<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 September 26, 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 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:
TITLE OF EACH CLASS OUTSTANDING AT NOVEMBER 6, 1997
- ---------------------------- -------------------------------
Common Stock, $.01 par value 12,860,631
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<PAGE> 2
INDEX
MINIMED INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Consolidated Balance Sheets (Unaudited) -- December 27, 3
1996 and September 26, 1997
Consolidated Statements of Income (Unaudited) -- Three
months and nine months ended September 27, 1996 and
September 26, 1997 4
Consolidated Statements of Cash Flows (Unaudited) --
Nine months ended September 27, 1996 and
September 26, 1997 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market 11
Risk
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
INDEX TO EXHIBITS 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1996 AND SEPTEMBER 26, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ..................... $10,286,000 $25,923,000
Short-term investments ........................ 9,517,000 10,738,000
Accounts receivable, net of allowance for
doubtful accounts of $2,575,000 and
$3,533,000 at December 27, 1996 and
September 26, 1997, respectively.............. 15,617,000 14,779,000
Inventories ................................... 6,725,000 9,268,000
Deferred income taxes ......................... 3,003,000 4,494,000
Prepaid expenses and other current assets ..... 1,132,000 1,086,000
----------- -----------
Total current assets .............. 46,280,000 66,288,000
OTHER ASSETS .................................... 577,000 3,725,000
LONG-TERM INVESTMENTS ........................... -- 4,486,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ... 12,646,000 14,654,000
----------- -----------
TOTAL ........................................... $59,503,000 $89,153,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................. $ 1,642,000 $ 1,478,000
Accrued salaries and related benefits ......... 2,065,000 2,416,000
Accrued sales commissions ..................... 1,568,000 842,000
Accrued warranties ............................ 2,873,000 3,330,000
Income taxes payable .......................... 463,000 481,000
Other accrued expenses ........................ 460,000 67,000
----------- -----------
Total current liabilities.......... 9,071,000 8,614,000
----------- -----------
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 12,835,138
shares issued and outstanding as of
December 27, 1996 and September 26, 1997,
respectively.................................. 116,000 128,000
Additional capital ............................ 46,502,000 72,373,000
Cumulative foreign currency translation
adjustment ................................... -- (275,000)
Retained Earnings ............................ 3,008,000 7,507,000
----------- -----------
Total stockholders' equity ........ 49,626,000 79,733,000
----------- -----------
TOTAL ........................................... $59,503,000 $89,153,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
MINIMED INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES .................................... $18,855,000 $14,709,000 $51,164,000 $40,261,000
COST OF SALES ................................ 5,946,000 5,220,000 16,741,000 14,103,000
----------- ----------- ----------- -----------
GROSS PROFIT ................................. 12,909,000 9,489,000 34,423,000 26,158,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative ........ 8,085,000 6,156,000 22,044,000 17,298,000
Research and development ................... 2,424,000 1,896,000 6,357,000 5,671,000
----------- ----------- ----------- -----------
Total operating expenses ......... 10,509,000 8,052,000 28,401,000 22,969,000
----------- ----------- ----------- -----------
OPERATING INCOME ............................. 2,400,000 1,437,000 6,022,000 3,189,000
OTHER INCOME, Including interest income ...... 534,000 322,000 1,151,000 819,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................. 2,934,000 1,759,000 7,173,000 4,008,000
PROVISION FOR INCOME TAXES ................... 1,081,000 497,000 2,673,000 1,187,000
----------- ----------- ----------- -----------
NET INCOME ................................... $ 1,853,000 $ 1,262,000 $ 4,500,000 $ 2,821,000
=========== =========== =========== ===========
NET INCOME PER SHARE ........................ $ 0.14 $ 0.10 $ 0.34 $ 0.23
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING ........................ 13,446,000 12,250,000 13,067,000 12,200,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED SEPTEMBER 27, 1996
<TABLE>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 4,500,000 $ 2,821,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................ 1,944,000 1,457,000
Deferred income taxes ....................... (1,491,000) --
Changes in operating assets and liabilities:
Accounts receivable, net .................. 838,000 (1,344,000)
Receivable due from affiliated entity ..... (24,000) 23,000
Inventories ............................... (2,543,000) (2,438,000)
Prepaid expenses and other current assets . 70,000 (69,000)
Other assets .............................. (932,000) --
Accounts payable .......................... (164,000) (424,000)
Accrued expenses .......................... 330,000 (969,000)
------------ ------------
Net cash provided by (used in)
operating activities..................... 2,528,000 (943,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments .................... (1,221,000) (1,122,000)
Long-term investments ..................... (6,702,000) --
Purchase of land, buildings, property and
equipment ............................... (3,953,000) (2,818,000)
------------ ------------
Net cash used in investing activities ... (11,876,000) (3,940,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of notes payable ................ -- (600,000)
Proceeds from public offering (net of
expenses) ................................ 22,169,000 --
Proceeds from exercise of warrants ........ 2,600,000 --
Proceeds from stock option exercises ...... 212,000 1,500,000
Proceeds from issuance of common stock
under employee stock plan ............... 279,000 --
------------ ------------
Net cash provided by financing activities 25,260,000 900,000
------------ ------------
Cumulative foreign currency
translation adjustment .................. (275,000) --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................ 15,637,000 (3,983,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,286,000 14,762,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...... $ 25,923,000 $ 10,779,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes ............................ $ 3,561,000 $ 1,549,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - The Company has
recognized a reduction in income taxes payable of $520,000 and $623,000 during
the nine months ended September 27, 1996 and during the nine months ended
September 26, 1997, respectively, related to the exercise of nonqualified stock
options.
