<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____to______
Commission file number 0-26268
MINIMED INC.
(Exact Name of Registrant as Specified in its Charter)
---------------
Delaware 95-4408171
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
12744 SAN FERNANDO ROAD, SYLMAR, CA 91342
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (818) 362-5958
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT AUGUST 1, 1997
------------------- -----------------------------
<S> <C>
Common Stock, $.01 par value 12,797,058
</TABLE>
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<PAGE> 2
INDEX
MINIMED INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes (Unaudited) 3
Consolidated Balance Sheets -- December 27, 1996 and June 27, 1997 3
Consolidated Statements of Income -- Three months and six months ended June
28, 1996 and June 27, 1997 4
Consolidated Statements of Cash Flows -- Six months ended June 28, 1996 and
June 27, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
INDEX TO EXHIBITS 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
ASSETS
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 10,286,000 $ 25,431,000
Short-term investments ..................................... 9,517,000 12,156,000
Accounts receivable, net of allowance for doubtful
accounts of $2,575,000 and $3,344,000 at December 27, 1996
and June 27, 1997, respectively ........................... 15,617,000 14,683,000
Receivable due from affiliated entity ...................... 90,000 90,000
Inventories ................................................ 6,725,000 8,488,000
Deferred income taxes ...................................... 3,003,000 3,658,000
............
Prepaid expenses and other current assets .................. 1,042,000 1,019,000
------------ ------------
Total current assets ........................... 46,280,000 65,525,000
OTHER ASSETS ................................................. 577,000 3,223,000
LONG-TERM INVESTMENTS ........................................ -- 3,035,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ................ 12,646,000 13,575,000
------------ ------------
TOTAL ........................................................ $ 59,503,000 $ 85,358,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 1,642,000 $ 1,442,000
Accrued salaries and related benefits ...................... 2,065,000 1,679,000
Accrued sales commissions .................................. 1,568,000 565,000
Accrued warranties ......................................... 2,873,000 3,286,000
Income taxes payable ....................................... 463,000 190,000
Other accrued expenses ..................................... 460,000 247,000
------------ ------------
Total current liabilities ....................... 9,071,000 7,409,000
------------ ------------
Deferred Tax Liabilities ..................................... 806,000 806,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 20,000,000 shares authorized;
11,636,175 and 12,729,617 shares issued and outstanding as
of December 27, 1996 and June 27, 1997, respectively ... 116,000 128,000
Additional capital ........................................ 46,502,000 71,638,000
Cumulative foreign currency translation adjustment......... -- (277,000)
Retained Earnings ......................................... 3,008,000 5,654,000
------------ ------------
Total stockholders' equity ..................... 49,626,000 77,143,000
------------ ------------
TOTAL ........................................................ $ 59,503,000 $ 85,358,000
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
MINIMED INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES .................................... $17,044,000 $13,343,000 $32,309,000 $25,552,000
COST OF SALES ................................ 5,711,000 4,571,000 10,795,000 8,883,000
----------- ----------- ----------- -----------
GROSS PROFIT ................................. 11,333,000 8,772,000 21,514,000 16,669,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative ........ 7,394,000 5,818,000 13,959,000 11,142,000
Research and development ................... 1,928,000 1,953,000 3,933,000 3,775,000
----------- ----------- ----------- -----------
Total operating expenses ......... 9,322,000 7,771,000 17,892,000 14,917,000
----------- ----------- ----------- -----------
OPERATING INCOME ............................. 2,011,000 1,001,000 3,622,000 1,752,000
OTHER INCOME, Including interest income ...... 464,000 301,000 617,000 497,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................. 2,475,000 1,302,000 4,239,000 2,249,000
PROVISION FOR INCOME TAXES ................... 926,000 370,000 1,592,000 690,000
----------- ----------- ----------- -----------
NET INCOME ................................... $ 1,549,000 $ 932,000 $ 2,647,000 $ 1,559,000
=========== =========== =========== ===========
NET INCOME PER SHARE ........................ $ 0.12 $ 0.08 $ 0.21 $ 0.13
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ........................ 13,367,000 12,300,000 12,878,000 12,160,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statement.
