1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26268
MINIMED INC.
(Exact Name of Registrant as Specified in its Charter)
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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 12, 1999
---------------------------- ------------------------------
Common Stock, $.01 par value 30,917,189
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INDEX
MINIMED INC.
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3
Consolidated Balance Sheets (Unaudited) - January 1, 1999 and July 2, 1999 3
Consolidated Statements of Income (Unaudited) -- Three months and
six months ended July 3, 1998 and July 2, 1999 4
Consolidated Statements of Cash Flows (Unaudited) - Six months
ended July 3, 1998 and July 2, 1999 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 18
PART II. OTHER INFORMATION 18
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 21
INDEX TO EXHIBITS 22
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MINIMED INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 1999 AND JULY 2, 1999
ASSETS
1998 1999
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 27,303,000 $165,937,000
Short-term investments ..................................................... 13,476,000 9,465,000
Accounts receivable, net of allowance for doubtful accounts of
$8,844,000 and $9,489,000 at January 1, 1999 and July 2, 1999, respectively 38,788,000 45,710,000
Inventories ................................................................ 16,860,000 19,062,000
Deferred income taxes ...................................................... 6,404,000 6,760,000
Income taxes receivable .................................................... 8,017,000
Prepaid expenses and other current assets .................................. 3,835,000 5,898,000
------------ ------------
Total current assets ........................................... 106,666,000 260,849,000
LONG-TERM INVESTMENTS ........................................................ 4,826,000 5,924,000
NOTE RECEIVABLE FROM AFFILIATE ............................................... 3,600,000 3,600,000
OTHER ASSETS ................................................................. 11,522,000 11,225,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT - Net ................................ 31,038,000 37,520,000
------------ ------------
TOTAL ........................................................................ $157,652,000 $319,118,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ........................................... 1,101,000 882,000
Accounts payable ........................................................... 5,447,000 5,078,000
Accrued salaries and related benefits ...................................... 5,231,000 4,788,000
Accrued sales commissions .................................................. 2,260,000 773,000
Accrued warranties ......................................................... 2,828,000 2,982,000
Income taxes payable ....................................................... 1,155,000 63,000
Other accrued expenses ..................................................... 3,873,000 3,005,000
------------ ------------
Total current liabilities ....................................... 21,895,000 17,571,000
------------ ------------
Deferred income taxes ........................................................ 865,000 1,282,000
Notes payable ................................................................ 1,059,000 1,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01; 40,000,000 shares authorized; 28,095,274 and
30,782,005 shares issued and outstanding as of January 1, 1999
and July 2, 1999, respectively ........................................... 286,000 320,000
Additional capital ........................................................ 111,683,000 267,861,000
Accumulated other comprehensive income .................................... 738,000 1,303,000
Retained earnings ......................................................... 21,126,000 29,781,000
------------ ------------
Total stockholders' equity ..................................... 133,833,000 299,265,000
------------ ------------
TOTAL ........................................................................ $157,652,000 $319,118,000
============ ============
See notes to consolidated financial statements
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MINIMED INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
July 3, July 2, July 3, July 2,
1998 1999 1998 1999
------------ ------------ ------------ ------------
(Unaudited)
NET SALES ................................. $ 31,715,000 $ 49,083,000 $ 58,081,000 $ 89,994,000
COST OF SALES ............................. 13,656,000 16,280,000 23,440,000 30,118,000
------------ ------------ ------------ ------------
GROSS PROFIT .............................. 18,059,000 32,803,000 34,641,000 59,876,000
OPERATING EXPENSES:
Selling, general and administrative ..... 11,930,000 20,167,000 23,320,000 37,535,000
Research and development ................ 3,737,000 6,572,000 7,054,000 11,868,000
Research and development contract ....... (1,500,000) (1,500,000) (3,000,000) (3,000,000)
------------ ------------ ------------ ------------
Total operating expenses ...... 14,167,000 25,239,000 27,374,000 46,403,000
------------ ------------ ------------ ------------
OPERATING INCOME .......................... 3,892,000 7,564,000 7,267,000 13,473,000
OTHER INCOME, Including interest income ... 436,000 573,000 727,000 737,000
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ............... 4,328,000 8,137,000 7,994,000 14,210,000
PROVISION FOR INCOME TAXES ................ 1,581,000 3,264,000 2,941,000 5,555,000
------------ ------------ ------------ ------------
NET INCOME ................................ $ 2,747,000 $ 4,873,000 $ 5,053,000 $ 8,655,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE .................. $ 0.10 $ 0.17 $ 0.19 $ 0.31
============ ============ ============ ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING . 26,626,000 28,455,000 26,594,000 28,301,000
============ ============ ============ ============
DILUTED EARNINGS PER SHARE ................ $ 0.10 $ 0.16 $ 0.18 $ 0.29
============ ============ ============ ============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 28,106,000 30,302,000 27,980,000 30,163,000
============ ============ ============ ============
See notes to consolidated financial statements
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MINIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JULY 3, 1998 AND SIX MONTHS ENDED JULY 2, 1999
1998 1999
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 5,053,000 $ 8,655,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation ........................................... 1,604,000 3,210,000
Directors' fees paid in common stock ................... -- 57,000
Deferred income taxes .................................. (625,000) (357,000)
Tax benefit from exercise of non-qualified stock options 1,150,000 11,993,000
Changes in operating assets and liabilities:
Accounts receivable, net ............................. (1,007,000) (6,922,000)
Inventories .......................................... (2,752,000) (2,202,000)
Prepaid expenses and other current assets ............ (2,314,000) (2,063,000)
Other assets ......................................... (56,000) 48,000
Accounts payable ..................................... (2,510,000) (369,000)
Income taxes receivable/payable ...................... 1,165,000 (9,109,000)
Other accrued expenses ............................... (3,617,000) (2,644,000)
------------- -------------
Net cash provided by (used in) operating activities .. (3,909,000) 297,000
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CASH FLOWS FROM INVESTING ACTIVITIES -
