<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 29, 2000
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.)
18000 Devonshire Street, Northridge, CA 91325
(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 3, 2000
------------------- -------------------------------
Common Stock, $.01 par value 64,512,610
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<PAGE> 2
INDEX
MINIMED INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes (Unaudited) 3
Consolidated Balance Sheets -- December 31, 1999 and September 29, 2000 (Unaudited) 3
Consolidated Statements of Income (Unaudited) -- Three months and nine months ended
October 1, 1999 and September 29, 2000 4
Consolidated Statements of Cash Flows (Unaudited) - Nine months ended October 1, 1999
and September 29, 2000 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
INDEX TO EXHIBITS 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPTEMBER 29, 2000 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1999 2000
------------ ----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 92,718,000 $ 89,155,000
Short-term investments .................................................... 77,716,000 86,485,000
Accounts receivable, net of allowance for doubtful
accounts of $13,108,000 and $11,286,000 at December 31,
1999 and September 29, 2000, respectively .............................. 65,938,000 75,064,000
Inventories ............................................................... 19,338,000 36,660,000
Deferred income taxes ..................................................... 9,973,000 8,982,000
Income taxes receivable ................................................... 5,761,000 4,010,000
Prepaid expenses and other current assets ................................. 7,602,000 8,774,000
------------ ------------
Total current assets .......................................... 279,046,000 309,130,000
LONG-TERM INVESTMENTS ....................................................... 8,552,000 21,970,000
DEFERRED INCOME TAXES - LONG-TERM ........................................... -- 18,860,000
NOTE RECEIVABLE FROM AFFILIATE .............................................. 3,600,000 3,600,000
OTHER ASSETS ................................................................ 17,969,000 19,029,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ............................... 44,631,000 65,175,000
------------ ------------
TOTAL ....................................................................... $353,798,000 $437,764,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable .......................................... $ 1,000,000 $ 1,000,000
Accounts payable .......................................................... 3,573,000 7,329,000
Accrued salaries and related benefits ..................................... 7,749,000 7,241,000
Accrued sales commissions ................................................. 2,964,000 908,000
Accrued warranties ........................................................ 3,859,000 3,460,000
Accrued software refurbishment costs ...................................... 1,200,000 --
Accrued related party purchase commitment obligations ..................... 3,500,000 3,500,000
Other accrued expenses .................................................... 1,310,000 832,000
------------ ------------
Total current liabilities ...................................... 25,155,000 24,270,000
------------ ------------
DEFERRED INCOME TAXES - LONG-TERM ........................................... 1,545,000 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 100,000,000 shares authorized; 62,300,594 and
64,497,680 shares issued and outstanding as of December 31, 1999
and September 29, 2000, respectively ................................... 634,000 660,000
Additional capital ....................................................... 280,508,000 334,352,000
Accumulated other comprehensive income ................................... 2,931,000 11,061,000
Retained earnings ........................................................ 43,025,000 67,421,000
------------ ------------
Total stockholders' equity .................................... 327,098,000 413,494,000
------------ ------------
TOTAL ....................................................................... $353,798,000 $437,764,000
============ ============
</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
---------------------------------- --------------------------------
OCTOBER 1, SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29,
1999 2000 1999 2000
------------- -------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES .......................................... $ 51,400,000 $ 72,138,000 $ 141,394,000 $ 201,887,000
COST OF SALES ...................................... 16,502,000 22,459,000 46,620,000 64,205,000
------------- ------------- ------------- -------------
GROSS PROFIT ....................................... 34,898,000 49,679,000 94,774,000 137,682,000
OPERATING EXPENSES:
Selling, general and administrative .............. 22,809,000 30,208,000 60,344,000 85,312,000
Research and development ......................... 6,394,000 8,381,000 18,262,000 23,599,000
Research and development contract ................ (1,500,000) -- (4,500,000) --
------------- ------------- ------------- -------------
Total operating expenses ............... 27,703,000 38,589,000 74,106,000 108,911,000
------------- ------------- ------------- -------------
OPERATING INCOME ................................... 7,195,000 11,090,000 20,668,000 28,771,000
OTHER INCOME, including interest income ............ 2,110,000 2,920,000 2,847,000 7,679,000
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES ........................ 9,305,000 14,010,000 23,515,000 36,450,000
PROVISION FOR INCOME TAXES ......................... 3,489,000 4,485,000 9,044,000 12,054,000
------------- ------------- ------------- -------------
NET INCOME ......................................... $ 5,816,000 $ 9,525,000 $ 14,471,000 $ 24,396,000
============= ============= ============= =============
BASIC EARNINGS PER SHARE ........................... $ 0.09 $ 0.15 $ 0.25 $ 0.38
============= ============= ============= =============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING .......... 61,788,000 64,102,000 58,332,000 63,501,000
============= ============= ============= =============
DILUTED EARNINGS PER SHARE ......................... $ 0.09 $ 0.14 $ 0.23 $ 0.36
============= ============= ============= =============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING ........ 65,516,000 67,824,000 62,056,000 67,102,000
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 1, 1999 AND NINE MONTHS ENDED SEPTEMBER 29, 2000
<TABLE>
<CAPTION>
1999 2000
------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 14,471,000 $ 24,396,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .................................................................... 5,097,000 8,444,000
Directors' fees paid in common stock ............................................ 71,000 61,000
Deferred income taxes ........................................................... (880,000) (24,217,000)
Tax benefit from exercise of non-qualified stock options ........................ 18,943,000 38,567,000
Changes in operating assets and liabilities:
Accounts receivable, net ...................................................... (8,901,000) (9,519,000)
Inventories ................................................................... (9,747,000) (17,456,000)