4
<PAGE> 5
MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 27, 1997 AND SIX MONTHS ENDED JUNE 28, 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ 2,647,000 1,559,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................... 1,254,000 928,000
Deferred income taxes ........................... (655,000) --
Changes in operating assets and liabilities:
Accounts receivable, net ...................... 934,000 460,000
Receivable due from affiliated entity ......... 23,000
Inventories ................................... (1,763,000) (1,804,000)
Prepaid expenses and other current assets ..... 23,000 271,000
Other assets .................................. (481,000) --
Accounts payable .............................. (200,000) (700,000)
Accrued expenses .............................. (1,390,000) (701,000)
------------ ------------
Net cash provided by operating activities ... 369,000 36,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments ........................ (2,639,000) (5,062,000)
Long-term investments ......................... (5,199.000) --
Purchase of land, buildings, property and
equipment ................................... (2,183,000) (1,979,000)
------------ ------------
Net cash used in investing activities ....... (10,021,000) (7,041,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from public offering (net of expenses) 22,169,000 --
Proceeds from exercise of warrants ............ 2,600,000 --
Proceeds from stock option exercises .......... 25,000 960,000
Proceeds from issuance of common stock
under employee stock plan ................... 280,000 --
------------ ------------
Net cash provided by financing activities ... 25,074,000 960,000
------------ ------------
Cumulative foreign currency
translation adjustment ...................... (277,000) --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................... 15,145,000 (6,045,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 10,286,000 14,762,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......... $ 25,431,000 $ 8,717,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ................................ $ 1,960,000 $ 877,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - The Company has
recognized a reduction in income taxes payable of $520,000 and $74,000 during
the six months ended June 28, 1996 and during the six months ended June 27,
1997, respectively, related to the exercise of nonqualified stock options.
See notes to consolidated financial statements.
5
<PAGE> 6
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 28, 1996 AND SIX MONTHS ENDED JUNE 27, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of MiniMed Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal, recurring
adjustments considered necessary for a fair presentation have been included. The
financial statements should be read in conjunction with the audited financial
statements included in the Annual Report of MiniMed Inc. filed on Form 10-K with
the Securities and Exchange Commission for the year ended December 27, 1996. The
results of operations for the three months and six months ended June 27, 1997
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 2, 1998.
Recently Issued Accounting Pronouncements. The Financial Accounting
Standards Board issued Statement of Financial Accounting Standard Number 128
Earnings Per Share ("FAS 128"), in February 1997. This statement specifies the
computation of earnings per share ("EPS") as basic EPS, consisting of the
weighted average shares outstanding and diluted EPS, consisting of weighted
average shares and all dilutive potential common shares that were outstanding
during the period. The Company does not expect the impact of adopting FAS 128
to be material for the quarter ended June 27, 1997.
NOTE 2. INCOME TAXES
Net income and earnings per share for the three months and six months
ended June 28, 1996 and June 27, 1997 reflect income taxes which have been
recorded at the Company's estimated effective tax rate for the year. This
estimated income tax rate has been determined by giving consideration to the
pretax earnings and losses applicable to foreign and domestic tax jurisdictions
and the estimated reduction of valuation allowances which offset deferred tax
assets of the Company under the provisions of FASB Statement No. 109,
"Accounting for Income Taxes".
NOTE 3. WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
Earnings per common and common equivalent share for the three months
and six months ended June 28, 1996 and June 27, 1997, were computed by dividing
net income by weighted average common and common equivalent shares outstanding
during the periods presented, computed in accordance with the treasury stock
method.
NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
December 27, June 27,
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Inventories:
Raw materials ........................................ $ 3,465,000 $ 4,169,000
Work-in-progress ..................................... 1,117,000 1,405,000
Finished goods ....................................... 2,143,000 2,914,000
------------ ------------
$ 6,725,000 $ 8,488,000
============ ============
Property, plant and equipment:
Land, buildings and improvements ..................... $ 7,058,000 $ 7,364,000
Machinery and equipment .............................. 6,682,000 6,959,000
Tooling and molds..................................... 2,979,000 2,150,000
Furniture and fixtures................................ 1,733,000 2,011,000
------------ ------------
18,452,000 18,484,000
Less accumulated depreciation .......................... (5,806,000) (4,909,000)
------------ ------------
Total................................................... $ 12,646,000 $ 13,575,000
============ ============
</TABLE>
<TABLE>
TRIMERIS INC.
