<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 April 3, 1998
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 MAY 12, 1998
- ---------------------------- ----------------------------
Common Stock, $.01 par value 13,304,749
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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) - January 2, 1998 and April 3, 1998 3
Consolidated Statements of Income (Unaudited) -- Three months ended
March 28, 1997 and April 3, 1998 4
Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 5
28, 1997 and April 3, 1998
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 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 12
SIGNATURE 13
INDEX TO EXHIBITS 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1998 AND APRIL 3, 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 22,282,000 $ 24,563,000
Short-term investments ......................................................... 18,713,000 4,631,000
Accounts receivable, net of allowance for doubtful accounts of $6,250,000 and
$5,308,000 at January 2, 1998 and April 3, 1998, respectively ................ 24,661,000 23,184,000
Inventories .................................................................... 10,672,000 12,274,000
Deferred income taxes .......................................................... 5,803,000 5,993,000
Prepaid expenses and other current assets ...................................... 1,279,000 895,000
------------- -------------
Total current assets ............................................... 83,410,000 71,540,000
OTHER ASSETS ..................................................................... 5,466,000 6,449,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net .................................... 16,943,000 19,285,000
------------- -------------
TOTAL ............................................................................ $ 105,819,000 $ 97,274,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ............................................... $ 2,453,000 $ 275,000
Accounts payable ............................................................... 4,371,000 1,876,000
Accrued salaries and related benefits .......................................... 3,719,000 2,684,000
Accrued sales commissions ...................................................... 1,943,000 312,000
Accrued warranties ............................................................. 3,498,000 3,636,000
Income taxes payable ........................................................... 276,000 1,713,000
Other accrued expenses ......................................................... 3,741,000 1,117,000
------------- -------------
Total current liabilities ........................................... 20,001,000 11,613,000
------------- -------------
Deferred Tax Liabilities ....................................................... 2,007,000 1,028,000
Notes payable .................................................................. 728,000 94,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 40,000,000 shares authorized; 13,260,240 and
13,284,382 shares issued and outstanding as of January 2, 1998
and April 3, 1998, respectively ............................................. 135,000 135,000
Additional capital ............................................................ 73,806,000 73,806,000
Cumulative foreign currency translation ....................................... (312,000) (165,000)
Unrealized gain on marketable securities ...................................... 1,371,000 374,000
Retained earnings ............................................................. 8,083,000 10,389,000
------------- -------------
Total stockholders' equity ......................................... 83,083,000 84,539,000
------------- -------------
TOTAL ............................................................................ $ 105,819,000 $ 97,274,000
============= =============
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
MINIMED INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1997 AND THREE MONTHS ENDED APRIL 3, 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
(Unaudited)
NET SALES .................................. $ 19,161,000 $ 26,366,000
COST OF SALES .............................. 7,656,000 9,784,000
------------ ------------
GROSS PROFIT ............................... 11,505,000 16,582,000
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative ...... 8,009,000 11,391,000
Research and development ................. 2,005,000 3,317,000
Research and development contract income . -- (1,500,000)
------------ ------------
Total operating expenses ....... 10,014,000 13,208,000
------------ ------------
OPERATING INCOME ........................... 1,491,000 3,374,000
OTHER INCOME, Including interest income .... 110,000 291,000
------------ ------------
INCOME BEFORE INCOME TAXES ................ 1,601,000 3,665,000
PROVISION FOR INCOME TAXES ................. 571,000 1,361,000
------------ ------------
NET INCOME ................................. $ 1,030,000 $ 2,304,000
============ ============
BASIC EARNINGS PER SHARE ................... $ 0.09 $ 0.17
============ ============
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING ............................. 12,015,000 13,281,000
============ ============
DILUTED EARNINGS PER SHARE ................. $ 0.08 $ 0.17
============ ============
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING ............................. 12,764,000 13,927,000
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 28, 1997 AND THREE MONTHS ENDED APRIL 3, 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 1,030,000 $ 2,304,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation ....................................................... 587,000 1,053,000
Deferred income taxes .............................................. (153,000) (558,000)
Changes in operating assets and liabilities:
Accounts receivable, net ......................................... 1,804,000 1,477,000
Inventories ...................................................... (926,000) (1,602,000)
Prepaid expenses and other current assets ........................ 80,000 384,000
Other assets ..................................................... (103,000) (47,000)
Accounts payable ................................................. 357,000 (2,495,000)
Income taxes payable ............................................. 194,000 1,438,000
Accrued expenses ................................................. (1,957,000) (5,153,000)
------------ ------------
Net cash provided by (used in) operating ......................... 913,000 (3,199,000)
activities
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments ........................................... 9,265,000 14,081,000
Acquisition of Dartec A.B ........................................ -- (2,544,000)
Purchase of land, buildings, property and ........................ (1,014,000) (3,393,000)
equipment
------------ ------------
Net cash provided by (used in) investing ......................... 8,251,000 8,144,000
activities
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of notes payable ....................................... (306,000) (2,811,000)
Proceeds from stock option exercises ............................. -- --
------------ ------------
Net cash provided by financing activities ...................... (306,000) (2,811,000)
------------ ------------
Effect of foreign exchange rates on cash ......................... (244,000) 147,000
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 8,614,000 2,281,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................... 10,405,000 22,282,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................. $ 19,019,000 $ 24,563,000
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest ........................................................... $ 52,000 $ 35,000
Income taxes ....................................................... $ 676,000 $ 461,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - During the three months
ended April 3, 1998, the Company recorded an unrealized holding loss of
$997,000, net of estimated taxes, on marketable securities classified as
long-term investments available for sale.