Prepaid expenses and other current assets ..................................... (2,867,000) (1,204,000)
Other assets .................................................................. 64,000 56,000
Accounts payable .............................................................. 711,000 3,802,000
Accrued salaries and related benefits ......................................... 596,000 (454,000)
Accrued sales commissions ..................................................... (1,455,000) (2,056,000)
Accrued warranties ............................................................ 633,000 (399,000)
Accrued software refurbishment costs .......................................... -- (1,200,000)
Income taxes receivable/payable ............................................... (12,130,000) 1,751,000
Other accrued expenses ........................................................ (1,107,000) (454,000)
------------- -------------
Net cash provided by operating activities ..................................... 3,499,000 20,118,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments ........................................................ (55,924,000) (8,769,000)
Long-term investments ......................................................... -- 101,000
Purchase of technology license ................................................ (7,000,000) (1,500,000)
Purchase of land, buildings, property and equipment ........................... (14,905,000) (28,603,000)
------------- -------------
Net cash used in investing activities ......................................... (77,829,000) (38,771,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of notes payable .................................................... (278,000) --
Proceeds from public offering, net of expenses ................................ 140,588,000 --
Proceeds from stock option exercises .......................................... 5,011,000 13,985,000
Proceeds from issuance of common stock under employee
stock purchase plan ........................................................ 825,000 1,257,000
------------- -------------
Net cash provided by financing activities ................................... 146,146,000 15,242,000
------------- -------------
Effect of cumulative foreign currency translation
Adjustment .................................................................. (75,000) (152,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................. 71,741,000 (3,563,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................................... 27,303,000 92,718,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................... $ 99,044,000 $ 89,155,000
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION - Cash paid during the period for:
Interest ........................................................................ $ 2,000 $ --
Income taxes .................................................................... $ 3,624,000 $ --
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - The Company recorded an
unrealized holding gain of $1,143,000 and $9,529,000, net of estimated deferred
income taxes on marketable securities classified as long-term investments
available for sale during the nine months ended October 1, 1999 and September
29, 2000, respectively.
See Notes to Consolidated Financial Statements
5
<PAGE> 6
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 1, 1999 AND NINE MONTHS ENDED SEPTEMBER 29, 2000
The fiscal years referenced herein are as follows:
FISCAL YEAR YEAR ENDED
----------- ----------
1999 December 31, 1999
2000 December 29, 2000
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of MiniMed Inc. ("MiniMed"
or 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 31, 1999. The results of operations for the nine months ended September
29, 2000 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 29, 2000.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income taxes - Net income and earnings per share 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.
Revenue recognition - In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements," that summarizes certain of the SEC's views
on applying generally accepted accounting principles to revenue recognition in
the financial statements. It requires that an entity recognize revenue only when
all of the following criteria are met:
o Persuasive evidence of an arrangement exists,
o Delivery has occurred or services have been rendered,
o The seller's price to the buyer is fixed or determinable, and
o Collectibility is reasonably assured.
The Company recognizes revenue in accordance with the provisions of SAB No.
101. For most sales transactions, revenues are recognized when products are
shipped. In other instances, where customers maintain the right to return the
product, revenues are recognized as non-refundable payments are received and the
revenue recognition process is complete when the customer no longer has the
right to return the products. An allowance for doubtful accounts has been
recorded to account for the difference between recorded revenues and anticipated
collections from the Company's customers. The allowance for bad debts is
adjusted periodically based upon the Company's evaluation of historical
collection experience, industry reimbursement trends and other relevant
information.
Stock split - On July 19, 2000, the Company announced a 2-for-1 stock
split, in the form of a stock dividend, to result in the issuance of one
additional share of common stock for every share of common stock outstanding.
The stock split was effective August 2, 2000 for holders of record at the close
of business on that date and was distributed on August 18, 2000. In accordance
with Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share," the Company has recorded the effects of this stock split on share and
per share amounts at September 29, 2000 and all prior periods have been
restated.
6
<PAGE> 7
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 1, 1999 AND NINE MONTHS ENDED SEPTEMBER 29, 2000
NOTE 3. WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING
In accordance with SFAS No. 128, "Earnings Per Share," basic earnings per
share for the three and nine month periods ended October 1, 1999 and September
29, 2000, 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 ENDED NINE MONTHS ENDED
OCTOBER 1, SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29,
1999 2000 1999 2000
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 5,816,000 $ 9,525,000 $14,471,000 $24,396,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 61,788,000 64,102,000 58,332,000 63,501,000
----------- ----------- ----------- -----------
Basic earnings per share $ 0.09 $ 0.15 $ 0.25 $ 0.38
=========== =========== =========== ===========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 5,816,000 $ 9,525,000 $14,471,000 $24,396,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 61,788,000 64,102,000 58,332,000 63,501,000
Effect of dilutive securities
Stock options 3,728,000 3,722,000 3,724,000 3,601,000
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 65,516,000 67,824,000 62,056,000 67,102,000
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.09 $ 0.14 $ 0.23 $ 0.36
=========== =========== =========== ===========
</TABLE>
7
<PAGE> 8
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 1, 1999 AND NINE MONTHS ENDED SEPTEMBER 29, 2000
NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 29,
1999 2000
--------------- ------------
(UNAUDITED)
<S> <C> <C>
