medical consequences of untreated sleep-disordered breathing.

Other Income (Expense), Net

Other income for the three months ended September 30, 2009 was $5.2 million, compared to $2.2 million for the three months ended September 30, 2008. The increase in other income was predominately due to gains on foreign currency and hedging transactions during the three months ended September 30, 2009 compared to a loss on foreign currency and hedging transactions during the three months ended September 30, 2008.

Income Taxes

Our effective income tax rate of approximately 27.3% for the three months ended September 30, 2009 was lower than our effective income tax rate of approximately 27.6% for the three months ended September 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 three months ended September 30, 2009 was $42.1 million or $0.55 per diluted share compared to net income of $28.0 million or $0.36 per diluted share for the three months ended September 30, 2008, an increase of 50% and 53%, respectively, over the three months ended September 30, 2008.

Liquidity and Capital Resources

As of September 30, 2009 and June 30, 2009, we had cash and cash equivalents of $477.8 million and $415.7 million, respectively. Working capital was $648.6 million and $584.2 million at September 30, 2009 and June 30, 2009, respectively.

Inventories at September 30, 2009 increased by $29.5 million or 20% to $175.1 million compared to September 30, 2008 inventories of $145.6 million. The percentage increase in inventories mainly reflects an increase in materials for new products and the impact of movements in foreign currency exchange rates, particularly the appreciation of the Australian dollar and Euro relative to the U.S. dollar.

Accounts receivable at September 30, 2009 were $208.8 million, an increase of $33.0 million or 19% over the September 30, 2008 accounts receivable balance of $175.8 million. Accounts receivable days outstanding of 77 days at September 30, 2009, increased by 2 days compared to the 75 days at September 30, 2008. Our allowance for doubtful accounts as a percentage of total accounts receivable at September 30, 2009 and June 30, 2009 was 3.7% and 3.4%, respectively. To date we have not experienced any significant adverse decline in the credit quality of our customers and it remains broadly consistent with our past experience.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources, Continued

Details of contractual obligations at September 30, 2009 are as follows:



                                                                                                    Payments Due by Period
In $000's                                              Total        Sep 30, 2010      Sep 30, 2011      Sep 30, 2012      Sep 30, 2013      Sep 30, 2014      Thereafter
Long-Term Debt                                        $163,389           $68,296           $95,093                $-                $-                $-              $-
Operating Leases                                       $37,536            12,352             9,572             4,571             2,709             2,346           5,986
Purchase Obligations                                  $107,036           106,659               362                15                 -                 -               -
Total Contractual
Obligations (A)                                       $307,961          $187,307          $105,027            $4,586            $2,709            $2,346          $5,986

(A) The liabilities related to unrecognized tax benefits are not included in the above contractual obligations because the timing cannot be reliably estimated.

Details of other commercial commitments as at September 30, 2009 are as follows:

                                                                                            Amount of Commitment Expiration Per Period
In $000's                                            Total        Sep 30, 2010        Sep 30, 2011        Sep 30, 2012       Sep 30, 2013       Sep 30, 2014        Thereafter
Standby Letters of Credit                           $    952      $         902      $           50      $            -      $           -      $           -      $          -
Guarantees*                                         $ 92,954              2,425              64,570              21,979                  -                  -             3,980
Other Commercial Commitments                        $    514                 75                   -                   -                  -                  -               439
Total Commercial Commitments                        $ 94,420      $       3,402      $       64,620      $       21,979      $           -      $           -      $      4,419

* The above guarantees relate mainly to guarantees required as part of our debt facilities 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 modified in order that the revolving commitment remains at $65 million otherwise it would have been reduced to $55 million as of March 1, 2009. The Loan Agreement was also amended to modify 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 levels was eliminated.

The entire outstanding principal amount must be repaid in full before March 1, 2011. The outstanding principal amount due under the revolving facility will bear interest at a rate equal to LIBOR plus 0.75% to 1.00% (depending on the applicable leverage ratio). At September 30, 2009, there was $64.1 million outstanding under this revolving facility.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources, Continued

Syndicated Facility

On June 8, 2006, our wholly owned Australian subsidiary, ResMed Limited, entered into a Syndicated Facility Agreement with HSBC Bank Australia Limited as original financier, facility agent and security trustee, that provides for a loan in three tranches (the "Syndicated Facility Agreement").