<S> <C> <C>
Other Assets:
Investment in Trimeris Inc. Convertible Preferred Stock ...... $ - $2,000,000
Inventory component's non-current ............................ 300,000 836,000
Technology license ........................................... 277,000 387,000
-------- ----------
$577,000 $3,223,000
======== ==========
</TABLE>
The Company has classified certain working components related to its
implantable pump product line as non-current assets as these components will
not be used in the sale of these products during 1997.
During the second quarter of 1997, the Company purchased 2,666,667
shares of Series D convertible preferred stock of Trimeris, Inc. ("Trimeris"),
representing less than 10% of Trimeris outstanding shares. Accordingly, the
cost method of accounting will be utilized to value this investment. Trimeris
is engaged in the development of pharmaceutical products for the treatment of
various medical conditions. The Company and Trimeris have also entered into a
corporate alliance to utilize the Company's technologies in the delivery of
Trimeris's pharmaceuticals.
6
<PAGE> 7
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 28, 1996 AND SIX MONTHS ENDED JUNE 27, 1997
NOTE 5. CONTINGENCIES
On September 11, 1996, the Company filed a lawsuit against Fimed, Inc.
("Fimed") in Los Angeles County Superior Court seeking declaratory relief and
rescission of a product distribution contract. Fimed was appointed the Company's
exclusive authorized distributor of certain products to customers using
third-party consumer financing. The Company is claiming that it is entitled to
such relief because it was fraudulently induced by Fimed to enter into the
agreement. Subsequent to the filing of this action, Fimed has filed a
counterclaim seeking compensatory damages of approximately $600 million and
punitive damages of $300 million. No significant amount of the Company's
products has even been sold using third-party consumer financing, and Fimed
never made any sales under the agreement. The Company believes that it has
meritorious defenses to the counterclaim asserted by Fimed. The Company intends
to prosecute its claim against Fimed and defend against the counterclaim
vigorously. Discovery has commenced in the litigation, but the matter has not
yet been set for trial.
During the normal course of business, the Company may be subject to
litigation involving various business matters. Management believes that an
adverse outcome of any such known matters would not have a material adverse
impact to the Company.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company has historically focused its efforts on three product lines
to be utilized in the treatment of diabetes: external pumps and related
disposables, implantable insulin pumps and a subcutaneous glucose monitoring
system. There have been no sales of the glucose monitoring system to date and
sales activity of the implantable insulin pump is in an early stage, primarily
in Europe, where the product is approved for commercial distribution. Future
efforts will focus upon the continued sales and development of products for the
treatment of diabetes and the continued development of the Company's
technologies for the treatment of other medical conditions.
RESULTS OF OPERATIONS
The following table sets forth, for the three months and six months
ended June 27, 1997 and June 28, 1996, the percentage relationship to net sales
of certain items in the Company's consolidated statements of income and the
percentage changes in the dollar amounts of such items on a comparative basis.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ----------------------------------
JUNE 27, JUNE 28, % INCREASE JUNE 27, JUNE 28, % INCREASE
1997 1996 (DECREASE) 1997 1996 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 27.7% 100.0% 100.0% 26.4%
----- ----- ----- ----- ----- -----
Cost of sales 33.5 34.3 24.9 33.4 34.8 21.5
----- ----- ----- ----- ----- -----
Gross profit 66.5 65.7 29.2 66.6 65.2 29.1
Operating expenses:
Selling, general and 43.4 43.6 27.1 43.2 43.6 25.3
administrative
Research and development 11.3 14.6 (1.3) 12.2 14.8 4.2
----- ----- ----- ----- ----- -----
Total operating expenses 54.7 58.2 20.0 55.4 58.4 19.9
----- ----- ----- ----- ----- -----
Operating income 11.8% 7.5% 100.9% 11.2% 6.8% 106.7%
===== ===== ===== ===== ===== =====
</TABLE>