See notes to consolidated financial statements
5
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 26, 1997 AND NINE MONTHS ENDED SEPTEMBER 27, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of MiniMed Inc. (the
"Company" or "MiniMed") 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 nine
months ended September 26, 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 ("FASB") issued Statement of Financial Accounting Standard No. 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 September 26, 1997.
NOTE 2. INCOME TAXES
Net income and earnings per share for the three months and nine months ended
September 27, 1996 and September 26, 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 nine
months ended September 27, 1996 and September 26, 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, SEPTEMBER 26,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Inventories:
Raw materials ............... $ 3,465,000 $ 4,469,000
Work-in-progress ............ 1,117,000 1,764,000
Finished goods .............. 2,143,000 3,035,000
------------ ------------
$ 6,725,000 $ 9,268,000
============ ============
Property, plant and equipment:
Land, buildings and
improvements ................ $ 7,058,000 $ 8,122,000
Machinery and equipment...... 6,682,000 7,537,000
Tooling and molds ........... 2,979,000 2,327,000
Furniture and fixtures ...... 1,733,000 2,184,000
------------ ------------
18,452,000 20,170,000
Less accumulated depreciation.. (5,806,000) (5,516,000)
------------ ------------
Total ......................... $ 12,646,000 $ 14,654,000
============ ============
</TABLE>
6
<PAGE> 7
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 ever 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 on the Company.
NOTE 6. SUBSEQUENT EVENT
On October 20, 1997, the Company announced that it had entered into an
agreement with Home Medical Supply, Inc. and its affiliated companies ("HMS")
pursuant to which MiniMed will issue shares of its common stock, valued at
approximately $16.0 million, for all of the outstanding shares of common stock
of the HMS entities. HMS's businesses include pharmacy operations and
distribution of a broad range of diabetes treatment products, including
MiniMed's insulin infusion pumps and related disposables. The transaction will
be accounted for as a pooling of interests. The acquisition, which is subject to
certain conditions to closing, is expected to be completed in MiniMed's 1997
fiscal year fourth quarter ending January 2, 1998. All costs of the transaction
and any charges related to the restructuring and integration of HMS operations
are expected to be recorded as a charge in the fourth quarter of 1997.
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 subcutaneous glucose monitoring systems. There
have been no sales of glucose monitoring systems 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. With the recent
announcement of its intent to acquire Home Medical Supply, Inc. and several
related entities, the Company intends to broaden its diabetes product offerings
and provide pharmacy services. The Company's future efforts will focus upon
continued growth of its diabetes business segment and will combine its recently
acquired pharmacy operations with its micro-infusion pump technology to treat
other medical conditions.
