<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.)
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 AUGUST 10, 2000
---------------------------- --------------------------------
Common Stock, $.01 par value 32,034,808
================================================================================
1
<PAGE> 2
INDEX
MINIMED INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Consolidated Balance Sheets (Unaudited) -- December 31, 1999 and June 3
30, 2000
Consolidated Statements of Income (Unaudited) -- Three months and six
months ended July 2, 1999 and June 30, 2000 4
Consolidated Statements of Cash Flows (Unaudited) -- Six months ended
July 2, 1999 and June 30, 2000 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
INDEX TO EXHIBITS 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 92,718,000 $ 86,523,000
Short-term investments ........................................ 77,716,000 92,920,000
Accounts receivable, net of allowance for doubtful
accounts of $13,108,000 and $11,242,000 at December 31,
1999 and June 30, 2000, respectively ....................... 65,938,000 69,052,000
Inventories ................................................... 19,338,000 30,175,000
Deferred income taxes ......................................... 9,973,000 8,755,000
Income taxes receivable ....................................... 5,761,000 4,000,000
Prepaid expenses and other current assets ..................... 7,602,000 7,538,000
------------ ------------
Total current assets .............................. 279,046,000 298,963,000
LONG-TERM INVESTMENTS ........................................... 8,552,000 22,038,000
NOTE RECEIVABLE FROM AFFILIATE .................................. 3,600,000 3,600,000
OTHER ASSETS .................................................... 17,969,000 19,174,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ................... 44,631,000 55,575,000
------------ ------------
TOTAL ........................................................... $353,798,000 $399,350,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable .............................. $ 1,000,000 $ 1,000,000
Accounts payable .............................................. 3,573,000 7,678,000
Accrued salaries and related benefits ......................... 7,749,000 7,726,000
Accrued sales commissions ..................................... 2,964,000 842,000
Accrued warranties ............................................ 3,859,000 3,586,000
Accrued software refurbishment costs .......................... 1,200,000 --
Accrued related party purchase commitment obligations ......... 3,500,000 3,500,000
Other accrued expenses ........................................ 1,310,000 945,000
------------ ------------
Total current liabilities .......................... 25,155,000 25,277,000
------------ ------------
Deferred income taxes ......................................... 1,545,000 5,205,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 100,000,000 shares
authorized; 31,150,297 and 31,854,021 shares issued
and outstanding as of December 31, 1999
and June 30, 2000, respectively ............................ 317,000 361,000
Additional capital ........................................... 280,825,000 298,992,000
Accumulated other comprehensive income ....................... 2,931,000 11,620,000
Retained earnings ............................................ 43,025,000 57,895,000
------------ ------------
Total stockholders' equity ........................ 327,098,000 368,868,000
------------ ------------
TOTAL ........................................................... $353,798,000 $399,350,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
MINIMED INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 2, JUNE 30, JULY 2, JUNE 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES .............................................. $ 49,083,000 $ 69,411,000 $ 89,994,000 $129,749,000
COST OF SALES .......................................... 16,280,000 22,155,000 30,118,000 41,746,000
------------ ------------ ------------ ------------
GROSS PROFIT ........................................... 32,803,000 47,256,000 59,876,000 88,003,000
OPERATING EXPENSES:
Selling, general and administrative .................. 20,167,000 29,201,000 37,535,000 55,104,000
Research and development ............................. 6,572,000 7,415,000 11,868,000 15,219,000
Research and development contract .................... (1,500,000) -- (3,000,000) --
------------ ------------ ------------ ------------
Total operating expenses ................... 25,239,000 36,616,000 46,403,000 70,323,000
------------ ------------ ------------ ------------
OPERATING INCOME ....................................... 7,564,000 10,640,000 13,473,000 17,680,000
OTHER INCOME, Including interest income ................ 573,000 2,037,000 737,000 4,759,000
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............................ 8,137,000 12,677,000 14,210,000 22,439,000
PROVISION FOR INCOME TAXES ............................. 3,264,000 4,055,000 5,555,000 7,569,000
------------ ------------ ------------ ------------
NET INCOME ............................................. $ 4,873,000 $ 8,622,000 $ 8,655,000 $ 14,870,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE ............................... $ 0.17 $ 0.27 $ 0.31 $ 0.47