See notes to consolidated financial statements.
5
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 28, 1997 AND THREE MONTHS ENDED APRIL 3, 1998
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. (the "Company") filed
on Form 10-K with the Securities and Exchange Commission for the year ended
January 2, 1998. The results of operations for the three months ended April 3,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ending January 1, 1999.
NOTE 2. INCOME TAXES
Net income and earnings per share for the three months ended March 28,
1997 and April 3, 1998 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.
NOTE 3. WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING
In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), basic earnings per share for the three months
ended March 28, 1997 and April 3, 1998, were computed by dividing net income by
weighted average common shares outstanding during the periods presented. Diluted
earnings per share for the periods presented were computed by dividing net
income by weighted average common and common equivalent shares outstanding,
computed in accordance with the treasury stock method. The computation of basic
and diluted EPS is as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 28, APRIL 3,
1997 1998
-------------- --------------
<S> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common stock ......... $ 1,030,000 $ 2,304,000
-------------- --------------
Denominator:
Weighted average common shares outstanding .... 12,015,000 13,281,000
-------------- --------------
Basic earnings per share ...................... $ 0.09 $ 0.17
============== ==============
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common stock ......... $ 1,030,000 $ 2,304,000
-------------- --------------
Denominator:
Weighted average common shares outstanding .... 12,015,000 13,281,000
Effect of dilutive securities
Stock options ............................ 749,000 646,000
-------------- --------------
Diluted weighted average shares outstanding ... 12,764,000 13,927,000
-------------- --------------
Diluted earnings per share .................... $ 0.08 $ 0.17
============== ==============
</TABLE>
6
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 28, 1997 AND THREE MONTHS ENDED APRIL 3, 1998
NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
JANUARY 2, APRIL 3,
1998 1998
------------ ------------
<S> <C> <C>
(Unaudited)
Inventories:
Raw materials .......................... $ 5,152,000 $ 4,393,000
Work-in-progress ....................... 1,819,000 4,079,000
Finished Goods ......................... 3,701,000 3,802,000
------------ ------------
$ 10,672,000 $ 12,274,000
============ ============
Property, plant and equipment:
Land, buildings and improvements ....... $ 10,625,000 $ 12,009,000
Machinery and equipment ................ 8,533,000 10,010,000
Tooling and molds ...................... 2,493,000 2,648,000
Furniture and fixtures ................. 1,948,000 2,464,000
------------ ------------
$ 23,599,000 $ 27,131,000
Less accumulated depreciation ............ (6,656,000) (7,846,000)
------------ ------------
Total .................................... $ 16,943,000 $ 19,285,000
============ ============
Other assets:
Technology license ..................... $ 197,000 $ 183,000
Inventory components, non-current ...... 999,000 999,000
Dartec A.B. intangible ................. -- 2,544,000
Investment in Trimeris common
stock ............................... 4,118,000 2,510,000
------------ ------------
Other .................................. $ 152,000 $ 213,000
------------ ------------
$ 5,466,000 $ 6,449,000
============ ============
</TABLE>
NOTE 5. CONTINGENCIES
On September 11, 1996, the Company filed an action against Fimed, Inc.
("Fimed") seeking rescission of a product distribution contract. Subsequent to
the filing of this action, Fimed filed a counterclaim seeking compensatory
damages of approximately $400 million, plus punitive damages. The Company
believes that it has meritorious defenses to the counterclaim asserted by Fimed.
Fact discovery on the litigation has been largely completed, and trial has been
set to commence October 13, 1998. The Company has been pursuing its claims and
defending Fimed's claims vigorously.