Inventories:
Raw materials .............................................................. $ 9,380,000 $ 16,012,000
Work-in-progress ........................................................... 2,315,000 2,028,000
Finished goods ............................................................. 7,643,000 18,620,000
------------ ------------
Total ...................................................................... $ 19,338,000 $ 36,660,000
============ ============
Property, plant and equipment:
Land, buildings and improvements .......................................... $ 15,817,000 $ 17,926,000
Machinery and equipment .................................................... 25,963,000 39,734,000
Tooling and molds .......................................................... 3,355,000 6,115,000
Computer software .......................................................... 7,423,000 11,231,000
Furniture and fixtures ..................................................... 8,062,000 14,323,000
------------ ------------
60,620,000 89,329,000
Less accumulated depreciation .............................................. (15,989,000) (24,154,000)
------------ ------------
Total ...................................................................... $ 44,631,000 $ 65,175,000
============ ============
Other assets:
Technology license ......................................................... $ 7,094,000 $ 8,556,000
Goodwill ................................................................... 10,606,000 10,220,000
Other ...................................................................... 269,000 253,000
------------ ------------
Total ...................................................................... $ 17,969,000 $ 19,029,000
============ ============
Long-term investments:
Investment in Trimeris common stock - at fair value ........................ $ 7,412,000 $ 20,830,000
Investment in PDC common stock - at cost ................................... 1,140,000 1,140,000
------------ ------------
Total ........................................................................ $ 8,552,000 $ 21,970,000
============ ============
</TABLE>
NOTE 5. COMPREHENSIVE INCOME
The Company's total comprehensive income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 1, SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29,
1999 2000 1999 2000
------------- ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income $ 5,816,000 $ 9,525,000 $ 14,471,000 $ 24,396,000
Other comprehensive income:
Foreign currency translation
adjustments 42,000 (528,000) (74,000) (587,000)
Unrealized holding gain on securities:
Unrealized gain on securities 745,000 158,000 1,843,000 14,332,000
Less: reclassification adjustment for
gain included in net income -- (204,000) -- (812,000)
------------ ------------ ------------ ------------
Other comprehensive income (loss),
before income tax 787,000 (574,000) 1,769,000 12,933,000
Income tax expense related to items of
other comprehensive income 283,000 (15,000) 700,000 4,803,000
------------ ------------ ------------ ------------
Other comprehensive income (loss) 504,000 (559,000) 1,069,000 8,130,000
------------ ------------ ------------ ------------
Total comprehensive income $ 6,320,000 $ 8,966,000 $ 15,540,000 $ 32,526,000
============ ============ ============ ============
</TABLE>
8
<PAGE> 9
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED OCTOBER 1, 1999 AND NINE MONTHS ENDED SEPTEMBER 29, 2000
NOTE 6. COMMITMENTS AND CONTINGENCIES
Leases -- In May 1999, the Company entered into an agreement to lease up to
28 acres of land located on the campus of California State University,
Northridge, where it is constructing a corporate headquarters, research and
development and manufacturing facility. The ground lease has an initial term of
40 years with renewal options for up to an additional 40 years. Pursuant to the
terms of the ground lease, the Company made payments of $400,000 during 1999 and
is committed to average annual payments in future periods of approximately
$450,000 plus periodic cost of living adjustments.
In May 1999, the Company also entered into a financing transaction pursuant
to which it will lease certain buildings constructed on the land described
above. The lessors of the buildings originally committed to fund up to a maximum
of $65.0 million for the first phase of construction of the buildings. During
November 2000, the Company successfully negotiated an increase of this debt
arrangement to $80.0 million in order to expand the development of this
facility. Under the terms of the financing transaction, a special purpose trust
subleases the land, buildings and improvements to the Company. The lease has an
initial term of five years, with two one-year renewal options. Under the revised
financing arrangement, the Company is committed to annual rent payments under
this operating lease ranging from $5.5 million to $6.2 million commencing no
later than April 1, 2001. The Company began relocating portions of its
operations to the Northridge site late in the third quarter of 2000.
Construction on the unfinished buildings at Northridge will continue during the
fourth quarter of 2000 and portions of 2001.
In connection with these financing transactions, the Company pledged
substantially all of its assets as collateral security, and is subject to
various affirmative and negative covenants regarding the conduct of its business
including restrictions on the payment of dividends and the incurrence of
additional debt. These arrangements could adversely affect the Company's ability
to acquire additional capital resources or engage in certain strategic
transactions.
In September 2000, the Company entered into an agreement to lease certain
computer software and hardware in conjunction with its implementation of a new
enterprise resource planning ("ERP") system. The lessors have agreed to fund up
to $16.0 million for this lease. Upon full funding of this lease, the Company
will be committed to annual payments not to exceed $4.0 million, depending upon
the amounts drawn under this operating lease. Full funding of this lease is not
expected until late 2001 with an initial estimated payment of approximately
$900,000 under this lease scheduled for the fourth quarter of 2000.
Legal Proceedings -- On February 9, 1999, the Company was served with a
complaint filed in the Civil District Court For the Parish of Orleans, State of
Louisiana, by Diabetes Resources, Inc., which is also known as Insulin Infusion
Specialties ("IIS"). The Company and IIS entered into an Educational Dealer
Agreement in July, 1997, relating to the distribution of certain MiniMed
products by IIS. The Company declined to renew that agreement, pursuant to its
terms as of December 31, 1998. IIS is alleging that MiniMed is engaged in unfair
competition, breached the agreement, violated applicable trade secret laws and
defamed IIS. IIS did not specify the amount of damages it is seeking in its
complaint. The Company believes that it has meritorious defenses to IIS's
claims. The action was removed to Federal Court, and the Company has filed an
answer denying the material allegations, and filed a counterclaim seeking
damages for unfair trade practices. The Company has filed an amended
counterclaim seeking damages based on IIS's failure to pay amounts due and
owing. The Company believes that it has meritorious defenses to the claims
asserted by IIS. Trial in the matter is scheduled for September 2001. Discovery
in this litigation is continuing.