The following table sets forth domestic and international net sales,
gross profits and research and development expenditures related to the Company's
three primary product lines for the three months and six months ended June 28,
1996 and June 27, 1997.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS % OF NET SALES
----------------------------------------------- -----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------- ------------------- -------------------
JUNE 27, JUNE 28, JUNE 27, JUNE 28, JUNE 27, JUNE 28, JUNE 27, JUNE 28,
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC AND
INTERNATIONAL NET SALES
External pumps and
related disposables
Domestic $ 15,337 $ 11,186 $ 28,842 $ 21,107 90.0% 83.8% 89.3% 82.6%
International 1,525 1,429 3,081 3,394 8.9 10.7 9.5 13.3
-------- -------- -------- -------- ----- ----- ----- -----
Subtotal $ 16,862 $ 12,615 31,923 $ 24,501 98.9 94.5 98.8 95.9
Implantable Pumps 182 728 386 1,051 1.1 5.5 1.2 4.1
-------- -------- -------- -------- ----- ----- ----- -----
Net Sales $ 17,044 $ 13,343 $ 32,309 $ 25,552 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ===== ===== ===== =====
GROSS PROFITS
External pumps and
related disposables $ 11,753 $ 8,820 $ 22,291 $ 16,853 69.0% 66.1% 69.0% 66.0%
Implantable pumps (420) (48) (777) (184) (2.5) (0.4) (2.4) (0.7)
-------- -------- -------- -------- ----- ----- ----- -----
Total $ 11,333 $ 8,772 $ 21,514 $ 16,669 66.5% 65.7% 66.6% 65.3%
======== ======== ======== ======== ===== ===== ===== =====
RESEARCH AND
DEVELOPMENT EXPENSES
External pumps and
related disposables $ 665 $ 854 $ 1,203 $ 1,656 3.9% 6.4% 3.7% 6.5%
Implantable pumps and
other applications 565 707 1,155 1,235 3.3 5.3 3.6 4.8
Glucose sensor 698 392 1,575 884 4.1 2.9 4.9 3.5
-------- -------- -------- -------- ----- ----- ----- -----
Total $ 1,928 $ 1,953 $ 3,933 $ 3,775 11.3% 14.6% 12.2% 14.8%
======== ======== ======== ======== ===== ===== ===== =====
</TABLE>
8
<PAGE> 9
NET SALES
Net sales increased 27.7%, or $3,701,000, during the three months ended
June 27, 1997 over the three months ended June 28, 1996 to $17,044,000 from
$13,343,000. Net sales increased 26.4%, or $6,757,000, during the six months
ended June 27, 1997 over the six months ended June 28, 1996 to $32,309,000 from
$25,552,000. This increase in net sales is primarily the result of an increase
in the domestic sales of external pumps and related disposables, as domestic
sales of these products grew 37.1%, or $4,151,000, from the second quarter of
1996 to the second quarter of 1997 and 36.6%, or $7,735,000, from the first half
of 1996 to the first half of 1997. External pump sales grew at an increasingly
faster rate than disposable sales with anticipated demand for external pumps
offset to a degree by increased competition in the disposable product
marketplace. With the introduction of the Company's new model 507 insulin pump
in June 1996, domestic average sales prices on external pumps increased from the
first 6 months of 1996 to the first 6 months of 1997, while related disposable
products experienced relative price stability.
International sales of external pumps and related disposables grew
6.7%, or $96,000, from the second quarter of 1996 to the second quarter of 1997
but decreased by 9.2%, or $313,000, from the first half of 1996 to the first
half of 1997. International sales of external pumps and related disposables for
the first six months of 1996 include the sale of external pumps to Novo Nordisk,
which previously manufactured external insulin pumps and related disposables
sold in Europe for treatment of diabetes. Under an agreement with the Company
entered into in late 1993, the external insulin pumps that Novo Nordisk
previously manufactured and sold were replaced with the Company's external
insulin pumps. While sales of external pumps under this agreement were only 6.3%
of international sales during the second quarter of 1996, sales of external
pumps to Novo Nordisk represented 28.4% of international sales of external pumps
and related disposables during the six months ended June 28, 1996. Excluding the
non-recurring 1996 sales to Novo Nordisk, international net sales of external
pumps and related disposables for the first half of 1997 increased by 26.8% over
the similar period in 1996. The Company completed its obligations under the
contract with Novo Nordisk during the quarter ended June 28, 1996.