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING .............. 28,455,000 31,775,000 28,301,000 31,600,000
DILUTED EARNINGS PER SHARE ............................. $ 0.16 $ 0.26 $ 0.29 $ 0.45
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING ............ 30,302,000 33,553,000 30,163,000 33,370,000
PRO FORMA BASIC EARNINGS PER SHARE ..................... $ 0.09 $ 0.14 $ 0.15 $ 0.24
============ ============ ============ ============
PRO FORMA BASIC WEIGHTED AVERAGE SHARES OUTSTANDING .... 56,910,000 63,550,000 56,602,000 63,200,000
============ ============ ============ ============
PRO FORMA DILUTED EARNINGS PER SHARE ................... $ 0.08 $ 0.13 $ 0.14 $ 0.22
============ ============ ============ ============
PRO FORMA DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING .. 60,604,000 67,106,000 60,326,000 66,740,000
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 8,655,000 $ 14,870,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation ................................................. 3,210,000 5,316,000
Directors' fees paid in common stock ......................... 57,000 45,000
Deferred income taxes ........................................ (357,000) 60,000
Tax benefit from exercise of non-qualified stock options ..... 11,993,000 9,973,000
Changes in operating assets and liabilities:
Accounts receivable, net ................................... (6,922,000) (3,115,000)
Inventories ................................................ (2,202,000) (10,836,000)
Prepaid expenses and other current assets .................. (2,063,000) 64,000
Other assets ............................................... 48,000 39,000
Accounts payable ........................................... (369,000) 4,105,000
Accrued salaries and related benefits ...................... (443,000) (22,000)
Accrued sales commissions .................................. (1,487,000) (2,123,000)
Accrued warranties ......................................... 154,000 (273,000)
Accrued software refurbishment costs ....................... -- (1,200,000)
Income taxes receivable/payable ............................ (9,109,000) 1,761,000
Other accrued expenses ..................................... (868,000) (365,000)
------------- -------------
Net cash provided by (used in) operating activities ........ 297,000 18,299,000
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments ..................................... 4,011,000 (15,204,000)
Long-term investments ...................................... -- 80,000
Purchase of technology license ............................. -- (1,500,000)
Purchase of land, buildings, property and equipment ........ (9,364,000) (16,005,000)
------------- -------------
Net cash used in investing activities ...................... (5,353,000) (32,629,000)
------------- -------------
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 ....................... 2,671,000 8,194,000
Proceeds from issuance of common stock under employee
stock purchase plan ..................................... 825,000 --
------------- -------------
Net cash provided by (used in) financing activities ...... 143,806,000 8,194,000
------------- -------------
Effect of cumulative foreign currency translation
adjustment ............................................... (116,000) (59,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 138,634,000 (6,195,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................. 27,303,000 92,718,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................... $ 165,937,000 $ 86,523,000
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid during the period for:
Interest ..................................................... $ 2,000 $ --
Income taxes ................................................. $ 3,621,000 $ --
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - The Company recorded an
unrealized holding gain of $681,000 and $9,356,000, net of estimated deferred
income taxes on marketable securities classified as long-term investments
available for sale during the six months ended July 2, 1999 and June 30, 2000,
respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
The fiscal years referenced herein are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR YEAR ENDED
----------- ----------
<S> <C>
1999 December 31, 1999
2000 December 29, 2000
</TABLE>
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 six months ended June 30,
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:
- Persuasive evidence of an arrangement exists,
- Delivery has occurred or services have been rendered,
- The seller's price to the buyer is fixed or determinable, and
- Collectibility is reasonably assured.
The Company recognizes revenue in accordance with the provisions of SAB No. 101.
The Company recognizes revenue from product sales when the goods are shipped to
its customers. An allowance for doubtful accounts has been recorded to account
for the difference between recorded revenues and anticipated collections from
the
6
<PAGE> 7
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
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.