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.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes thereto included elsewhere in this quarterly
report. Some of the information in this quarterly report contains
forward-looking statements, including statements relating to anticipated
operating results, margins, growth, financial resources, capital requirements,
adequacy of the Company's capital resources, trends in spending on research and
development, the development of new markets, the development, regulatory
approval, manufacture, distribution, and commercial acceptance of new products,
future product development efforts including the development of an "artificial
pancreas", our manufacture, distribution and commercialization of a new
disposable pump, the exercise of an option to purchase certain technologies or
paid-up licenses and new applications for our existing product lines 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 our business and prospects,
including changes in economic and market conditions, acceptance of our products
by the health care and reimbursement communities, health care legislation and
regulation, new developments in diabetes therapy, administrative and regulatory
approval and related considerations, competitive developments, maintenance of
strategic alliances, and other factors discussed in our filings with the
Securities and Exchange Commission.
GENERAL
Our sales and profits have been generated primarily through the sale of
external pumps and related disposable products used to deliver insulin in the
intensive management of diabetes. Additionally, through our acquisition of two
distribution business, we have broadened our product offerings to include other
diabetes supplies and pharmacy products generally used in the treatment of this
disease.
Product development and manufacturing operations have focused on four
product lines: external pumps and related disposables, implantable insulin pumps
and continuous glucose monitoring systems. Future development of the external
pump and disposable product lines will focus upon improving the existing
technology for its current use in diabetes treatment and the utilization of this
technology for the treatment of other medical conditions. On September 1, 1998,
we sold assets and transferred technology related to our implantable pump
program to Medical Research Group, Inc., which we call MRG. MRG was founded by
Alfred E. Mann, founder, Chairman, CEO and our largest stockholder. Mr. Mann
continues to hold a substantial equity interest in MRG. We have retained
exclusive marketing rights to the implantable pump product line for specific
medical conditions, including diabetes. Under the arrangements, MiniMed is
obligated to purchase minimum numbers of implantable pump units for the initial
periods under the contract. Over the next two years, MiniMed is obligated under
the contracts to make minimum purchases in the amount of approximately $20.8
million. Maintaining exclusive distribution rights in future periods will
require the Company to make minimum purchases subsequent to 2001. We are
currently in negotiations with MRG in an effort to revise the terms of our
existing agreements with MRG, which may include a delay or elimination of the
minimum purchase commitments for implantable pumps, among other potential terms.
No assurance can be given that any new arrangement will in fact be entered into
or, if entered into, that the terms will be as described or be favorable to us.
Sales of continuous glucose monitoring systems commenced in 1999, as we launched
a physician version of this product line after receiving regulatory approval in
June, 1999. Our continuous glucose monitoring system has been characterized as a
first of its kind technology, and full commercialization will be subject to
successful implementation of manufacturing, sales, marketing and reimbursement
plans. Our long-term goal is to link data obtained from our continuous glucose
monitoring systems to our insulin delivery systems and develop an "artificial
pancreas," capable of controlling glucose levels in patients without significant
patient intervention.
During 1999, we entered into two strategic relationships that will affect
future product development, manufacturing, sales and marketing efforts, as well
as financial performance. In February 1999, we entered into an agreement with
Eli Lilly & Co., which we call Lilly giving us a worldwide license to package
and sell a new formulation of Lilly's insulin lyspro for use with our
programmable insulin infusion pumps. We will offer this insulin to our patients
in pre-filled cartridges to be used exclusively in our external programmable
insulin infusion pumps. In June 1999, we entered into agreements with a division
of Elan Corporation, plc, which we call Elan, to manufacture and market
exclusively under our name for insulin delivery a disposable, constant-flow
infusion system developed by Elan. Our current plans are to offer this
disposable infusion system to patients with Type 2 diabetes, further broadening
our potential markets. We will also manufacture this infusion system for Elan
and its other licensees for use with a variety of other pharmaceutical
compounds. Our ability to market products related to each of these agreements is
subject to regulatory approval (including separate regulatory approval of the
insulin to be used in connection with the disposable infusion system), the
timing and certainty of which are not predictable.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth, for the three and nine month periods ended
October 1, 1999, and September 29, 2000, the percentage relationship to net
sales of certain items in our consolidated statements of income and the
percentage change in the dollar amount of these items on a comparative basis.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- ------------------------------------
OCT. 1, SEPT. 29, % INCREASE OCT. 1, SEPT. 29, % INCREASE
1999 2000 (DECREASE) 1999 2000 (DECREASE)
--------- ---------- ----------- --------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 40.3% 100.0% 100.0% 42.8%
Cost of sales 32.1 31.1 36.1 32.9 31.8 37.7
----- ----- ----- ----- ----- -----
Gross profit 67.9 68.9 42.4 67.1 68.2 45.3
Operating expenses:
Selling, general and administrative 44.4 41.9 32.4 42.7 42.3 41.4