Sales of implantable pumps decreased by $546,000, or 75.0%, during the
three months ended June 27, 1997 over the three months ended June 28, 1996 and
$665,000, or 63.3%, during the six months ended June 27, 1997 over the six
months ended June 28, 1996. Due to problems encountered with the special insulin
formulation used in the implantable pump and manufactured by Hoechst AG, a
German company ("Hoechst"), implantable pump sales were limited by the Company
during the first six months of 1997. Although the Company received certification
under the applicable directives issued by the EU and received the CE Mark in
March 1995 for the implantable pump (permitting commercial sale throughout the
EU), separate approval from the EU is required for commercial sale of the
insulin and this approval is not expected until late 1997 at the earliest. No
assurance can be given that such approval will be received at all. Future sales
of the Company's implantable insulin pumps may also be adversely affected by the
availability of the special insulin utilized in the implantable pump as well as
by the ability to obtain regulatory approval for such insulin, seasonality, and
overall market acceptance of this product line.
The Company and Hoechst are continuing to work towards commercial
distribution of a stable, highly concentrated insulin for use in the Company's
implantable pump. No assurance, however, can be given that such efforts will be
successful. The Company has submitted to the FDA certain portions of its
regulatory filing prior to the completion of testing of the special insulin. No
assurance can be given, however, that the FDA will accept or act upon the final
NDA/PMA submission. If the efforts to develop the special insulin are not
successful or if the special insulin is not approved, the business, results of
operations or prospects for the Company could be materially adversely effected.
Additionally, under a supply agreement, the Company has a financial obligation
to purchase special component parts for this product line. The Company obligated
to purchase $339,500 additional components through December 31, 1997 and has
classified companies not expected to be used in 1997 as non-current assets.
These components are included in the Company's inventory balances and other
long-term assets. The Company may elect to extend this supply agreement through
purchasing an additional $875,000 of these components in 1998.
9
<PAGE> 10
OPERATING EXPENSES
Cost of Sales and Gross Profits--Cost of sales increased 24.9%, or
$1,140,000, during the three months ended June 27, 1997 over the three months
ended June 28, 1996 to $5,711,000, from $4,571,000, and increased 21.5%, or
$1,912,000, during the six months ended June 27, 1997 over the six months ended
June 28, 1996 to $10,795,000 from $8,883,000. As a percentage of net sales, cost
of sales in the second quarter of 1997 decreased to 33.5% from 34.3% in the
second quarter 1996, with a similar reduction in the cost of sales for the first
six months of 1997 compared to the first six months of 1996. Gross margins on
the external pump and related disposable sales increased to 69.0% of total sales
during both the first three and the first six months of 1997, compared to
approximately 66.0% of total sales during the comparable periods of 1996.
Increased sales volume continued to enable the Company to spread its fixed
manufacturing costs over a larger sales base and to achieve certain economies of
scale. The Company has also continued its manufacturing efficiency programs
leading to decreased labor, overhead and materials costs. The Company has
achieved lower product costs for certain disposable products by bringing a
manufacturing process in-house during the second half of 1996. The positive
effects of these cost improvements has been partially offset by increasing
negative gross margins achieved on the implantable pump product line. The
continued limited and irregular sales of implantable pumps has inhibited the
Company's ability to realize economies of scale or manufacturing efficiencies on
that product line. The Company expects this trend to continue for the
foreseeable future.
Operating Expenses--Selling, general and administrative expenses
increased 27.1%, or $1,576,000, during the three months ended June 27, 1997 over
the three months ended June 28, 1996 to $7,394,000 from $5,818,000, with
selling, general and administrative expenses increasing 25.3%, or $2,817,000,
during the six months ended June 27, 1997 over the six months ended June 28,
1996 to $13,959,000 from $11,142,000. Selling, general and administrative
expenses have decreased slightly as a percentage of sales thus far in 1997.
Selling and marketing expenses increased primarily due to increased sales
volume, which leads to increases in sales commissions and other variable costs
related to the field sales organization. Other significant increases in selling
and marketing expenses related to both a significant expansion of the Company's
domestic sales force and administrative support staff to enhance domestic
selling, marketing and education efforts, and increased spending in the
development of international markets particularly through the Company's French
and German subsidiaries. General and administrative expenses increased generally
as a result of the Company's increased sales activities.