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 and six
months ended July 2, 1999 and June 30, 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 SIX MONTHS ENDED
JULY 2, JUNE 30, JULY 2, JUNE 30,
1999 2000 1999 2000
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 4,873,000 $ 8,622,000 $ 8,655,000 $14,870,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 28,455,000 31,775,000 28,301,000 31,600,000
----------- ----------- ----------- -----------
Basic earnings per share $ 0.17 $ 0.27 $ 0.31 $ 0.47
=========== =========== =========== ===========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 4,873,000 $ 8,622,000 $ 8,655,000 $14,870,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 28,455,000 31,775,000 28,301,000 31,600,000
Effect of dilutive securities
Stock options 1,847,000 1,778,000 1,862,000 1,770,000
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 30,302,000 33,553,000 30,163,000 33,370,000
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.16 $ 0.26 $ 0.29 $ 0.45
=========== =========== =========== ===========
</TABLE>
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
will be distributed on August 18, 2000. The pro forma computation of basic and
diluted EPS to reflect the effect of the stock split is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ---------------------------
JULY 2, JUNE 30, JULY 2, JUNE 30,
1999 2000 1999 2000
----------- ------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 4,873,000 $ 8,622,000 $ 8,655,000 $14,870,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 56,910,000 63,550,000 56,602,000 63,200,000
----------- ----------- ----------- -----------
Basic earnings per share $ 0.09 $ 0.14 $ 0.15 $ 0.24
=========== =========== =========== ===========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 4,873,000 $ 8,622,000 $ 8,655,000 $14,870,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common shares
outstanding 56,910,000 63,550,000 56,602,000 63,200,000
Effect of dilutive securities
Stock options 3,694,000 3,556,000 3,724,000 3,540,000
----------- ----------- ----------- -----------
Diluted weighted average shares
outstanding 60,604,000 67,106,000 60,326,000 66,740,000
----------- ----------- ----------- -----------
Diluted earnings per share $ 0.08 $ 0.13 $ 0.14 $ 0.22
=========== =========== =========== ===========
</TABLE>
7
<PAGE> 8
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
Inventories:
Raw materials .......................................... $ 9,380,000 $ 12,774,000
Work-in-progress ....................................... 2,315,000 2,479,000
Finished goods ......................................... 7,643,000 14,922,000
------------ ------------
Total .................................................. $ 19,338,000 $ 30,175,000
============ ============
Property, plant and equipment:
Land, buildings and improvements ...................... $ 15,817,000 $ 17,251,000
Machinery and equipment ................................ 25,963,000 35,084,000
Tooling and molds ...................................... 3,355,000 5,035,000
Computer software ...................................... 7,423,000 9,902,000
Furniture and fixtures ................................. 8,062,000 9,475,000
------------ ------------
60,620,000 76,747,000
Less accumulated depreciation .......................... (15,989,000) (21,172,000)
------------ ------------
Total .................................................. $ 44,631,000 $ 55,575,000
============ ============
Other assets:
Technology license ..................................... $ 7,094,000 $ 8,568,000
Goodwill ............................................... 10,606,000 10,349,000
Other .................................................. 269,000 257,000
------------ ------------
Total .................................................. $ 17,969,000 $ 19,174,000
============ ============
Long-term investments:
Investment in Trimeris common stock - at fair value .... $ 7,412,000 $ 20,898,000
Investment in PDC common stock - at cost ............... 1,140,000 1,140,000
------------ ------------
Total .................................................... $ 8,552,000 $ 22,038,000
============ ============
</TABLE>
8
<PAGE> 9
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
NOTE 5. COMPREHENSIVE INCOME
The Company's total comprehensive income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 2, JUNE 30, JULY 2, JUNE 30,
1999 2000 1999 2000
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income $ 4,873,000 $ 8,622,000 $ 8,655,000 $ 14,870,000
Other comprehensive income:
Foreign currency translation
adjustments (62,000) (65,000) (116,000) (59,000)
Unrealized holding gain on securities:
Unrealized gain on securities 784,000 5,874,000 1,098,000 14,174,000
Less: reclassification adjustment for
gain included in net income -- (301,000) -- (608,000)
------------ ------------ ------------ ------------
Other comprehensive income,
before income tax 722,000 5,508,000 982,000 13,507,000
Income tax expense related to items of
other comprehensive income 298,000 1,942,000 417,000 4,818,000
------------ ------------ ------------ ------------
Other comprehensive income (loss) 424,000 3,566,000 565,000 8,689,000
------------ ------------ ------------ ------------
Total comprehensive income $ 5,297,000 $ 12,188,000 $ 9,220,000 $ 23,559,000
============ ============ ============ ============
</TABLE>
NOTE 6. 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 being constructed on the land
described above. The lessors of the buildings have committed to fund up to a
maximum of $65.0 million for the first phase of construction of the buildings.