Short-term investments ............................... 9,245,000 4,011,000
Long-term investments ................................ (1,140,000) --
Acquisition of Dartec A.B ............................ (2,580,000) --
Purchase of land, buildings, property and equipment .. (8,530,000) (9,364,000)
------------- -------------
Net cash used in investing activities ................ (3,005,000) (5,353,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES -
Repayment of notes payable ........................... (2,905,000) (278,000)
Proceeds from public offering, net of expenses ....... -- 140,588,000
Proceeds from stock option exercises ................. 412,000 2,671,000
Proceeds from issuance of common stock under employee
stock purchase plan ............................... 467,000 825,000
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Net cash provided by (used in) financing activities (2,026,000) 143,806,000
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Effect of cumulative foreign currency translation
adjustment on cash and equivalents ................. 2,000 (116,000)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................................... (8,938,000) 138,634,000
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ................................................ 22,282,000 27,303,000
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CASH AND CASH EQUIVALENTS, END OF
PERIOD ................................................ $ 13,344,000 $ 165,937,000
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest ............................................. $ 38,000 $ 2,000
Income taxes ......................................... $ 3,159,000 $ 3,621,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY - The Company recorded an
unrealized holding gain of $681,000 during the six months ended July 2, 1999 and
an unrealized holding loss of $1,162,000 during the six months ended July 3,
1998, net of estimated deferred income taxes on marketable securities classified
as long-term investments available for sale.
See notes to consolidated financial statements
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 3, 1998 AND SIX MONTHS ENDED JULY 2, 1999
The fiscal years referenced herein are as follows:
FISCAL YEAR YEAR ENDED
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1999 December 31, 1999
1998 January 1, 1999
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
January 1, 1999. The results of operations for the six months ended July 2, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999.
NOTE 2. 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.
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 3, 1998 and July 2, 1999, 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:
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JULY 3, JULY 2, JULY 3, JULY 2,
1998 1999 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
BASIC EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 2,747,000 $ 4,873,000 $ 5,053,000 $ 8,655,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common
shares outstanding ................. 26,626,000 28,455,000 26,594,000 28,301,000
----------- ----------- ----------- -----------
Basic earnings per share ............ $ 0.10 $ 0.17 $ 0.19 $ 0.31
=========== =========== =========== ===========
DILUTED EPS COMPUTATION
Numerator:
Net income applicable to common stock $ 2,747,000 $ 4,873,000 $ 5,053,000 $ 8,655,000
----------- ----------- ----------- -----------
Denominator:
Weighted average common
shares outstanding ................. 26,626,000 28,455,000 26,594,000 28,301,000
Effect of dilutive securities
Stock options .................. 1,480,000 1,847,000 1,386,000 1,862,000
----------- ----------- ----------- -----------
Diluted weighted average
shares outstanding .................. 28,106,000 30,302,000 27,980,000 30,163,000
----------- ----------- ----------- -----------
Diluted earnings per share .......... $ 0.10 $ 0.16 $ 0.18 $ 0.29
=========== =========== =========== ===========
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 3, 1998 AND SIX MONTHS ENDED JULY 2, 1999
NOTE 4. CONSOLIDATED BALANCE SHEET COMPONENTS
Certain balance sheet components are as follows:
JANUARY 1, JULY 2,
1999 1999
------------ ------------
(Unaudited)
Inventories:
Raw materials ............... $ 7,064,000 $ 7,252,000
Work-in-progress ............ 3,040,000 1,760,000
Finished goods .............. 6,756,000 10,050,000
Total ....................... ------------ ------------
$ 16,860,000 $ 19,062,000
============ ============
Property, plant and equipment:
Land, buildings and
improvements .............. $ 13,244,000 $ 13,583,000
Machinery and equipment ..... 17,332,000 20,280,000
Tooling and molds ........... 2,352,000 2,574,000
Computer software ........... 1,989,000 5,497,000
Furniture and fixtures ...... 5,301,000 7,630,000
------------ ------------
40,218,000 49,564,000
Less accumulated depreciation (9,180,000) (12,044,000)
------------ ------------
Total ....................... $ 31,038,000 $ 37,520,000
============ ============
Other assets:
Technology license .......... $ 145,000 $ 120,000
Goodwill in connection with
Dartec acquisition ....... 2,670,000 2,591,000
Goodwill in connection with
DSS acquisition .......... 8,444,000 8,273,000
Other.......................... 263,000 241,000
------------ ------------
Total.......................... $ 11,522,000 $ 11,225,000
============ ============
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MINIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 3, 1998 AND SIX MONTHS ENDED JULY 2, 1999
NOTE 5. COMPREHENSIVE INCOME
The Company's total comprehensive income is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JULY 3, JULY 2, JULY 3, JULY 2,
1998 1999 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
Net income .............................. $ 2,747,000 $ 4,873,000 $ 5,053,000 $ 8,655,000
Other comprehensive income (loss):
Foreign currency translation
adjustments ....................... (145,000) (62,000) 2,000 (116,000)
Unrealized gain (loss) on securities . (265,000) 784,000 (1,873,000) 1,098,000
----------- ----------- ----------- -----------
Other comprehensive income (loss),
before tax ........................ (410,000) 722,000 (1,871,000) 982,000
Income tax expense related to items of
other comprehensive income ........ (100,000) 298,000 (711,000) 417,000
----------- ----------- ----------- -----------
Other comprehensive income (loss) .... (310,000) 424,000 (1,160,000) 565,000
----------- ----------- ----------- -----------
Total comprehensive income .............. $ 2,437,000 $ 5,297,000 $ 3,893,000 $ 9,220,000
=========== =========== =========== ===========
NOTE 6. CONTINGENCIES
On September 11, 1996, we filed an action against Fimed, Inc. in Los
Angeles County Superior Court seeking declaratory relief and rescission of a
distributorship agreement giving Fimed an exclusive right to distribute our
external pumps using third-party consumer financing. We alleged that Fimed
fraudulently induced us to enter into the agreement and failed to disclose
material facts. Fimed answered our complaint generally denying the allegations,
but also asserted counterclaims against us alleging breach of contract,
promissory fraud, unfair competition, intentional interference with prospective
economic advantage, defamation, libel and slander, and abuse of process and
seeking compensatory damages of $400.0 million, plus punitive damages. No
significant amount of our products has ever been sold using third-party
consumer financing, and Fimed never made any sales under the agreement. We
notified Fimed that we were seeking rescission of the agreement less than six
months after it was signed and before Fimed began marketing our products.