Research and development expenses decreased 1.3%, or $25,000, during
the three months ended June 27, 1997 over the three months ended June 28, 1996
to $1,928,000 from $1,953,000, with research and development expenses increasing
4.2%, or $158,000, during the six months ended June 27, 1997 over the six months
ended June 28, 1996 to $3,933,000 from $3,775,000. As a percentage of sales,
research and development expenses decreased to 11.3% during the three months
ended June 27, 1997 from 14.6% during the similar period in 1996, with research
and development expenses decreasing to 12.2% during the six months ended June
27, 1997 from 14.8% during the corresponding period in 1996. Research and
development expenses in the second quarter of 1997 have been reduced by
approximately $150,000 due to the Company from Boehringer Mannheim Corporation
under terms of a joint product development agreement. The Company has increased
its research and development expenditures in 1997 on the subcutaneous glucose
monitoring project, as multi-center clinical trials on the first generation of
glucose sensor products began in June 1997. Research and development expenses on
external pumps and related disposable products during the first six months of
1997 decreased over the corresponding period of 1996, as the Company launched
its latest model external insulin pump in the second quarter of 1996. Research
and development related to the implantable insulin pump product line decreased
in the second quarter of 1997 compared to the second quarter of 1996, as the
Company awaits approval of the special insulin required for this product. The
Company anticipates that research and development expenditures related to the
continued development of its technologies for use in the treatment of other
medical conditions will increase in future periods as this continues to be a
strategic focus for the company.
Other--Other income consists primarily of interest income generated
from the Company's cash, cash equivalents, and short-term and long-term
investment balances. Other income increased 54.2%, from $301,000, during the
second quarter of 1996 to $464,000 during the second quarter of 1997 due
generally to an increase in cash, cash equivalents, short-term investments, and
long-term investments related to completion of the Company's public follow-on
stock offering at the end of the 1997 first quarter.
The Company's effective tax rate during 1997 and has been computed
giving consideration to the pretax earnings and losses applicable to the
Company's foreign and domestic tax jurisdictions and a continual decrease in the
Company's valuation allowance against net deferred tax assets due to improved
operating results. The Company has not incurred any material foreign income tax
expense to date. Inflation has not significantly impacted the Company's results
of operations for the past two years.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 27, 1997, the Company had cash flow
provided by operations of $369,000 compared to cash flow provided by operations
of $36,000 in the comparable period in 1996. Cash provided by operations
increased primarily due to increased profitability and improved collections of
accounts receivable offset by increased investments in inventories during the
first half of 1997.
The Company's capital expenditures were $2,183,000 during the six
months ended June 27, 1997 compared to $1,979,000 spent during the comparable
period in 1996. Capital expenditures by the Company during the six months ended
June 27, 1997 related primarily to continued building improvement, manufacturing
expansion, research and development engineering equipment and information
systems requirements. The Company anticipates that future capital expenditures
will increase, as additional facilities improvements are required under local
regulations and additional equipment and improvements will be required for the
manufacture, development and improvement of the Company's current products and
anticipated new product offerings over the next three years. The Company also
used cash in making a $2.0 million investment in convertible preferred stock of
Trimeris, Inc. During the second quarter of 1997, the Company and Trimeris, Inc.
entered into an agreement to develop treatment programs for various medical
conditions, utilizing drugs developed by Trimeris, Inc. and the Company's drug
delivery systems.
The Company completed a public equity offering during April 1997 which
generated net proceeds to the Company of $22.2 million. In connection with this
offering, outstanding warrants were exercised which provided the Company with an
additional $1.9 million. Warrants to purchase an additional 50,000 shares of
common stock at an exercise price of $13.00 were exercised during the second
quarter of 1997 which provided the Company with an additional $650,000. On
January 21, 1997, the Company entered into an unsecured line of credit agreement
which enables MiniMed to borrow up to $10.0 million through January 31, 1999.
This line of credit, if used, bears interest at an adjustable rate equal to the
30-day commercial paper rate plus 2.15% (7.77% as of June 27, 1997). The Company
is also required to maintain certain cash, net worth and debt conditions under
the provisions of this agreement. The Company is currently in compliance with
all of these conditions. The Company also is involved in certain litigation, the
financial impact of which is uncertain.
See "Notes to Consolidated Financial Statements".