Research and development 12.4 11.6 31.1 12.9 11.7 29.2
Research and development contract (2.9) -- -- (3.2) -- --
----- ----- ----- ----- ----- -----
Total operating expenses 53.9 53.5 39.3 52.4 54.0 47.0
----- ----- ----- ----- ----- -----
Operating income 14.0% 15.4% 54.1% 14.7% 14.2% 39.2%
===== ===== ===== ===== ===== =====
</TABLE>
The following table sets forth domestic and international net sales and
gross profits for our significant business activities for the three and nine
month periods ended October 1, 1999 and September 29, 2000.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS % OF NET SALES
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ----------------------- ------------------- -------------------
OCT. 1, SEPT. 29, OCT. 1, SEPT. 29, OCT. 1, SEPT. 29, OCT. 1, SEPT. 29,
1999 2000 1999 2000 1999 2000 1999 2000
--------- --------- --------- ---------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
External pumps and
related disposables:
External pumps:
Domestic $ 25,892 $ 34,851 $ 70,311 $ 101,561 50.4% 48.3% 49.7% 50.3%
International 2,026 2,329 6,088 7,546 3.9 3.2 4.3 3.7
--------- --------- --------- --------- ----- ----- ----- -----
Subtotal 27,918 37,180 76,399 109,107 54.3 51.5 54.0 54.0
Disposable products:
Domestic 18,335 28,052 50,173 72,796 35.7 38.9 35.5 36.1
International 1,295 2,564 4,218 7,065 2.5 3.6 3.0 3.5
--------- --------- --------- --------- ----- ----- ----- -----
Subtotal 19,630 30,616 54,391 79,861 38.2 42.5 38.5 39.6
Total external pumps and
related disposable
products 47,548 67,796 130,790 188,968 92.5 94.0 92.5 93.6
Implantable insulin pumps 393 176 945 726 0.8 0.2 0.7 0.4
Other diabetes supplies 2,510 2,726 6,405 7,846 4.9 3.8 4.5 3.9
Glucose monitoring systems -- 817 -- 2,306 -- 1.1 -- 1.1
Pharmacy products 949 623 3,254 2,041 1.8 0.9 2.3 1.0
--------- --------- --------- --------- ----- ----- ----- -----
Total net sales $ 51,400 $ 72,138 $ 141,394 $ 201,887 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ========= ===== ===== ===== =====
GROSS PROFIT:
External pumps and
related disposables:
External pumps:
Domestic $ 21,387 $ 28,024 $ 57,228 $ 81,113 41.6% 38.8% 40.5% 40.2%
International 1,468 1,069 4,033 4,552 2.9 1.5 2.9 2.3
--------- --------- --------- --------- ----- ----- ----- -----
Subtotal 22,855 29,093 61,261 85,665 44.5 40.3 43.4 42.5
Disposable products:
Domestic 10,590 17,871 28,993 44,480 20.6 24.8 20.5 22.0
International 532 1,497 2,049 4,090 1.0 2.1 1.4 2.0
--------- --------- --------- --------- ----- ----- ----- -----
Subtotal 11,122 19,368 31,042 48,570 21.6 26.9 21.9 24.0
Total external pumps and
related disposable
products 33,977 48,461 92,303 134,235 66.1 67.2 65.3 66.5
Implantable insulin pumps (357) (351) (718) (740) (0.7) (0.5) (0.5) (0.4)
Other diabetes supplies 1,267 1,042 2,514 2,876 2.5 1.5 1.8 1.4
Glucose monitoring systems -- 353 -- 973 -- 0.5 -- 0.5
Pharmacy products 11 174 675 338 -- 0.2 0.5 0.2
--------- --------- --------- --------- ----- ----- ----- -----
Total gross profit $ 34,898 $ 49,679 $ 94,774 $ 137,682 67.9% 68.9% 67.1% 68.2%
========= ========= ========= ========= ===== ===== ===== =====
</TABLE>
NET SALES
Net sales increased 40.3% during the three months ended September 29, 2000
over the three months ended October 1, 1999 to $72,138,000 from $51,400,000, and
increased 42.8% to $201,887,000 in the first nine months of 2000 from
$141,394,000 for the first nine months of 1999. This sales growth is principally
the result of an increase in the sales of external pumps and related disposable
products. Sales of external pumps grew 33.2% during the third quarter of 2000
with external pump domestic sales growing 34.6% and
11
<PAGE> 12
external pump international sales increasing 15.0%. For the nine months ended
September 29, 2000 sales of external pumps grew 42.8% with external pump
domestic sales growing 44.4% and external pump international sales increasing
23.9%. The domestic increase is primarily related to an increase of 42.6% in
unit volume during the nine months ended September 29, 2000 over the comparable
period in 1999 combined with a slight increase in average selling prices on
external pump sales processed through our traditional sales models. The domestic
price increase was a function of our continued efforts to increase the
percentage of pump sales processed directly with third-party payors rather than
selling pumps at larger discounts to independent dealers and market acceptance
of price increases on our pumps related to technological enhancements introduced
during the third quarter of 1999. However, market acceptance of this price
increase has been slower than acceptance of our previous price increases.
Commencing in the second quarter of 2000, we began selling our programmable
insulin pumps to qualified Medicare beneficiaries in accordance with the
approval granted by Health Care Financing Administration in 1999. We expect
shipments of external pumps to patients who have Medicare as their primary
source of reimbursement to adversely impact future external pump average sales
prices, as revenue for the Medicare patients is recognized over a payment period
ranging from 13 to 15 months. The patient also has the right to return the pump
at any time during the first 10 months of the payment period. This is contrasted
to our traditional sales model, where MiniMed recognizes income at the point of
shipment to the patient and when the patient does not have an inherent right of
return. During the first nine months of 2000 approximately 3.3% of our domestic
external pump shipments were billed under the Medicare program. If the Medicare
pumps shipped during the first nine months of 2000 had been reimbursed in our
more traditional models, revenues would have increased by approximately $2.6
million with a corresponding increase in gross profits and operating results.
The financial impact to our operating results of the Medicare reimbursement
program is more pronounced as we start up Medicare sales activity. Over time,
assuming Medicare sales volumes remain relatively consistent, the impact of the
Medicare reimbursement program upon our short-term operations should diminish.
The increase in external pump international sales was unit volume driven,
as realized international average sales prices were slightly lower during the
first nine months of 2000 compared to the first nine months of 1999.