The Company is in the process of attempting to increase 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
to the Company and leases the improvements to the Company. The lease has an
initial term of five years, with two one-year renewal options. Under this
financing arrangement, the Company is committed to annual payments ranging from
$4.5 million to $5.0 million commencing sometime during the second half of 2000.
The annual payments will increase if the Company is successful in expanding the
debt arrangement. These lease payments will be recorded as rent expense in
future periods. When the synthetic lease terminates, the Company will be able to
assume the obligations of the special purpose trust as the lessee under the
ground lease if it exercises its option to purchase.
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
9
<PAGE> 10
MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JULY 2, 1999 AND SIX MONTHS ENDED JUNE 30, 2000
arrangements could adversely affect the Company's ability to acquire additional
capital resources or engage in certain strategic transactions.
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
currently is schedule to commence in 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.
10
<PAGE> 11
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. 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.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth, for the three and six month periods
ended July 2, 1999, and June 30, 2000, the percentage relationship to net sales
of some 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 SIX MONTHS ENDED
----------------------------------- -----------------------------------
JULY 2, JUNE 30, % INCREASE JULY 2, JUNE 30, % INCREASE
1999 2000 (DECREASE) 1999 2000 (DECREASE)
------ ------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 41.4% 100.0% 100.0% 44.2%
Cost of sales 33.2 31.9 36.1 33.5 32.2 38.6
------ ------ ------ ------ ------ ------
Gross profit 66.8 68.1 44.1 66.5 67.8 47.0
Operating expenses:
Selling, general and administrative 41.1 42.1 44.8 41.7 42.5 46.8
Research and development 13.4 10.7 12.8 13.2 11.7 28.2
Research and development contract (3.1) -- -- (3.3) -- --
------ ------ ------ ------ ------ ------
Total operating expenses 51.4 52.8 45.1 51.6 54.2 51.5
------ ------ ------ ------ ------ ------
Operating income 15.4% 15.3% 40.7% 14.9% 13.6% 31.2%
====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth domestic and international net sales and
gross profits for our significant business activities for the three and six
month periods ended July 2, 1999 and June 30, 2000.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS % OF NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- ----------------------- ------------------ ------------------
JULY 2, JUNE 30, JULY 2, JUNE 30, JULY 2, JUNE 30, JULY 2, JUNE 30,
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 $ 24,075 $ 35,151 $ 44,063 $ 65,906 49.1% 50.6% 49.0% 50.8%
International 2,080 2,928 4,241 6,021 4.2 4.2 4.7 4.6
--------- --------- --------- --------- ------ ------ ------ ------
Subtotal 26,155 38,079 48,304 71,927 53.3 54.8 53.7 55.4
Disposable products:
Domestic 17,349 23,920 31,637 44,372 35.3 34.5 35.2 34.2
International 1,762 2,895 3,302 4,873 3.6 4.2 3.7 3.8
--------- --------- --------- --------- ------ ------ ------ ------
Subtotal 19,111 26,815 34,939 49,245 38.9 38.7 38.9 38.0
Total external pumps and
related Disposable products 45,266 64,894 83,243 121,172 92.2 93.5 92.6 93.4
Implantable insulin pumps 404 250 550 550 0.8 0.4 0.6 0.4
Other diabetes supplies 2,279 2,774 3,896 5,120 4.7 4.0 4.3 4.0
Glucose monitoring systems -- 839 -- 1,488 -- 1.2 -- 1.1
Pharmacy products 1,134 654 2,305 1,419 2.3 0.9 2.5 1.1
--------- --------- --------- --------- ------ ------ ------ ------
Total net sales $ 49,083 $ 69,411 $ 89,994 $ 129,749 100.0% 100.0% 100.0% 100.0%
========= ========= ========= ========= ====== ====== ====== ======
GROSS PROFIT:
External pumps and
related disposables:
External pumps:
Domestic $ 19,377 $ 28,261 $ 35,588 $ 52,474 39.5% 40.7% 39.6% 40.4%
International 1,393 2,012 2,721 4,098 2.8 2.9 3.0 3.2