Tranche A is a Euro ("EUR") 50 million five-year term loan facility that refinanced all amounts outstanding under a previous facility. Tranche A bears interest at a rate equal to LIBOR for deposits denominated in EUR plus a margin of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of ResMed Inc. and its subsidiaries (the "ResMed Group") for the most recently completed fiscal year for the applicable interest period.

Payments of principal must be made to reduce the total outstanding principal amount of Tranche A to EUR 15 million on December 31, 2009, and the entire outstanding principal amount must be repaid in full on June 8, 2011. At September 30, 2009, the Tranche A facility loan had an amount outstanding of EUR 27.5 million, equivalent to approximately U.S. dollars ("USD") 40.3 million.

Tranche B is a USD 15 million term loan facility that may only be used for the purpose of financing capital expenditures and other asset acquisitions by the ResMed Group. Tranche B bears interest at a rate equal to LIBOR for deposits denominated in EUR, Australian dollars, USD or British Pounds Sterling plus a margin of 0.80% or 0.90%, depending on the ratio of the total debt to EBITDA of the ResMed Group for the most recently completed fiscal year for the applicable interest period. The entire principal amount must be repaid in full on June 8, 2011. At September 30, 2009 there was USD 9.0 million outstanding under the Tranche B loan facility.

Tranche C is a USD 60 million term loan facility that may only be used for the purpose of the payment by ResMed Limited of a dividend to ResMed Holdings Limited, which will ultimately be paid to ResMed Inc. Tranche C bears interest at a rate equal to LIBOR for deposits denominated in EUR, Australian dollars or USD plus a margin of 0.70% or 0.80%, depending on the ratio of the total debt to EBITDA of the ResMed Group for the most recently completed fiscal year for the applicable interest period. The entire outstanding principal amount was repaid in full during the three months ended June 30, 2009. At September 30, 2009, the Tranche C loan facility was no longer available.

Simultaneous with the Syndicated Facility Agreement, ResMed Limited entered into a working capital agreement with HSBC Bank Australia Limited for revolving, letter of credit and overdraft facilities up to a total commitment of 6.5 million Australian dollars, and ResMed (UK) Limited entered into a working capital agreement with HSBC Bank plc for a revolving cash advance facility for a total commitment of up to 3 million British Pounds Sterling. At September 30, 2009, there were no amounts outstanding under either of these facilities.

On September 30, 2008, our wholly-owned Australian subsidiary, ResMed Limited, agreed to amend and restate the Syndicated Facility Agreement entered into on June 8, 2006. The amended and restated agreement ("First Amended and Restated Syndicated Facility Agreement") with the Hong Kong and Shanghai Banking Corporation, Sydney Branch as financier and HSBC Bank Australia Limited as facility agent and security trustee, provided for an additional Tranche D term loan facility in the amount of USD 50 million.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources, Continued

On September 30, 2009, ResMed Limited, agreed to amend and restate for a second time the Syndicated Facility Agreement. The second amended and restated agreement ("Second Amended and Restated Syndicated Facility Agreement") provides for the extension of our Tranche D term loan facility in the amount of USD 50 million for an additional 12 month period and to increase the interest rate applicable to the Tranche D portion of the loan facility. The financier continues to have the right to assign part or all of its rights and/or obligations under the Second Amended and Restated Syndicated Facility Agreement to other financial institutions. The extended Tranche D loan facility bears interest at a rate equal to LIBOR for deposits denominated in USD, plus a margin of 2.25% or 2.50%, depending on the ratio of the total debt to EBITDA of the ResMed Group for the most recently completed fiscal year for the applicable interest period. The entire principal amount of the additional loan facility must be repaid in full by September 30, 2010. At September 30, 2009 there was USD 50.0 million outstanding under the Tranche D loan facility.

. . .