We believe we have meritorious defenses to the counterclaim asserted
by Fimed. We intend to prosecute our claim against Fimed and defend against the
counterclaim vigorously. Fact discovery in the litigation has been completed.
In February 1999, a hearing was held before a retired Judge who was appointed
by the court to act as an independent expert pursuant to California law to
evaluate the amount of damages, if any, sustained by Fimed. The Judge issued
his opinion on May 16, 1999. In that opinion he determined that, even if Fimed
is able to prove that we are liable for the actions it alleges, any recovery by
Fimed should be limited to its out-of-pocket expenses and the gross profit we
earned for our consumer finance sales for the period of April 17, 1996 through
June 30, 1997. We have not definitively calculated those amounts, but believe
the amounts will be immaterial. The Judge specifically stated that he did not
believe Fimed had shown the existence of lost profits damages from its proposed
business with the requisite certainty required under California law. Trial in
this matter is set for September 7, 1999. Although the findings of the
independent expert are not binding on the court they will be admissable as
evidence in the trial
In October 1998, we filed a complaint against Robert Kusher and Craig
Lowy, the former owners of HMS, in the United States District Court for the
Southern District of Florida, Ft. Lauderdale Division. The complaint alleges
that Mr. Kusher and Mr. Lowy engaged in fraudulent misrepresentation, negligent
misrepresentation and breach of contract relating to the sale of HMS to us and
specific billing practices carried on prior to the sale. We are seeking several
remedies including declaratory relief as to our rights under the acquisition
and/or indemnification for any liability arising out of these billing practices.
The allegations regarding billing practice could give rise to claims against us
by the State of Florida.
On February 9, 1999, we were 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, and which
we will refer to as IIS. IIS entered into an Educational Dealer Agreement with
us in July, 1997, relating to the distribution of some of our products by IIS.
We declined to renew that agreement, pursuant to its terms as of December 31,
1998. IIS is alleging that we are engaged in unfair competition, breached the
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agreement, violated applicable trade secret laws and defamed IIS. IIS did not
specify the amount of damages it is seeking in its complaint. We believe that we
have meritorious defenses to IIS's claims. We removed the action to Federal
Court, and filed an answer denying the material allegations, and filed a
counterclaim seeking damages for unfair trade practices. We will shortly be
filing an amended counterclaim seeking damages based on IIS's failure to pay
amounts due and owing. Trial in the matter has been set for January 24, 2000.
Discovery in this litigation is in its preliminary stages.
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.
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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,
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 acquisitions of Home
Medical Supply, Inc., which we call HMS, Dartec AB, a Swedish distributor which
we call Dartec, and Diabetes Support Systems, Inc., which we call DSS, we also
have broadened our product offerings to include other diabetes supplies and
pharmacy products generally used in the treatment of this disease. We distribute
these products nationally.
Product development and manufacturing operations have focused on three
product lines: external insulin pumps and related disposables, implantable
insulin pumps and continuous glucose monitoring systems. Future development of
the external pump and disposable product line 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
June 15, 1999, we received FDA approval of the first generation of our
continuous glucose monitoring system. We intend to initiate sales activity for
this product line shortly, and commercialization will be subject to successful
implementation of manufacturing, sales, marketing and reimbursement plans. Sales
of the implantable pump product line have been and will continue to be limited
until full regulatory approval is obtained.
During 1999 we entered into two strategic relationships which will
affect future product development efforts. In February 1999, we entered into an
agreement with Eli Lilly and Company giving us a worldwide exclusive license to
package and sell a new formulation of Lilly's insulin lyspro for use with our
programmable insulin infusion pumps. In June 1999, we entered into agreements
with a division of Elan Corporation, PLC to manufacture and market exclusively
under our name a disposable, constant-flow infusion system developed by Elan to
deliver insulin. We will also manufacture this infusion system for Elan and
its other licensees for use with a variety of other pharmaceutical compounds.
Products related to these agreements are subject to regulatory approval.
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RESULTS OF OPERATIONS
The following table sets forth, for the three and six month periods
ended July 2, 1999, and July 3, 1998, 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.