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
The following discussion of the financial condition and results of
operations of MiniMed should be read in conjunction with the consolidated
financial statements and the related notes thereto incorporated by reference
herein. Any statements released by MiniMed that are forward looking, including
statements relating to future operating results, technological innovations,
product development and research activities, clinical trials, regulatory
approvals, research and development expenditures, capital expenditures and
requirements, manufacturing trends, product and service offerings 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.
GENERAL
Product development has focused upon four product lines: external
insulin pumps and related disposables, implantable insulin pumps, continuous
glucose monitoring systems, and therapy delivery systems for other chronic
medical conditions. Sales and profits to date have been generated primarily
through the sale of external pumps and disposable products used to deliver
insulin in the intensive management of diabetes. With its acquisition of Home
Medical Supply, Inc. and several affiliated entities (collectively, "HMS")
effective January 2, 1998, the Company's consolidated operating results also
include sales related to the distribution of other diabetes supplies and
pharmaceutical products.
RESULTS OF OPERATIONS
The following table sets forth for the three months ended April 3, 1998
and the three months ended March 28, 1997 the percentage relationship to net
sales of certain items in the Company's consolidated statements of operations
and the percentage changes in the dollar amounts of such items on a comparative
basis.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------
THREE MONTHS THREE MONTHS PERCENTAGE
ENDED ENDED INCREASE
APRIL 3, 1998 MARCH 28, 1997 (DECREASE)
------------- -------------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 37.6%
Cost of sales 37.1 40.0 27.8
-------- -------- --------
Gross profit 62.9 60.0 44.1
Operating expenses
Selling, general and administrative 43.2 41.8 42.2
Research and development 12.6 10.5 65.4
Research and development contract revenue (5.7) -- n/a
-------- -------- --------
Total operating expenses 50.1 52.3 31.9
-------- -------- --------
Operating income 12.8% 7.7% 126.3%
======== ======== ========
</TABLE>
8
<PAGE> 9
The following table sets forth domestic and international net sales and
gross profits related to the Company's primary product lines for the three
months ended April 3, 1998 and for the three months ended March 28, 1997.
<TABLE>
<CAPTION>
--------------------------------- ------------------------------
Dollars in Thousands % of Net Sales
--------------------------------- ------------------------------
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
April 3, 1998 March 28, 1997 April 3, 1998 March 28, 1997
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
DOMESTIC AND INTERNATIONAL NET SALES
External pumps and related disposables
Domestic $ 19,336 $ 13,802 73.3% 72.0%
International 2,756 1,555 10.5% 8.1%
---------- ---------- ---------- ----------
Subtotal $ 22,092 $ 15,357 83.8% 80.1%
Other diabetes supplies 1,020 1,300 3.9% 6.8%
Pharmaceutical products 3,033 2,301 11.5% 12.0%
Implantable insulin pumps 221 203 0.8% 1.1%
---------- ---------- ---------- ----------
Net Sales $ 26,366 $ 19,161 100.0% 100.0%
========== ========== ========== ==========
GROSS PROFITS
External pumps and related disposables $ 15,966 $ 10,800 60.6% 56.4%
Other diabetes supplies 491 717 1.9 3.7
Pharmaceutical products 721 345 2.7 1.8
Implantable pumps (596) (357) (2.3) (1.9)
---------- ---------- ---------- ----------
Total $ 16,582 $ 11,505 62.9% 60.0%
========== ========== ========== ==========
</TABLE>
THREE MONTHS ENDED APRIL 3, 1998 AND MARCH 28, 1997
NET SALES
Net sales increased 37.6% during the three months ended April 3, 1998
over the three months ended March 28, 1997 to $26,366,000 from $19,161,000. This
increase is principally the result of an increase of 43.9%, or $6,735,000 in the
sales volume of external pumps and related disposables. Domestic sales of these
products grew 40.1% or $5,534,000 in the first quarter of 1998 as compared to
the first quarter of 1997, while international sales increased 77.2% or
$1,201,000 during the same period. The domestic net sales growth was derived
primarily from increased volume of external pumps and related disposables, with
external pump sales growing at a faster rate than disposable sales. The domestic
sales increase related to external pumps and disposable products includes an
increase in the average sales price of external pumps. The price increase is the
result of a continued shift of external pump sales from independent dealers to
internal sales, thus eliminating the discount given to such independent dealers.
International sales of external pumps and related disposable products grew
primarily due to greater sales volumes of external pumps, while pricing of
external pumps in the international market remained consistent with the
comparable quarter of 1997. Domestic and international pricing for disposable
products did not change materially from the first quarter of 1997 to the first
quarter of 1998..