RESULTS OF OPERATIONS
The following table sets forth, for the three months and nine months ended
September 26, 1997 and September 27, 1996, the percentage relationship to net
sales of certain items in the Company's consolidated statements of income
(unaudited) and the percentage changes in the dollar amounts of such items on a
comparative basis.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPT 26, SEPT 27, % INCREASE SEPT 26, SEPT 27, % INCREASE
1997 1996 (DECREASE) 1997 1996 (DECREASE)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 28.2% 100.0% 100.0% 27.1%
----- ----- ---- ----- ----- ----
Cost of sales 31.5 35.5 13.9 32.7 35.0 18.7
----- ----- ---- ----- ----- ----
Gross profit 68.5 64.5 36.0 67.3 65.0 31.6
Operating expenses:
Selling, general and 42.9 41.9 31.3 43.1 43.0 27.4
administrative
Research and development 12.9 12.9 27.8 12.4 14.1 12.1
----- ----- ---- ----- ----- ----
Total operating expenses 55.8 54.8 30.5 55.5 57.1 23.6
----- ----- ---- ----- ----- ----
Operating income 12.7% 9.7% 67.0% 11.8% 7.9% 88.8%
===== ===== ==== ===== ===== ====
</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 nine months ended September 27,
1996 and September 26, 1997.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS % OF NET SALES
----------------------- ----------------------- ---------------------- --------------------
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ----------------------- ---------------------- --------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
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 $ 16,840 $ 12,995 $ 45,682 $ 34,102 89.3% 88.3% 89.3% 84.7%
International 1,739 1,362 4,820 4,756 9.2 9.3 9.4 11.8
-------- -------- -------- -------- ----- ----- ----- -----
Subtotal $ 18,579 $ 14,357 50,502 $ 38,858 98.5 97.6 98.7 96.5
Implantable Pumps 276 352 662 1,403 1.5 2.4 1.3 3.5
-------- -------- -------- -------- ----- ----- ----- -----
Net Sales $ 18,855 $ 14,709 $ 51,164 $ 40,261 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ===== ===== ===== =====
GROSS PROFITS
External pumps and
related disposables $ 13,233 $ 9,757 $ 35,524 $ 26,610 70.2% 66.3% 69.4% 66.1%
Implantable pumps (324) (268) (1,101) (452) (1.7) (1.8) (2.2) (1.1)
-------- -------- -------- -------- ----- ----- ----- -----
Total $ 12,909 $ 9,489 $ 34,423 $ 26,158 68.5% 64.5% 67.2% 65.0%
======== ======== ======== ======== ===== ===== ===== =====
RESEARCH AND
DEVELOPMENT EXPENSES
External pumps and
related disposables $ 617 $ 893 $ 1,820 $ 2,549 3.3% 6.1% 3.6% 6.3%
Implantable pumps and
other applications 1,062 680 2,217 1,915 5.6 4.6 4.3 4.8
Glucose sensor 746 323 2,320 1,207 4.0 2.2 4.5 3.0
-------- -------- -------- -------- ----- ----- ----- -----
Total $2,424 $ 1,896 $ 6,357 $ 5,671 12.9% 12.9% 12.4% 14.1%
======== ======== ======== ======== ===== ===== ===== =====
</TABLE>
8
<PAGE> 9
NET SALES
Net sales increased 28.2%, or $4,146,000, during the three months ended
September 26, 1997 over the three months ended September 27, 1996 to $18,855,000
from $14,709,000. Net sales increased 27.1%, or $10,903,000, during the nine
months ended September 26, 1997 over the nine months ended September 27, 1996 to
$51,164,000 from $40,261,000. 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 29.6%, or $3,845,000, from the third
quarter of 1996 to the third quarter of 1997 and 34.0%, or $11,580,000, from the
first nine months of 1996 to the first nine months of 1997. External pump sales
grew at an increasingly faster rate than disposable sales with anticipated
demand for disposable products 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, net sales were also impacted by the
increase in domestic average sales prices on external pumps from the first nine
months of 1996 to the first nine months of 1997, while related disposable
products experienced relative price stability. Pricing for the third quarter of
1997 was consistent with 1996 third quarter pricing for external pumps and
related disposables.
International sales of external pumps and related disposables grew 27.7%, or
$377,000, from the third quarter of 1996 to the third quarter of 1997 and
increased by 1.3%, or $64,000, from the first nine months of 1996 to the first
nine months of 1997. International sales of external pumps and related
disposables for the first nine months of 1996 include non-recurring sales of
external pumps to Novo Nordisk. Such non-recurring sales of external pumps to
Novo Nordisk were 19.0% of international sales during the nine months ended
September 27, 1996. Excluding the non-recurring 1996 sales to Novo Nordisk,
international net sales of external pumps and related disposables for the first
nine months of 1997 increased by 25.1% 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 $76,000, or 21.6%, during the three
months ended September 26, 1997 over the three months ended September 27, 1996
and $741,000, or 52.8%, during the nine months ended September 26, 1997 over the
nine months ended September 27, 1996. Due to problems encountered with the
special insulin formulation used in the implantable pump, sales were limited by
the Company during the first nine months of 1997. Although the Company received
certification under the applicable directives issued by the European Union (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 1998 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 lack of availability of the special
insulin utilized in the implantable pump as well as by the delay in obtaining
regulatory approval for such insulin, seasonality, and overall market acceptance
of this product line.
Work continues 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.
Until and unless the special insulin bceomes available commercially, 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 is obligated to purchase $24,500 additional components through
December 31, 1997 and has classified components not expected to be used in 1997
as non-current assets.