International average sales prices of external pumps have decreased during 2000
due to increased sales in emerging foreign markets where independent dealers are
utilized, compared to the prices realized in the markets where we have direct
operations.
Sales of disposable products increased 56.0% during the third quarter of
2000 over the third quarter of 1999 and 46.8% during the nine months ended
September 29, 2000 over the comparable period in 1999. Disposable products
domestic sales grew 53.0% during the third quarter of 2000 and 45.1% during the
first nine months of 2000. International sales of these products increased 98.0%
during the third quarter of 2000 and 67.5% during the first nine months of 2000.
Similar to our external pumps, this increase in sales of disposable products was
primarily volume driven in both the domestic and international markets combined
with an increase in domestic average sales prices resulting from processing more
sales directly with third-party payors, as contrasted to selling disposable
products at larger discounts to independent dealers. We also experienced an
increase in international average selling prices on disposable products due to a
shift in our sales product mix to relatively higher priced infusion sets.
Sales of implantable pumps decreased 55.2% or $217,000 during the third
quarter of 2000 compared to the third quarter of 1999. Sales of these products
decreased by 23.2% or $219,000 during the first nine months of 2000 compared to
the first nine months of 1999. Sales activity of this product line remains
limited due to the lack of required regulatory approvals, and to date, sales of
implantable pumps have been generated mainly in connection with clinical trials
and compassionate use of the pumps for patients with particularly difficult
cases. The implantable pump and the special insulin remain subject to regulatory
review and approval in the United States, while the implantable pump has been
approved for commercial sale in the European Union, which we call the EU. No
assurance can be given as to when any of these approvals will be received, if at
all.
Sales of other diabetes supplies increased by 8.6% or $216,000 from the
third quarter of 1999 to the third quarter of 2000, while sales of these
products for the first nine months of 2000 increased by 22.5% or $1,441,000 over
the first nine months of 1999. This increase resulted from overall market
growth, the continuation of internal efforts to market these products to our
external pump patient base and a shift in our business from lower paying
Medicare patients to more private insurance patients. Pharmacy products sales
decreased by 34.4% or $326,000 from the third quarter of 1999 to the third
quarter of 2000, while sales of these products for the first nine months of 2000
decreased by 37.3% or $1,213,000 compared to the first nine months of 1999. The
decrease in pharmacy sales is a further continuation of our narrowing and
restructuring of the pharmacy operations to better support our future business
activities. Sales of continuous glucose monitoring systems were $817,000 during
the third quarter of 2000 and $2,306,000 during the first nine months of 2000.
12
<PAGE> 13
OPERATING RESULTS
Cost of Sales and Gross Profits--Cost of sales increased 36.1% during the
three months ended September 29, 2000 over the three months ended October 1,
1999 to $22,459,000 from $16,502,000, and increased 37.7% to $64,205,000 from
$46,620,000 for the nine months ended September 29, 2000 as compared to the nine
months ended October 1, 1999. As a percentage of net sales, cost of sales in the
2000 third quarter decreased to 31.1% from 32.1% in the comparable period of
1999, while cost of sales as a percentage of net sales for the first nine months
of 2000 decreased to 31.8% from 32.9% for the comparable period of 1999. Our
overall improvement in gross margin percentage during the third quarter of 2000
was achieved through an increase in margins realized on disposable products that
was partially offset by lower margins realized on external pumps, implantable
pumps and other diabetes supplies product lines. For the nine months ended
September 29, 2000, our overall improvement in gross margin percentage was due
to increased margins on disposable products that was partially offset by lower
margins realized on external pumps, implantable pumps, other diabetes supplies
and pharmacy products product lines. Gross margins realized on disposable
products increased during 2000 due to the higher average selling prices that we
attained on these products in both the domestic and international markets
combined with lower product costs achieved through volume discounts from several
contract manufacturers. External pump gross margins decreased during the 2000
third quarter due to the impact of the Medicare reimbursement program described
above.
Other diabetes supplies gross margins as a percentage of other diabetes
supplies revenues decreased during both the three months and nine months ended
September 29, 2000 compared to the three months and nine months ended October 1,
1999. This decline in other diabetes supplies margins was due to significant
one-time volume rebates offered by several vendors during the third quarter of
1999 that resulted in unusually high gross margins on these products during that
period. During 2000, we continued to receive on-going volume rebates at levels
that are in line with industry averages from several vendors of these products.
Gross margins on pharmacy products continue to decrease as we restructure this
business.
Operating Expenses--Selling, general and administrative expenses increased
32.4% during the three months ended September 29, 2000 as compared to the three
months ended October 1, 1999 to $30,208,000 from $22,809,000. For the nine
months ended September 29, 2000, selling, general and administrative expenses
grew 41.4% to $85,312,000 from $60,344,000 for the nine months ended October 1,
1999. As a percentage of net sales, these expenses decreased to 41.9% during the
third quarter of 2000 and to 42.3% during the first nine months of 2000 compared
to 44.4% during the third quarter of 1999 and to 42.7% for the first nine months
of 1999. These expenses have increased on an overall basis primarily due to our
continued spending to support our worldwide sales growth. These increases
related to the continued expansion of our direct sales organization through the
first quarter of 2000 with the addition of new sales representatives, continued
development of our managed care marketing efforts and an expanding commitment to
field education and training. We also increased international selling and
marketing expenditures to expand our overall international presence,
establishing a new European headquarters in Belgium, and in developing new
international markets. General and administrative expenses increased to support
our growth, primarily in the areas of reimbursement and information systems.