--------- --------- --------- --------- ------ ------ ------ ------
Subtotal 20,770 30,273 38,309 56,572 42.3 43.6 42.6 43.6
Disposable products:
Domestic 10,112 14,403 18,284 26,450 20.6 20.8 20.3 20.4
International 942 1,490 1,721 2,752 1.9 2.1 1.9 2.1
--------- --------- --------- --------- ------ ------ ------ ------
Subtotal 11,054 15,893 20,005 29,202 22.5 22.9 22.2 22.5
Total external pumps and
related Disposable products 31,824 46,166 58,314 85,774 64.8 66.5 64.8 66.1
Implantable insulin pumps (152) (345) (351) (389) (0.3) (0.5) (0.4) (0.3)
Other diabetes supplies 858 1,040 1,248 1,834 1.7 1.5 1.4 1.4
Glucose monitoring systems -- 315 -- 620 -- 0.5 -- 0.5
Pharmacy products 273 80 665 164 0.6 0.1 0.7 0.1
--------- --------- --------- --------- ------ ------ ------ ------
Total gross profit $ 32,803 $ 47,256 $ 59,876 $ 88,003 66.8% 68.1% 66.5% 67.8%
========= ========= ========= ========= ====== ====== ====== ======
</TABLE>
NET SALES
Net sales increased 41.4% during the three months ended June 30, 2000
over the three months ended July 2, 1999 to $69,411,000 from $49,083,000, and
increased 44.2% to $129,749,000 in the first six months of 2000 from $89,994,000
for the first six 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 45.6% during the
12
<PAGE> 13
second quarter of 2000 with external pump domestic sales growing 46.0% and
external pump international sales increasing 40.8%. For the six months ended
June 30, 2000 sales of external pumps grew 48.9% with external pump domestic
sales growing 49.6% and external pump international sales increasing 42.0%. The
domestic increase is primarily related to an increase of 43.5% in unit volume
during the six months ended June 30, 2000 over the comparable period in 1999
combined with an increase in average selling prices. 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. During the second quarter of 2000 approximately 4% of our domestic
external pump shipments were billed under the Medicare program. Reimbursement to
us under the Medicare program is spread over a payment period of 13 to 15 months
and the patient has the right to return the pump during the payment period. This
is contrasted to our traditional sales model, which allows us to recognize
these revenues at the time the pumps are shipped. If the Medicare pumps shipped
this quarter had been reimbursed in our more traditional models, revenues would
have increased by approximately $1.2 million with a corresponding increase in
gross profits and operating results.
The increase in external pump international sales was unit volume
driven, as realized international average sales prices were slightly lower
during the first six months of 2000 compared to the first six 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 40.3% during the second quarter
of 2000 over the second quarter of 1999 and 40.9% during the six months ended
June 30 2000 over the comparable period in 1999. Disposable products domestic
sales grew 37.9% during the second quarter of 2000 and 40.3% during the first
six months of 2000. International sales of these products increased 64.3% during
the second quarter of 2000 and 47.6% during the first six 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.
Sales of implantable pumps decreased 38.1% or $154,000 during the second
quarter of 2000 compared to the second quarter of 1999. Sales of these products
have remained consistent during the first six months of 2000 compared to the
first six 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 21.7% or $495,000 from the
second quarter of 1999 to the second quarter of 2000, while sales of these
products for the first six months of 2000 increased by 31.4% or $1,224,000 over
the first six 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 42.3% or $480,000 from the second quarter of 1999 to the second quarter of
2000, while sales of these products for the first six months of 2000 decreased
by 38.4% or $886,000 compared to the first six 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 $839,000 during the second quarter
of 2000 and $1,488,000 during the first six months of 2000.