Sales of implantable pumps did not increase materially from the first
quarter of 1997 to the first quarter of 1998, as regulatory approval for the
implantable pump and special insulin utilized in the implantable system is still
pending. 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. The
implantable pump and the special insulin remain subject to regulatory review and
approval in the United States. No assurance can be given that such approvals
will be received in 1998, if at all.
Pharmaceutical product sales increased 31.8% or $732,000, while sales of
other diabetes supplies decreased by 21.5% or $280,000 during the 1998 first
quarter. Although unit sales volumes for pharmaceutical products and other
diabetes supplies increased, average sales prices in the first quarter of 1998
were lower than the comparable 1997 period for both product lines, resulting in
a net sales decrease. These operating activities were part of HMS. Management
believes these product offerings will enhance the Company's ability to meet the
total needs of its external pump patient base and prepare MiniMed for future
sales of its glucose monitoring products.
9
<PAGE> 10
OPERATING RESULTS
Cost of Sales and Gross Profits--Cost of sales increased 27.8% during
the three months ended April 3, 1998 over the three months ended March 28, 1997
to $9,784,000 from $7,656,000. As a percentage of net sales, cost of sales in
the 1998 first quarter decreased to 37.1% from 40.0% in the comparable period of
1997. Gross margins on external pumps and disposables increased to 72.3% of such
sales during the 1998 first quarter, compared to 70.3% for this product line
during the 1997 first quarter. The gross margin improvement on these products is
primarily the result of two factors: continued realization of manufacturing
efficiencies through greater economies of scale and increased average selling
prices for external pumps. The increase in gross margins as a percent of sales
has been realized despite a reduction in gross profits for disposable products.
The disposable gross margin decrease is the result of purchasing certain
disposable products from a contract manufacturer rather than manufacturing these
products through its normal manufacturing operations. The Company intends to
continue to purchase and sell various disposable products manufactured by third
party manufacturers and will achieve better margins on these products when
certain sales and purchase volumes have been met.
The Company's gross profits have been adversely impacted by the
implantable pump product line during the three months ended April 3, 1998 due to
continued limited sales prior to full commercial release. Such limited sales
have inhibited the Company's ability to realize manufacturing efficiencies on
this product line. The Company expects this trend to continue for the
foreseeable future. Gross margins for other diabetes supplies and pharmaceutical
products have remained consistent on a combined basis, with margins improving in
1998 on pharmaceutical products, offset by declining gross margins on other
diabetes supplies. The Company anticipates that on a combined basis, gross
margins for these product lines should be consistent with those achieved in the
1998 first quarter.
Operating Expenses--Selling, general and administrative expenses
increased 42.2% during the three months ended April 3, 1998 over the three
months ended March 28, 1997 to $11,391,000 from $8,009,000. As a percentage of
net sales, these expenses increased to 43.2% during the three months ended April
3, 1998 from 41.8% during the three months ended March 28, 1997. Selling and
marketing expenses increased primarily due to increased sales volume, the cost
of integrating the HMS and MiniMed operations, continued expansion of the
Company's domestic sales force and administrative support staff to enhance
selling, marketing and education efforts. General and administrative expenses
also rose during the three months ended April 3, 1998 over the three months
ended March 28, 1997 due to costs associated with staff increases necessary to
support the Company's increased business activities.
Research and development expenses grew 65.4% during the three months
ended April 3, 1998 over the three months ended March 28, 1997 to $3,317,000
from $2,005,000. As a percentage of sales, research and development expenses
increased to 12.6% during the three months ended April 3, 1998 from 10.5% during
the comparable period in 1997. The 1998 first quarter increase in research and
development costs resulted from greater resources directed to the development of
glucose monitoring systems, future generation external insulin pumps and
disposable products, data communication capabilities for external pumps and
glucose monitoring systems and the Company's joint development project with
Roche Diagnostics/Boehringer Mannheim Corporation. The Company filed an
application to the Food and Drug Administration for 510(k) clearance for the
first continuous glucose monitoring system for ambulatory use during the fourth
quarter of fiscal 1997. Research and development on the glucose monitoring
systems relate to continued refinement of the products prior to regulatory
approval, establishment of a glucose monitoring systems manufacturing operations
and development of the next generation of glucose monitoring system products.
The Company anticipates that research and development expenditures for future
periods will continue to increase as more of its new technological innovations
approach commercialization.