OPERATING EXPENSES
Cost of Sales and Gross Profits--Cost of sales increased 13.9%, or $726,000,
during the three months ended September 26, 1997 over the three months ended
September 27, 1996 to $5,946,000, from $5,220,000, and increased 18.7%, or
$2,638,000, during the nine months ended September 26, 1997 over the nine months
ended September 27, 1996 to $16,741,000 from $14,103,000. As a percentage of net
sales, cost of sales in the third quarter of 1997 decreased to 31.5% from 35.5%
in the third quarter 1996, with a 2.3% reduction in the cost of sales for the
first nine months of 1997 compared to the first nine months of 1996. Gross
margins on the external pump and related disposable sales increased to 70.2% of
total sales during the first three months of 1997 and to 69.4% during the first
nine months of 1997, compared to approximately 66.3% and 66.1% 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 programs for improving manufacturing efficiency, leading to decreased labor,
overhead and materials costs. The Company has achieved lower product costs for
certain disposable products by
9
<PAGE> 10
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
31.3%, or $1,929,000, during the three months ended September 26, 1997 over the
three months ended September 27, 1996 to $8,085,000 from $6,156,000, with
selling, general and administrative expenses increasing 27.4%, or $4,746,000,
during the nine months ended September 26, 1997 over the nine months ended
September 27, 1996 to $22,044,000 from $17,298,000. Selling, general and
administrative expenses have increased slightly as a percentage of sales for the
nine months ended September 26, 1997 from the comparable period of 1996. 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 also for 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 increased 27.8%, or $528,000, during the
three months ended September 26, 1997 over the three months ended September 27,
1996 to $2,424,000 from $1,896,000, with research and development expenses
increasing 12.1%, or $686,000, during the nine months ended September 26, 1997
over the nine months ended September 27, 1996 to $6,357,000 from $5,671,000. As
a percentage of sales, research and development expenses remained at 12.9%
during the three months ended September 26, 1997 compared to the comparable
period in 1996, with research and development expenses decreasing to 12.4%
during the nine months ended September 26, 1997 from 14.1% during the
corresponding period in 1996. Research and development expenses in the third
quarter of 1997 and in the nine months ended September 26, 1997 have been
reduced by approximately $50,000 and $200,000, respectively, under terms of a
joint product development agreement with Boehringer Mannheim Corporation. 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, begun in June 1997, continued
through the third quarter, with completion anticipated in the fourth quarter of
1997. 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 65.8%, or $212,000, from $322,000, during the
third quarter of 1996 to $534,000 during the third 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 has been computed giving
consideration to the pretax earnings and losses applicable to the Company's
foreign and domestic tax jurisdictions. There has been 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.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 26, 1997, the Company had cash flow
provided by operations of $2,528,000 compared to cash flow used in operations of
$943,000 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 nine
months of 1997.
The Company's capital expenditures were $3,953,000 during the nine months
ended September 26, 1997 compared to $2,818,000 spent during the comparable
period in 1996. Capital expenditures by the Company during the nine months ended
September 26, 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 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, particularly the Company's glucose sensor products. 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
10
<PAGE> 11
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% (7.64% as of October 24, 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".
FORWARD-LOOKING STATEMENTS
Any statements released by MiniMed that are forward looking, including
statements relating to future product development and research activities,
clinical trials, regulatory approvals, research and development expenditures,
capital expenditures, manufacturing trends product and service oferings and the
development of pharmacy operations are made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that forward-looking statements involve risks and uncertainties
which may affect the Company's business and prospects, including changes in
economic and market conditions, healthcare legislation, administration of
clinical trials, progress in MiniMed's alliances with pharmaceutical companies,
the development of competing drug delivery systems, management of growth, the
effective integration of HMS into the Company, and other factors discussed in
the Company's filings with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
11
<PAGE> 12
(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
12
<PAGE> 13
SIGNATURE
Pursuant to the requirement of 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: November 10, 1997 -----------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
11.1 Calculation of earnings per share
27. Financial Data Schedule
</TABLE>
14
<PAGE> 1
Exhibit 11.1
MINIMED INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 12,751,000 11,606,000 12,373,000 11,566,000
Common equivalent shares from
stock options and warrants 695,000 644,000 694,000 634,000
----------- ----------- ----------- -----------
Shares used in per share
calculation 13,446,000 12,250,000 13,067,000 12,200,000
=========== =========== =========== ===========
Net income $ 1,853,000 $ 1,262,000 $ 4,500,000 $ 2,821,000
=========== =========== =========== ===========
Net income per share $ 0.14 $ 0.10 $ 0.34 $ 0.23
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945801
<NAME> MINIMED, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> DEC-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 25,923
<SECURITIES> 10,738
<RECEIVABLES> 18,312
<ALLOWANCES> 3,533
<INVENTORY> 9,268
<CURRENT-ASSETS> 66,288
<PP&E> 20,170
<DEPRECIATION> 5,516
<TOTAL-ASSETS> 89,153
<CURRENT-LIABILITIES> 8,614
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 79,605
<TOTAL-LIABILITY-AND-EQUITY> 89,153
<SALES> 51,164
<TOTAL-REVENUES> 52,315
<CGS> 16,741
<TOTAL-COSTS> 45,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 958
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,173
<INCOME-TAX> 2,673
<INCOME-CONTINUING> 4,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,500
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