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2 CHANGES IN SECURITIES
(c) On April 2, 1997, Galen Partners II, L.P., Galen Partners
International II, L.P. and Galen Employees Fund, L.P. (collectively,
"Galen") exercised warrants representing an aggregate of 150,000 shares
of the Company's common stock at an exercise price of $13.00 per share,
or $1.95 million. In issuing such common stock to Galen, the Company
relied upon the exemptions from registration provided by (i) Section
3(b) and Rule 505 of the Securities Act of 1933, as amended (the
"Act"), as the aggregate offering price did not exceed $5.0 million,
and (ii) Section 4(2) and Rule 506 of the Act as the Company reasonably
believed that Galen had such knowledge and experience in business
matters that Galen was capable of evaluating the merits and risks of
such investment and had access to information of the kind that would be
included in a registration statement relating to the securities being
issued. The 150,000 shares purchased by Galen were immediately sold
pursuant to a public offering of the Company's common stock
underwritten by UBS Securities, Dillon, Read & Co. Inc., Hambrecht &
Quist and Smith Barney Inc.
On June 16, 1997, Galen exercised warrants representing an
aggregate of 50,000 shares of the Company's common stock at an exercise
price of $13.00 per share, or $650,000. In issuing such common stock to
Galen, the Company relied upon the same exemptions from registration as
are indicated above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 15, 1997, the Company held its 1997 Annual Meeting of
Stockholders (the "Annual Meeting"). At the Annual Meeting,
stockholders of the Company voted upon proposals to (1) elect seven
directors for a term of one year and until their respective successors
are elected and qualified ("Proposal One"); and, (2) ratify the
appointment of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending January 2, 1998 ("Proposal Two").
In total, 12,716,236 shares of Common Stock were eligible to
vote at the Annual Meeting, and holders of 10,466,539 shares of Common
Stock were represented in person or by proxy at the Annual Meeting,
constituting 82.30% if the eligible shares. Following is voting
information for both matters voted upon at the Annual Meeting:
Proposal One - The following individuals, all being directors
of the Company prior to such election, other than Ms. Davis, were
elected as directors of the Company at the Annual Meeting: Alfred E.
Mann; David Chernof, M.D.; Carolyne Kahle Davis; William R. Grant;
David H. MacCallum; Thomas R. Testman; and John C. Villforth. Each such
director, except for Mr. Chernof, received 10,459,143 votes (82.25%) in
favor of their election with 7,396 votes (.06%) withheld. Mr. Chernof
received 10,454,143 votes (82.21%) in favor of his election with 12,396
votes (.10%) withheld. None of the Company's directors received any
votes against their reelection nor were any broker non-votes received.
Proposal Two - At the Annual Meeting, Deloitte & Touche LLP
was ratified as the Company's independent auditors for the fiscal year
ending January 2, 1998. Deloitte and Touche LLP received 10,458,765
votes (82.25%) for such ratification with 4,944 votes (.04%) received
against and 2,830 votes (.02%) withheld. No broker non-votes were
received.
Accordingly, both of the Proposals were approved.
ITEM 5. OTHER INFORMATION
Not applicable.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
11.1 Calculation of earnings per share
27 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MiniMed Inc.
/s/ KEVIN R. SAYER
Date: August 11, 1997 -----------------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11.1 Calculation of earnings per share.
</TABLE>
<PAGE> 1
Exhibit 11.1
MINIMED INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 12,730,000 11,589,000 12,185,000 11,505,000
Common equivalent shares from stock options
and warrants 637,000 711,000 693,000 655,000
----------- ----------- ----------- -----------
Shares used in per share calculation 13,367,000 12,300,000 12,878,000 12,160,000
=========== =========== =========== ===========
Net income $ 1,549,000 $ 932,000 $ 2,647,000 $ 1,559,000
=========== =========== =========== ===========
Net income per share $ 0.12 $ 0.08 $ 0.21 $ 0.13
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945801
<NAME> MINIMED, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> DEC-28-1996
<PERIOD-END> JUN-27-1997
<CASH> 25,431
<SECURITIES> 12,156
<RECEIVABLES> 18,027
<ALLOWANCES> 3,344
<INVENTORY> 9,024
<CURRENT-ASSETS> 66,061
<PP&E> 18,484
<DEPRECIATION> 4,909
<TOTAL-ASSETS> 85,358
<CURRENT-LIABILITIES> 7,409
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 77,015
<TOTAL-LIABILITY-AND-EQUITY> 85,358
<SALES> 32,309
<TOTAL-REVENUES> 32,926
<CGS> 10,795
<TOTAL-COSTS> 28,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 769
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,239
<INCOME-TAX> 1,592
<INCOME-CONTINUING> 2,647
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,647
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