During the 1998 first quarter, the Company signed a research and
development contract with American Medical Instruments, Inc., a member of The
Marmon Group of companies. Under terms of the agreement, and subject to the
achievement of quarterly performance milestones, the Company will receive up to
$12.0 million in funding, payable in installments of $1.5 million, for two
research and development projects designed primarily by the Company. The Company
anticipates completion of its obligations pursuant to the agreement by the end
of fiscal 1999. The Company will have the right to sell these products on a
world-wide basis, with the exception of Japan, subject to payment of royalties
to American Medical Instruments, Inc. The Company also has the right to purchase
the technologies developed at prices ranging from an aggregate of $13.5 million
to $19.0 million during
10
<PAGE> 11
certain periods through April 30, 2002. During the first quarter, the Company
recorded $1.5 million from this research and development contract as a reduction
of operating expenses, as costs related to completion of the contractual
obligations will be included in research and development expense.
Other--Other income during the three months ended April 3, 1998 and
during the three months ended March 28, 1997 consist primarily of interest
income generated from the Company's cash, cash equivalents, and short-term
investment balances. Other income increased 164.5% during the three months ended
April 3, 1998 over the comparable period of 1997 to $291,000 from $110,000. This
increase was due to interest income earned on the Company's cash, cash
equivalents, and short-term investment balances due to unused proceeds of a
public offering of the Company's common stock that was successfully completed
during April 1997.
The Company's effective tax rate during the three months ended April 3,
1998 and March 28, 1997 has been computed giving consideration to the pretax
earnings and losses applicable to the Company's foreign and domestic tax
jurisdictions. Inflation has not significantly impacted the Company's results of
operations for the past two years.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 3, 1998, the Company used cash in
operations of $3,199,000 compared to $913,000 provided by operations in the
comparable period in 1997. Cash used in operations increased primarily due to
increased inventory levels required to support planned sales growth and product
introductions and payment of several current liabilities, including the payment
of all fiscal 1997 bonuses and the retirement of trade debt owed to several
significant vendors associated with HMS operations. The Company also used
approximately $2.5 million of cash to complete its acquisition of Dartec A.B., a
Scandinavian distributor. The increase in capital expenditures to $3,393,000
compared to $1,014,000 spent during the comparable period in 1997 resulted
primarily from building glucose sensor manufacturing capacity, as well as other
building improvements to service growth, manufacturing expansion, research and
development engineering equipment and information systems requirements. The
Company anticipates that future capital expenditures will continue to increase
to support the Company's new product activities and to build the infrastructure
necessary to accommodate the Company's anticipated growth. The Company also used
cash of approximately $2.8 million to retire some existing debt related to the
HMS operations, with $369,000 of debt remaining outstanding as of April 3, 1998.
There were no significant equity transactions during the first quarters
of 1998 or 1997. The Company maintains an unsecured line of credit which enables
MiniMed to borrow up to $10.0 million through January 31, 1999. The Company has
not drawn any funds under such line of credit. The line of credit, if used,
bears interest at an adjustable rate equal to the 30-day commercial paper rate
plus 2.15% (7.66% as of April 12, 1998). The Company is also required to
maintain certain cash, net worth and debt covenants under the provisions of this
line of credit. The Company is currently in compliance with all of these
covenants. The Company also is involved in certain litigation, the financial
impact of which is uncertain. See "Notes to Consolidated Financial Statements"
herein.
Management expects that the current level of cash and cash equivalents
will be sufficient to meet its needs for working capital and capital
expenditures for at least one year. However, the requirements for additional
capital and working capital are subject to change and will depend upon numerous
factors, including the level of capital expenditures, research and development
activities and results, competitive and technological developments, health care
reimbursement trends, and the availability for acquisition by the Company of
complementary additional distribution channels, products, and technologies.
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 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
(a) Exhibits
Exhibit No. Exhibit
- ----------- ---------------------------------------------------
27.1 Financial data schedule
(b) Reports on Form 8-K
None.
12
<PAGE> 13
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.
Date: May 18, 1998 /s/ KEVIN R. SAYER
-----------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
Exhibit No. Description
27.1 Financial data schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> APR-03-1998
<CASH> 24,563
<SECURITIES> 4,631
<RECEIVABLES> 28,492
<ALLOWANCES> 5,308
<INVENTORY> 12,274
<CURRENT-ASSETS> 71,540
<PP&E> 27,131
<DEPRECIATION> 7,846
<TOTAL-ASSETS> 97,274
<CURRENT-LIABILITIES> 11,613
<BONDS> 94
0
0
<COMMON> 135
<OTHER-SE> 84,404
<TOTAL-LIABILITY-AND-EQUITY> 97,274
<SALES> 26,366
<TOTAL-REVENUES> 26,657
<CGS> 9,784
<TOTAL-COSTS> 22,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (942)
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> 3,665
<INCOME-TAX> 1,361
<INCOME-CONTINUING> 2,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,304
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