PERCENTAGE OF NET SALES
------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------- --------------------------------------
JULY 2, JULY 3, % INCREASE JULY 2, JULY 3, % INCREASE
1999 1998 (DECREASE) 1999 1998 (DECREASE)
------- ------- ----------- ------- ------- -----------
(Unaudited)
Net sales 100.0% 100.0% 54.8% 100.0% 100.0% 54.9%
Cost of sales 33.2 43.1 19.2 33.5 40.4 28.5
----- ----- ---- ----- ----- ----
Gross profit 66.8 56.9 81.6 66.5 59.6 72.8
Operating expenses:
Selling, general and
administrative 41.1 37.6 69.0 41.7 40.2 61.0
Research and development 13.4 11.8 75.9 13.2 12.1 68.2
Research and development contract (3.1) (4.7) -- (3.3) (5.2) --
----- ----- ---- ----- ----- ----
Total operating expenses 51.4 44.7 78.2 51.6 47.1 69.5
----- ----- ---- ----- ----- ----
Operating income 15.4% 12.2% 94.3% 14.9% 12.5% 85.4%
===== ===== ==== ===== ===== ====
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 July 3, 1998.
DOLLARS IN THOUSANDS % OF NET SALES
----------------------------------------------- -----------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- --------------------- ------------------ -------------------
JULY 2, JULY 3, JULY 2, JULY 3, JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited)
NET SALES:
Diabetes products:
External pumps and
related disposables
Domestic $ 41,424 $ 24,991 $ 75,700 $ 44,327 84.4% 78.8% 84.1% 76.3%
International 3,842 2,793 7,544 5,442 7.8 8.8 8.4 9.4
-------- -------- -------- -------- ---- ---- ---- ----
Subtotal 45,266 27,784 83,244 49,769 92.2 87.6 92.5 85.7
Implantable insulin pumps 404 108 550 339 0.8 0.3 0.6 0.6
Other diabetes supplies 2,279 1,367 3,895 2,484 4.7 4.3 4.3 4.3
-------- -------- -------- -------- ---- ---- ---- ----
Total diabetes products 47,949 29,259 87,689 52,592 97.7 92.2 97.4 90.6
Pharmacy products 1,134 2,456 2,305 5,489 2.3 7.8 2.6 9.4
-------- -------- -------- -------- ---- ---- ---- ----
Total net sales $ 49,083 $ 31,715 $ 89,994 $ 58,081 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ==== ==== ==== ====
GROSS PROFIT:
External pumps and
related disposables $ 31,824 $ 18,274 $ 58,314 $ 34,176 64.8% 57.6% 64.8% 58.8%
Implantable insulin pumps (152) (772) (351) (1,363) (0.3) (2.4) (0.4) (2.3)
Other diabetes supplies 858 415 1,248 965 1.7 1.3 1.4 1.7
-------- -------- -------- -------- ---- ---- ---- ----
Total diabetes products 32,530 17,917 59,211 33,778 66.2 56.5 65.8 58.2
Pharmacy products 273 142 665 863 0.6 0.4 0.7 1.5
-------- -------- -------- -------- ---- ---- ---- ----
Total gross profit $ 32,803 $ 18,059 $ 59,876 $ 34,641 66.8% 56.9% 66.5% 59.7%
======== ======== ======== ======== ==== ==== ==== ====
NET SALES
Net sales increased 54.8% during the three months ended July 2, 1999
over the three months ended July 3, 1998 to $49,083,000 from $31,715,000, and
increased 54.9% to $89,994,000 in the first six months of 1999 from $58,081,000
for the first six months of 1998. This sales growth is principally the result of
an increase in the sales of external pumps and related disposables. In the
second quarter of 1999 sales of these products increased 62.9%, or $17,482,000
over the second quarter of 1998, and $33,475,000 or 67.3% for the first six
months of 1999 over the corresponding period of 1998. Domestic sales of these
products grew 65.8% or $16,433,000 in the second quarter of 1999 compared to the
second quarter of 1998, while international sales increased 37.6% or $1,049,000
during the same period. For the first six months of 1999, domestic sales of
external pumps and related disposable products increased by 70.8% while foreign
sales of these products increased by 38.6% over the comparable period of 1998.
The domestic net sales growth was derived primarily from increased
volume of external pumps and related disposables combined with an increase in
average prices realized on external pump sales. The higher domestic external
pump price resulted from an increase in the list price for the latest generation
external pump during the second quarter of 1998, combined with our continued
shift of sales through our direct sales organization rather than through
independent dealers, which receive discounts on these products. International
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sales of external pumps and related disposable products grew primarily due to
greater sales volumes of external pumps, while pricing of external pumps in the
international market in the second quarter of 1999 remained consistent with the
comparable periods of 1998. Domestic and international pricing for disposable
products did not change materially from the first six months of 1998 to the
first six months of 1999.
Sales of implantable pumps increased 274.1% or $296,000 from the second
quarter of 1998 to the second quarter of 1999, while sales of these products for
the first six months of 1999 increased 62.2% or $211,000 over the first six
months of 1998. While we have obtained regulatory approval for the implantable
pump in Europe, the special insulin utilized by the pump has not been approved
in Europe. No approvals have been obtained in the United States. Sales of
implantable pumps to date have been generated mainly in connection with clinical
trials and compassionate use of the pumps. No assurance can be given as to when
these approvals will be received, if at all.
Sales of other diabetes supplies increased by 66.7% or $912,000 from
the second quarter of 1998 to the second quarter of 1999, while sales of these
products for the first six months of 1999 increased by 56.8% or $1,411,000 over
the first six months of 1998. This increase resulted from overall market growth
combined with the addition of sales of these products by DSS, which we acquired
during the fourth quarter of 1998. Average sales prices, however, have decreased
for these products due to reimbursement trends. Pharmacy products sales
decreased by 53.8% or $1,322,000 from the second quarter of 1998 to the second
quarter of 1999, while sales of these products for the first six months of 1999
decreased by 58.0% or $3,184,000 compared to the first six months of 1998. The
pharmacy operation historically distributed products to treat a number of
medical conditions, including diabetes, HIV/AIDS and renal failure. The 1999
sales decrease resulted primarily from our continued narrowing and restructuring
of the pharmacy operations.