Research and development expenses grew 31.1% during the third quarter of
2000 over the third quarter of 1999 to $8,381,000 from $6,394,000, with research
and development expenses increasing 29.2% to $23,599,000 for the first nine
months of 2000 compared to $18,262,000 for the first nine months of 1999. As a
percentage of sales, research and development expenses decreased to 11.6% during
the third quarter of 2000 from 12.4% during the comparable period in 1999, and
decreased to 11.7% of net sales for the first nine months of 2000 compared to
12.9% during the first nine months of 1999. The 2000 increase in research and
development costs resulted from greater resources directed toward the
development of continuous glucose monitoring systems and the related pilot
manufacturing operations, development efforts related to future generations of
external pumps, expansion of the data communication capabilities of our
products, support of efforts for the use of our core technology in the treatment
of other medical conditions, and product development efforts related to our
pre-filled insulin cartridge program and our disposable infusion systems.
Research and development expenses will continue to rise during the remainder of
2000, as we plan to introduce several new products over the next two years,
including the consumer version of our continuous glucose monitoring system, new
generations of external insulin pumps and related disposable products (including
pre-filled insulin cartridges), expansion of our core technology for the
treatment of other medical conditions and our disposable infusion system, both
for the treatment of Type 2 diabetes and under our commitment to supply this
product to Elan and its licensees.
During the 1998 first quarter, we signed a research and development
contract with American Medical Instruments, Inc., a member of The Marmon Group
of Companies, which we call AMI. We completed our obligation under the agreement
in 1999 and received a total of $12.0 million to fund these research projects.
Subject to payment of royalties to AMI, we have the right to sell products
utilizing the technology developed pursuant to the agreement on a world-wide
basis, with the exception of Japan. We also have the right to purchase the
technologies developed at prices ranging from an aggregate of $13.5 million to
approximately $18.0 million for the period
13
<PAGE> 14
through April 30, 2002. We anticipate that we will pay approximately $9.0
million to the Marmon group to reacquire part of the technologies during the
fourth quarter of 2000, and that this technology will be recorded as an
intangible asset on our balance sheet. During the first nine months of 1999 we
recorded $4.5 million from this research and development contract as a reduction
of operating expenses, as costs related to completion of the contractual
obligations were included in research and development expense.
Other--During the three and nine months ended September 29, 2000 and during
the three and nine months ended October 1, 1999, other income consisted
primarily of interest income generated from our cash, cash equivalents, and
short-term investment balances. These amounts increased due to additional cash
from our 1999 offering of common stock which raised $140,588,000 in net proceeds
to us. Our effective income tax rate during the nine months ended September 29,
2000 and October 1, 1999 has been computed giving consideration to the pretax
earnings and losses applicable to our foreign and domestic tax jurisdictions and
various income tax credits for which we are eligible. Inflation has not
significantly impacted our results of operations for the past two years.
LIQUIDITY AND CAPITAL RESOURCES
We generated cash from operations of $20,118,000 during the nine months
ended September 29, 2000 compared to cash generated from operations of
$3,499,000 during the nine months ended October 1, 1999. Cash flow from
operations improved during the first nine months of 2000 compared to the first
nine months of 1999 primarily due to increased overall profitability combined
with the tax benefits from the exercise of non-qualified stock options and an
increase in trade accounts payable. These improvements in the cash flows
generated during the first nine months of 2000 were partially offset by
increased expenditures for inventories to increase safety stock levels in
anticipation of our move to our new corporate headquarters and manufacturing
facility in Northridge and to prepare for historically higher sales volumes
experienced in the fourth quarter. Additionally, cash expenditures on accrued
sales commissions increased during the nine months ended September 29, 2000 as
we paid out all of 1999 accrued bonuses and sales commissions during the first
quarter of 2000.
The increase in capital expenditures during the first nine months of 2000
to $28,603,000 compared to $14,905,000 spent during the comparable period in
1999, resulted primarily from building glucose sensor manufacturing capacity for
our current and future product lines, as well as research and development
engineering equipment, continued enhancement of our information systems and
furniture and fixtures for our new facility. We anticipate that future capital
expenditures will continue to increase at an even faster rate in support of our
new product activities and to build the infrastructure to accommodate continuing
growth.
In 1999, we entered into a financing transaction pursuant to which we are
constructing a corporate headquarters, research and development and
manufacturing facility on the campus of California State University, Northridge,
the first phase of which was being financed with a $65.0 million credit
transaction. During October 2000, we negotiated with the lessors to increase
this financing arrangement to $80.0 million to further expand this facility. The
transaction was structured as a synthetic lease financing for the facility
development and, in a related transaction, we obtained a revolving line of
credit to borrow up to $15.0 million. Under the terms of the financing, a
special purpose trust subleases the land to us and leases the improvements to
us. In connection with these financing transactions, we pledged substantially
all of our assets as collateral security and are subject to various affirmative
and negative covenants regarding the conduct of our business including
restrictions on the payment of dividends and the incurrence of additional debt.
These arrangements could adversely affect our ability to acquire additional
capital resources or engage in certain strategic transactions. The synthetic
lease has an initial term of five years, with two one-year renewal options. The
underlying ground lease has a term of 40 years with renewal options for up to an
additional 40 years. Under these arrangements, we are committed to annual
payments ranging from $5.5 million to $6.2 million commencing no later than
April 1, 2001. Additionally, we are committed to average annual payments in
future periods of approximately $450,000 plus periodic cost of living
adjustments, per the terms of the ground lease for the Northridge property. When
the synthetic lease terminates, we will be able to assume the obligations of the
special purpose trust as the lessee under the ground lease if we exercise our
option to purchase.