OPERATING RESULTS
Cost of Sales and Gross Profit--Cost of sales increased 36.1% during the
three months ended June 30, 2000 over the three months ended July 2, 1999 to
$22,155,000 from $16,280,000, and increased 38.6% to $41,746,000 from
$30,118,000 for the six months ended June 30, 2000 as compared to the six months
ended July 2, 1999. As a percentage of net sales, cost of sales in the 2000
second quarter decreased to 31.9% from
13
<PAGE> 14
33.2% in the comparable period of 1999, while cost of sales as a percentage of
net sales for the first six months of 2000 decreased to 32.2% from 33.5% for the
comparable period of 1999. Our overall improvement in gross margin percentage
during the second quarter of 2000 was achieved through an increase in margins
realized on external pumps and related disposable products that was partially
offset by lower margins realized on implantable pumps and pharmacy product
lines. For the six months ended June 30, 2000, our overall improvement in gross
margin percentage was due to increased margins on external pumps and other
diabetes supplies. External pump gross margins improved during the 2000 second
quarter as we began to realize the price increase related to technological
enhancements on our latest model external pump combined with manufacturing
economies of scale realized by the higher unit volume. However, as we continue
to ship external pumps to patients who have Medicare as their primary source of
reimbursement we expect gross margins on future external pump sales to decline.
Gross margins realized on disposable products increased during both the
three and six months periods ended June 30, 2000 compared to the similar periods
during 1999 due to the increase in domestic average sales prices. Other diabetes
supplies gross margins as a percentage of other diabetes supplies revenues
remained consistent during the second quarter of 2000 compared to the second
quarter of 1999 and improved during the first six months of 2000 compared to the
first six months of 1999. The improvement in other diabetes supplies margins was
due to our repositioning of this business to market these products to our
existing external pump patients combined with an increase in average sales
prices. Gross margins on pharmacy products continue to decrease as we
restructure this business.
Operating Expenses--Selling, general and administrative expenses
increased 44.8% during the three months ended June 30, 2000 as compared to the
three months ended July 2, 1999 to $29,201,000 from $20,167,000. For the six
months ended June 30, 2000, selling, general and administrative expenses grew
46.8% to $55,104,000 from $37,535,000 for the six months ended July 2, 1999. As
a percentage of net sales, these expenses increased to 42.1% during the second
quarter of 2000 and to 42.5% during the first six months of 2000 compared to
41.1% during the second quarter of 1999 and to 41.7% for the first six months of
1999. These expenses have increased on an overall basis and as a percentage of
sales 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 12.8% during the second quarter
of 2000 over the second quarter of 1999 to $7,415,000 from $6,572,000, with
research and development expenses increasing 28.2% to $15,219,000 for the first
six months of 2000 compared to $11,868,000 for the first six months of 1999. As
a percentage of sales, research and development expenses decreased to 10.7%
during the second quarter of 2000 from 13.4% during the comparable period in
1999, and decreased to 11.7% of net sales for the first six months of 2000
compared to 13.2% during the first six 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.
14
<PAGE> 15
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
$19.0 million during certain periods commencing April 2000 and concluding April
30, 2002. During the first six months of 1999 we recorded $3.0 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 six months ended June 30, 2000 and during
the three and six months ended July 2, 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 six months ended June 30, 2000 and July
2, 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 $18,299,000 during the six months
ended June 30, 2000 compared to cash generated from operations of $297,000
during the six months ended July 2, 1999. Cash flow from operations improved
during the first six months of 2000 compared to the first six months of 1999
primarily due to increased overall profitability combined with the tax benefits
from the exercise of non-qualified stock options, an increase in trade accounts
payable and improved cash collections during 2000. These improvements in the
cash flows generated during the first six months of 2000 were partially offset
by increased expenditures for inventories to increase safety stock levels in
anticipation of our planned move to our new corporate headquarters and
manufacturing facility in Northridge and to prepare for historically higher
sales volumes experienced in the third and fourth quarters. Additionally, cash
expenditures on accrued sales commissions increased during the six months ended
June 30, 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 six months of 2000
to $16,005,000 compared to $9,364,000 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 is being financed with a $65.0 million credit
transaction. We are in the process of increasing this debt 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 $4.5 million to $5.0 million
commencing during the second half of 2000. Future payments will increase in the
event that the debt arrangement is increased to $80.0 million. 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. These lease payments will be recorded as rent
expense in future periods. 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.