OPERATING RESULTS
Cost of Sales and Gross Profit--Cost of sales increased 19.2% during
the three months ended July 2, 1999 over the three months ended July 3, 1998 to
$16,280,000 from $13,656,000, and increased 28.5% to $30,118,000 from
$23,440,000 for the six months ended July 2, 1999 as compared to the six months
ended July 3, 1998. As a percentage of net sales, cost of sales in the 1999
second quarter decreased to 33.2% from 43.1% in the comparable period of 1998,
while cost of sales as a percentage of net sales for the first six months of
1999 decreased to 33.5% from 40.4% for the comparable period of 1998. Gross
margins on external pumps and disposables increased to 70.3% of pump and
disposable sales during the 1999 second quarter compared to 65.8% for this
product line during the 1998 second quarter. For the first six months of 1999
gross margins on external pumps and disposables increased to 70.1% compared to
68.7% for the comparable period in 1998. The improvement in year-to-date and
quarterly gross margins on these products was primarily the result of the
increase in average prices on external pump sales, a reduction in the cost of
certain disposable products that we purchase from contract manufacturers due to
rebates and volume discounts, and manufacturing efficiencies due to increased
volumes.
Our overall gross profits continue to be adversely impacted by the
implantable pump product line due to continued limited sales prior to full
commercial release. We sold assets and transferred technology related to this
product line on September 1, 1998 to Medical Research Group, Inc., an affiliate
which we will call MRG. MRG has assumed all manufacturing and product
development activity of the implantable pump. Implantable pump gross margins
improved during both the 1999 second quarter and the first six months of 1999
compared to the comparable periods in 1998 due to this transaction. We expect
this improvement in margins to continue in the short-term as a result of the MRG
transaction; however, in the long-term, margins may be reduced due to the
transfer of the manufacturing operation to MRG, as our role has been converted
to an exclusive distributor of this product. We are required to purchase
implantable pump units from MRG at negotiated prices, are obligated to purchase
minimum quantities and must purchase minimum quantities in future periods in
order to preserve our exclusivity. The date by which these
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purchase commitments must be satisfied may be extended if and to the extent MRG
fails to complete specific technology improvements to the implantable pump by
January 1, 2000. Current minimum purchase commitments for implantable pumps
based upon current prices are:
Through December 31, 2000 ......... $11,216,000
In 2001 ........................... 8,935,000
-----------
Total ............................. $20,151,000
===========
Gross margins for other diabetes supplies increased to 37.6% of
diabetes supplies sales during the 1999 second quarter compared to 30.4% of
diabetes supplies sales during the comparable period in 1998. However, gross
margins for this product line decreased to 32.0% of diabetes supplies sales
during the first six months of 1999 compared to 38.8% of diabetes supplies sales
during the comparable period in 1998. The improvement in the 1999 second quarter
gross margins for other diabetes supplies resulted from lower costs on several
of these products due to volume rebates earned. Average sales prices of these
products continue to decline due to current reimbursement trends.
Gross profits on pharmacy products increased 92.3% to $273,000 during
the second quarter of 1999, compared to $142,000 during the second quarter of
1998. However, pharmacy products gross margins decreased 22.9% to $665,000 for
the first six months of 1999, compared to $863,000 for the first six months of
1998. These fluctuations in pharmacy products gross margins were primarily due
to our restructuring of the pharmacy operations as described above.
Operating Expenses--Selling, general and administrative expenses
increased 69.0% during the three months ended July 2, 1999 as compared to the
three months ended July 3, 1998 to $20,167,000 from $11,930,000. For the six
months ended July 2, 1999, selling, general and administrative expenses grew
61.0% to $37,535,000 from $23,320,000 for the six months ended July 3, 1998. As
a percentage of net sales, these expenses increased to 41.1% during the second
quarter of 1999 and to 41.7% during the first six months of 1999 compared to
37.6% during the second quarter of 1998 and to 40.2% for the first six months of
1998. 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 include variable costs related to field sales expenses,
significant increases in marketing and customer support, European expansion
through our subsidiaries and general and administrative staffing increases to
support this activity.
Research and development expenses grew 75.9% during the second quarter
of 1999 over the second quarter of 1998 to $6,572,000 from $3,737,000, with
research and development expenses increasing 68.2% to $11,868,000 for the first
six months of 1999 compared to $7,054,000 for the first six months of 1998. As a
percentage of sales, research and development expenses increased to 13.4% during
the second quarter of 1999 from 11.8% during the comparable period in 1998, and
increased to 13.2% of net sales for the first six months of 1999 compared to
12.1% during the first six months of 1998. The 1999 increase in research and
development costs resulted from greater resources directed to the development of
continuous glucose monitoring systems, start-up manufacturing operations of the
continuous glucose monitoring systems, development of future generation external
insulin pumps and related disposable products and data communication
capabilities for external pumps and continuous glucose monitoring systems. We
anticipate that research and development expenditures for future periods will
continue to increase as we commercialize new products and develop manufacturing
operations for the constant flow infusion system developed by Elan and the
Lilly insulin lyspro.