In September 2000, the Company entered into an agreement to lease certain
computer software and hardware in conjunction with its implementation of a new
enterprise resource planning ("ERP") system. The lessors have agreed to fund up
to $16.0 million under this operating lease. Upon full funding of this lease,
the Company will be committed to annual payments not to exceed $4.0 million,
depending upon the amounts drawn under this operating lease. Full funding of
this lease is not expected until late 2001 with an initial estimated payment of
$900,000 under this lease scheduled for the fourth quarter of 2000.
As part of our transactions with MRG, as described above, we have entered
into an agreement acquiring an option to purchase the exclusive worldwide
marketing rights to a long-term glucose sensor and related products being
developed by MRG for $30.0 million. The option must be exercised within 90 days
after a fully implanted version of the sensor is first successfully implanted by
MRG in human patients in a clinical trial performed in
14
<PAGE> 15
accordance with applicable regulatory requirements. The first such implant
occurred in October 2000 and if the data obtained from this patient meets the
criteria specified in our contract, it is our intention to exercise this option
in the first quarter of fiscal 2001. If we exercise such option, we will then be
responsible for funding 50% of the expenses relating to the clinical trials for
this device until worldwide regulatory approval is obtained.
Additionally, we have entered into a distribution and license agreement
with MRG providing us with the exclusive rights to market and distribute the
implantable pump for specified applications (including the delivery of compounds
to treat diabetes). We are required to purchase minimum quantities of
implantable pump products from MRG through 2001. Future minimum mandatory
purchases for implantable pump units from MRG based upon current prices are:
<TABLE>
<S> <C>
Through approximately December 31, 2000... $ 9,568,000
2001...................................... 11,280,000
-------------
Total..................................... $ 20,848,000
=============
</TABLE>
After 2001, we are required to purchase minimum quantities of implantable
pump products to retain exclusive marketing rights for this product. The
implantable pump and related insulin have not been approved for commercial
distribution in the United States. The implantable pump has been approved for
commercial distribution in the EU, but sales have been and will continue to be
limited until the special insulin used with the pump is approved. As a result of
the delay in these regulatory approvals and other factors, the minimum purchase
commitments substantially exceed the amount of sales that will be generated on
this product line in 2000 or 2001. We have accrued $3,500,000 as of December 31,
1999 and September 29, 2000 related to implantable pump purchase commitment
obligations in excess of expected usage. Depending on the outcome of current
negotiations with MRG (See Item 5. Other Information), we may record charges
ranging up to $20.0 million in future periods, net of current reserves, for this
contractual provision in the event that sales for this product do not exceed the
mandatory purchase commitment.
We are involved in certain litigation, which is incidental to our business,
the financial impact of which is uncertain (see Notes to Consolidated Financial
Statements).
Management believes that our current level of cash and cash equivalents and
short-term investments will be sufficient to meet our needs for working capital
and capital expenditures for the next 24 to 36 months. The requirements for
additional capital and working capital, however, are subject to change and will
depend upon numerous factors, including:
o the level of capital expenditures, especially relating to the new corporate
headquarters and the development of our new insulin cartridge and
disposable pump businesses;
o research and development activities and results;
o competitive and technological developments;
o health care reimbursement trends; and
o the availability for our acquisition of complementary additional
distribution channels, products, and technologies.
During future periods, we may require significant amounts of cash to pursue
opportunities and promote continued growth and expansion.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest excess cash in short-term debt securities that are classified as
available for sale. Two of the main risks associated with these investments are
interest rate risk and credit risk. Typically, when interest rates rise, there
is a corresponding decline in the market value of the debt securities.
Fluctuations in interest rates should not have a material effect on our
financial statements because of the short-term nature of the securities in which
we invest. Credit risk refers to the possibility that the issuer of the debt
securities will not be able to make principal and interest payments. We have
limited our investments to investment grade or comparable securities and have
not experienced any losses on our investments to date due to credit risk.
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
We are currently in negotiations with MRG in an effort to revise the terms
of our existing agreements. The definitive terms of any new arrangement are
uncertain at this time, but the negotiations to date have included discussions
of a transaction which may include a delay or elimination of the minimum
purchase commitments on implantable pumps, an equity investment by us in MRG to
provide funding for their operations and further product development efforts and
an extension or delay of our option period on the marketing rights for the MRG
long-term glucose sensor. In the event that we do not reach an agreement with
MRG for a modification of the minimum purchase commitments for implantable
pumps, we may need to record charges of up to $20.0 million, net of current
reserves, for these contractual provisions in the event that sales for this
product do not exceed the mandatory purchase commitment.
Although we are in discussions with MRG regarding potential modifications
to our existing contractual arrangements, no assurance can be given that any new
arrangement will in fact be entered into or, if entered into, that the terms
will be as described or be favorable to us.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Exhibit
----------- -------
3(ii).1 Amendment to Bylaws of MiniMed Inc.
3(ii).2 Amendment to Bylaws of MiniMed Inc.
10.1 First Amendment to Participation Agreement and Related
Documents among MiniMed Development Corp. as Construction
Agent and Lessee, MiniMed Inc. and First Security Bank, N.A.
as Trustee, et. Al. dated October 30, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K filed July 19, 2000, announcing the declaration
of a stock split in the form of a stock dividend and the financial results of
operations for the second quarter of 2000.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements 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.
Date: November 13, 2000
/s/ KEVIN R. SAYER
------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3(ii).1 Amendment to Bylaws of MiniMed Inc.
3(ii).2 Amendment to Bylaws of MiniMed Inc.
10.1 First Amendment to Participation Agreement and Related
Documents among MiniMed Development Corp. as Construction
Agent and Lessee, MiniMed Inc. and First Security Bank, N.A.
as Trustee, et. Al. dated October 30, 2000.
27.1 Financial Data Schedule
19