15
<PAGE> 16
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).
We have also entered into an agreement by which, among other
transactions, we have acquired 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 within 90 days of MRG's first successful full
human implant in a clinical trial performed in accordance with applicable
regulatory requirements. In the event that we pursue this opportunity,
additional capital resources may be required.
To retain our exclusive marketing rights for the implantable pump, we
are required to purchase minimum quantities of some products from MRG. Future
minimum purchase commitments for implantable pump units from MRG based upon
current prices are:
<TABLE>
<CAPTION>
<S> <C>
Through December 31, 2000 .............. $10,800,000
2001 ................................... 11,280,000
-----------
Total .................................. $22,080,000
===========
</TABLE>
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 will be limited until
the special insulin used with the pump is approved. We have accrued $3,500,000
as of December 31, 1999 and June 30, 2000 related to implantable pump purchase
commitment obligations in excess of expected usage.
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:
- the level of capital expenditures, especially relating to the new
corporate headquarters and the development of our new insulin
cartridge and disposable pump businesses;
- research and development activities and results;
- competitive and technological developments;
- health care reimbursement trends; and
- 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.
16
<PAGE> 17
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
On June 29, 2000, we entered into a Settlement Agreement with Robert
Kushner, Craig Lowy and Salver & Mussman relating to litigation pending in the
United States District Court for Southern District of Florida, arising out of
our acquisition of Home Medical Supply Inc. and related companies. As stipulated
in the Settlement Agreement, terms of the settlement will be kept confidential.
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
On June 22, 2000, we held our 2000 Annual Meeting of Stockholders (the
"Annual Meeting"). At the Annual Meeting, our stockholders voted on proposals to
(1) elect three Class 1 Directors for three-year terms ("Proposal One"); and (2)
ratify the appointment of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year ending December 29, 2000 ("Proposal Two"). The
nominees for Class 1 Directors were David Chernoff, M.D., Carolyne Kahle Davis,
and John C. Villforth. In total, 31,747,146 shares of Common Stock were eligible
to vote at the Annual Meeting, and holders of 29,702,600 shares of Common Stock
were represented in person or by proxy at the Annual Meeting, constituting
93.56% of the eligible shares. Following is voting information for the matters
voted upon at the Annual Meeting:
Proposal One - The following individuals, all being Class 1 Directors of
the Company prior to such election, were reelected as Class 1 Directors
directors of the Company at the Annual Meeting: David Chernoff M.D.; Carolyne
Kahle Davis; and John C. Villforth. Dr. Chernoff received 29,586,651 votes
(99.61%) in favor of his election with 115,949 votes (0.39%) withheld. Ms. Davis
received 29,637,027 votes (99.78%) in favor of her election with 65,573 votes
(0.22%) withheld. Mr. Villforth received 29,635,688 votes (99.77%) in favor of
his election with 66,912 votes (0.23%) withheld. None of the Company's directors
received any votes against their reelection nor were any broker non-votes
received.
Proposal Two - At the Annual Meeting, Deloitte & Touche LLP was ratified
as the Company's independent auditor for the fiscal year ending December 29
2000. Deloitte and Touche LLP received 29,629.552 votes (93.33%) for such
ratification with 40,789 votes (0.13%) received against and 32,259 votes (0.10%)
withheld. No broker non-votes were received.
ITEM 5. OTHER INFORMATION
Not applicable.
17
<PAGE> 18
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
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.
18
<PAGE> 19
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: August 14, 2000 /s/ KEVIN R. SAYER
------------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------------------------------------------------
27.1 Financial Data Schedule
20