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During the 1998 first quarter, we signed a research and development
contract with American Medical Instruments, Inc., which we call AMI, a member of
The Marmon Group of companies. Under terms of the agreement, and subject to the
achievement of quarterly performance milestones, we can receive up to $12.0
million in funding, payable in quarterly installments of $1.5 million, for two
research and development projects. Subject to payment of royalties to AMI, we
will have the right to sell products utilizing the technology pursuant to the
agreement on a worldwide basis, with the exception of Japan. We also have the
right to either purchase the technologies developed or acquire a fully paid-up
exclusive worldwide license for these technologies, in either case at prices
ranging from an aggregate of $13.5 million to $19.0 million subject to downward
adjustment during specific periods through April 30, 2002. During the second
quarter of both 1998 and 1999, we recorded $1.5 million from this research and
development contract as a reduction of operating expenses as costs related to
completion of the contractual obligations will be included in research and
development expense.
From time to time, we invest in new and developing technologies that
may provide improvements to our core technology or that may provide additional
applications for our existing technologies and products. These investments may
be in the form of equity investments, loans, research and development
agreements, and strategic alliance or cooperation agreements. No assurance can
be given as to when these investments will provide useful new technologies or
applications, if at all. Such investments may result in losses that could
adversely affect our future earnings and results of operations.
Other--During the three and six months ended July 2, 1999 and during
the three and six months ended July 3, 1998, other income consisted primarily of
interest income generated from our cash, cash equivalents, and short-term
investment balances.
Liquidity and Capital Resources
We generated cash from operations of $297,000 during the six months
ended July 2, 1999, whereas we used cash in operations of $3,909,000 during the
six months ended July 3, 1998. Cash flow from operations improved during the
first six months of 1999 compared to the first six months of 1998 primarily due
to a reduction in cash expenditures on various accounts payable and accrued
expenses. Cash flow from operations during the first six months of 1999 improved
over 1998 due to the effect of the tax benefit realized from non-qualified stock
option exercises. These improvements in 1999 cash flow from operations were
partially offset by increases in inventory and accounts receivable balances
during the period. We continued to increase finished goods inventory levels
during the second quarter of 1999 to support the historically higher sales
volumes we have experienced in the third and fourth quarters.
Capital expenditures during the first six months of 1999 were
$9,364,000 compared to $8,530,000 during the first six months of 1998. Our 1998
and 1999 capital expenditures related primarily to building manufacturing
capacity for the continuous glucose monitoring systems, as well as other
building improvements, manufacturing expansion, research and development
engineering equipment and information systems upgrades to support growth. We
anticipate that future capital expenditures will continue to increase in support
of our new product activities, including expenditures for start-up manufacturing
operations for Elan's Medipad disposable continuous drug delivery system that we
will exclusively manufacture and distribute on a worldwide basis, and to build
the infrastructure necessary to accommodate our anticipated growth. As a result
of our contractual obligation with Elan, over the next year we will pay Elan a
minimum of $7.0 million related to license fees and purchase capital equipment
necessary to develop manufacturing capabilities for the constant-flow infusion
system developed by Elan. Additional license fees ranging between $8.0 million
and $13.0 million will be due in future periods subject to certain conditions
and attainment of certain milestones.
We received $140,588,000 during the first six months of 1999 in
connection with our recent public offering of 2,172,500 shares of our common
stock net of expenses. There were no significant equity transaction during the
first six months of 1998.
In May 1999, we entered into a financing transaction pursuant to which
we will construct a corporate headquarters, research and development and
manufacturing facility on the campus of California State University, Northridge,
the first phase of which will be financed with a $65.0 million credit
transaction. The transaction was structured as a synthetic lease financing for
this facility and, in a related transaction, we obtained a revolving line of
credit to borrow up to $15 million. Under the terms of the financing, a special
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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. These arrangements
could adversely affect our ability to obtain additional capital or acquire
additional capital resources. The synthetic lease has a 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 sometime during the second half of 2000. Additionally, we are
committed to payments of $400,000 during 1999 and 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 after
construction of our new corporate headquarters is completed. 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 the process of integrating some HMS operations, we discovered
specific business practices relating to charges billed to the State of Florida
which were implemented by prior ownership and that may result in liability.
These billing activities were related to business activities of an affiliated
pharmacy. We have received no notice of any action which is pending or
threatened against HMS in connection with the billing activities. We have
corrected the practices, notified the State of Florida of our findings and have
initiated legal action against the prior owners to seek indemnification for any
related liability that we may incur. The amount of liability, if any, cannot be
determined at this time, although we believe that indemnification for liability
would be available from the prior owners. We also are involved in other
litigation, the financial impact of which is uncertain (see notes to
consolidated financial statements.)
We received $3.0 million during the first six months of 1998 and 1999
under terms of our research and development contract with AMI. As indicated
above, we have the right to purchase the technologies developed or acquire a
fully paid-up, exclusive worldwide license for these technologies, in either
case at prices ranging from an aggregate of $13.5 million to $19.0 million,
subject to downward adjustment, during specific periods through April 30, 2002,
or may alternatively elect to pay royalties on sales of products utilizing the
technology developed pursuant to the contract. 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 human implant in a clinical trial performed in accordance
with applicable regulatory requirements. To retain our exclusive marketing
rights, we are required to purchase minimum quantities of some products from
MRG. We do not anticipate exercising this option prior to 2000. In the event
that we pursue either of these opportunities, additional capital resources may
be required.
Management believes that our current level of our cash and cash
equivalent and short term investments will be sufficient to meet our needs for
working capital and capital expenditures for the next twenty-four 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 new
corporate headquarters;
- 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.
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YEAR 2000 COMPLIANCE
The Year 2000 problem refers to the potential of all electronic devices
containing microprocessors to improperly calculate dates in and beyond the year
2000. In the second quarter of 1998, we formed a Year 2000 Oversight Committee
to evaluate our position regarding Y2K. The committee consists of members
representing all of the major operating and administrative departments within
MiniMed including information technology, facilities, manufacturing, research
and development, regulatory, quality assurance, materials, finance and
accounting and legal.
The committee established an Action Plan Program to facilitate our Y2K
compliance and minimize the potential effects of Y2K on our operations. The
components of the plan include the following steps:
- assess Y2K compliance of our products;
- inventory our equipment and software, including non-information
systems equipment and software and prioritize according to
critical business functions;
- implement Y2K compliance testing and remediation according to
priorities developed;
- assess vendor and health care payor compliance;
- develop and implement policies to maintain Y2K compliance going
forward; and
- establish contingency plans.
A timetable for the completion of each of these action steps contained in the
plan has been developed by the committee. The committee meets regularly to
assess our efforts to comply with the plan and to address any outstanding Y2K
issues. The committee is also responsible for coordinating all communications
and responding to all inquiries relating to Y2K.
We have completed our evaluation of all of our current product
offerings. Such evaluation has shown that Y2K will not pose operating problems
for these products. As of the end of the second quarter of 1999, we have
completed the process of creating a master inventory of all equipment and
software vulnerable to Y2K and have identified the equipment and software
attendant to critical business processes. Remediation programs to address
problems that have been identified are under way. We have begun to remediate
non-compliant systems including manufacturing systems, information technology
systems, communication systems, security systems and personal computers. We
currently believe that we will be able to modify, replace, or mitigate our
affected systems in time to avoid any material impact on our operations.
We have initiated formal communication with our vendors to assess their
compliance with Y2K. Questionnaires have been developed and distributed to
vendors. These questionnaires, when returned by a vendor, have been evaluated to
assess the Y2K risk presented by that vendor. On site evaluations at the most
critical vendors' sites of operations are currently being conducted. We suspect
that our greatest Y2K risk will be vendor compliance. We rely on our vendors to
supply us with critical components necessary for the manufacture of our
products. We are also implementing a program to assess the Y2K compliance of
insurance companies, management service organizations, and other third-party
payors. Once both the internal and external reviews described above are
completed, we will be able to design a contingency plan to address our areas of
greatest exposure.
Our most reasonably likely worst case scenario in the event of a
failure to correct a material Y2K problem could be an interruption in, or
failure of, normal business activities. Such failures or interruptions could
materially impact our results of operations, liquidity and financial position.
Due to the general uncertainty inherent in the Y2K problem, resulting primarily
from the uncertainty of the Y2K readiness of our vendors and suppliers, we are
unable to determine at this time whether the consequences of Y2K failures will
have a material adverse impact on us. The plan, implemented by the committee, is
expected to significantly reduce both our level of uncertainty about the Y2K
problem and the possibility of significant interruptions to normal operations.
Management currently believes that the cost of Y2K assessment and
remediation will not be material. We estimate that the implementation of our Y2K
plan and remediation activities related to our internal systems and equipment
will cost approximately $1.0 million. Management currently believes that we have
adequate working capital to fund these activities.
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Readers are cautioned that forward looking statements contained in this
Year 2000 Compliance section should be read in conjunction with our cautionary
language in the first paragraph of Management's Discussion and Analysis of
Financial Condition and Results of Operations on page 10.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
During the second quarter of 1999, the rights of holders of MiniMed's
common stock, par value $.01, have been modified as follows:
On May 1, 1999, MiniMed amended its Rights Agreement, dated as of July
24, 1995, between the Company and Harris Trust Company of California, as Rights
Agent. The amendment eliminated those provisions that require that certain
actions may only be taken by "Independent Directors" (as defined in the Rights
Agreement) and also changed the exercise price of a Right (as defined in the
Rights Agreement) from $65.00 to $250.00. The amendment deleting provisions
requiring that certain actions may only be taken by Independent Directors
provide stockholders with an increased ability to elect Directors who could then
redeem the Rights or amend the Rights Agreement. The increase in the exercise
price provides stockholders with the right to purchase, at a lower per share
price, more shares of a hostile acquiror of MiniMed.
On May 20, 1999, MiniMed amended its Restated Certificate of
Incorporation and its Bylaws to, among other things, (a) implement a classified
board consisting of eight Directors divided into three classes with staggered
three year terms, (b) provide that the authorized number of Directors will be
fixed from time to time by the Board, (c) eliminate existing special voting
requirements to amend provisions of the Company's Bylaws relating to the
authorized number of Directors, the annual election of Directors and the
filling of vacancies on the Board, and (d) authorize the Board to make, alter
and repeal the Bylaws.
A classified board will serve as an obstacle to any attempt by a
stockholder to obtain control of the Board of Directors. Without classes of
Directors, a stockholder could elect a new majority of the Board of Directors at
a single annual meeting. Having a classified Board of Directors, however, means
that even a majority stockholder requires two annual meetings to elect a
majority of the Board. Thus, having a classified Board will make it more
difficult for stockholders to change the composition of the Board of Directors
even if a majority of stockholders consider it desirable to do so. With the
implementation of a classified Board, the provisions of the Bylaws covering
special voting requirements amend to provisions of the Bylaws relating to the
authorized number of Directors and the annual election of Directors became
unnecessary and were deleted. The stockholders' rights relating to filling
vacancies on the Board has not changed materially.
The amendment to the Restated Certificate of Incorporation also
provides that the authorized number of Directors will be fixed by the Directors
from time to time. Prior to this amendment, stockholders could, through an
amendment to the Bylaws, change the authorized number of Directors. Stockholders
no longer have the ability to do this. The amendment authorizing the Board to
make, alter and repeal the Bylaws provides both the Board and the stockholders
the concurrent ability to amend MiniMed's Bylaws. Previously, except for certain
specified changes that could be implemented by the Board, only stockholders
could amend or repeal provisions of the Bylaws.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 1999, The Company held its 1999 Annual Meeting of
Stockholders (the "Annual Meeting"). At the Annual Meeting, stockholders of the
Company voted on proposals to (1) elect eight directors until their respective
successors are elected and qualified ("Proposal One"); (2) amend the Company's
Certificate of Incorporation and Bylaws implementing classified Board and other
provisions ("Proposal Two"); (3) amend the Company's Certificate of
Incorporation to increase the Company's authorized capital stock ("Proposal
Three"); (4) amend the Company's Second Amended and Restated 1994 Stock
Incentive Plan ("Proposal Four"); and (5) ratify the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the fiscal year ending
December 31, 1999 ("Proposal Five").
In total, 14,103,678 shares of Common Stock were eligible to vote at
the Annual Meeting, and holders of 12,870,093 shares of Common Stock were
represented in person or by proxy at the Annual Meeting, constituting 91.3% of
the eligible shares. Following is voting information for the matters voted upon
at the Annual Meeting:
Proposal One - The following individuals, all being directors of the
Company prior to such election, were reelected as directors of the Company at
the Annual Meeting: Alfred E. Mann; David Chernoff, M.D.; Carolyne Kahle Davis;
William R. Grant; Terrance H. Gregg; David H. MacCallum; Thomas R. Testman; and
John C. Villforth. Each such director, except for Dr. Chernoff, Mr. Gregg and
Mr. Testman, received 12,799,279 votes (representing 99.5% of the votes cast) in
favor of their election with 70,814 votes (.05%) withheld. Dr. Chernoff received
12,779,579 votes (99.3%) in favor of his election with 90,514 votes (.70%)
withheld. Mr. Gregg received 12,799 204 votes (99.5%) in favor of his election
with 70,889 votes (.05%) withheld. Mr. Testman received 12,799,267 votes (99.5%)
in favor of his election with 70,826 votes (.05%) 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, the proposal to amend the
Company's Certificate of Incorporation and Bylaws implementing classified Board
and other provisions was approved. Proposal Two received 8,205,257 votes (58.2%
of the outstanding shares eligible to vote) in favor, 2,946,386 votes (20.9%)
against, 13,281 (.1%) abstaining and 1,705,169 (12.1%) broker non-votes.
Proposal Three - At the Annual Meeting, the proposal to amend the
Company's Certificate of Incorporation to increase the Company's authorized
capital stock was approved. Proposal Three received 8,621,690 votes (61.1% of
the outstanding shares eligible to vote) in favor, 2,529,818 votes (17.9%)
against, 13,416 (.1%) abstaining and 1,705,169 (12.1%) broker non-votes.
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Proposal Four - At the Annual Meeting, the proposal to amend the
Company's Second Amended and Restated 1994 Stock Incentive Plan was approved.
Proposal Four received 8,219,955 votes (63.9% of the votes cast) in favor,
3,026,374 votes (23.5%) against, 20,104 (.1%) abstaining and 1,603,660 (12.5%)
broker non-votes
Proposal Five - At the Annual Meeting, Deloitte & Touche LLP was
ratified as the Company's independent auditor for the fiscal year ending
December31 1999. Deloitte and Touche LLP received 12,801,196 votes (99.5%) for
such ratification with 63,370 votes (.05%) received against and 5,527 votes
(.04%) withheld. No broker non-votes were received.
ITEM 5. OTHER INFORMATION
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit
- ----------- ---------------------------------------------------------------
3(i).1 Amended and Restated Articles of Incorporation
3(ii).1 Amendment to Bylaws of MiniMed Inc.
4.1 Amendment to Rights Agreement effective as of May 1, 1999 by
and between MiniMed Inc. and Harris Trust Company of California
(previously filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-3, Registration No. 333-80527 on June 11,
1999, and incorporated by reference)
10.1 Ground Sublease by and between North Campus-University Park
Development Corporation and First Security Bank, N.A. as Owner
Trustee dated as of May 18, 1999.
10.2 Participation Agreement among MiniMed Development Corp. as
Construction Agent and Lessee, MiniMed Inc. and First Security
Bank, N.A. as Trustee, et. Al. dated May 18, 1999.
10.3 Parent Guaranty dated as of May 18, 1999 from MiniMed Inc. to
First Security Bank, N.A. as Trustee.
10.4 Master Lease between First Security Bank, N.A. as Trustee and
MiniMed Development Corp. dated May 18, 1999.
10.5 Revolving Credit Agreement dated as of May 18, 1999, among
MiniMed Inc., the Revolving Credit Lenders and ING (U.S.)
Capital LLC.
10.6 Security Agreement dated as of May 18, 1999, among MiniMed
Inc., certain subsidiaries of MiniMed Inc. and ING (U.S.)
Capital LLC.
10.7 License Supply and Distribution Agreement between Eli Lilly and
Company and MiniMed Inc. dated February 1, 1999.
10.8 Amendment to License Supply and Distribution Agreement between
Eli Lilly and Company and MiniMed Inc. dated as June 28, 1999.
10.9 Development, License and Supply Agreement between Elan
Pharmaceutical Technologies, Elan Pharma International Limited
and MiniMed Inc. dated June 11, 1999.
10.10 License and Manufacturing Agreement between Elan Pharmaceutical
Technologies, Elan Pharma International Limited and MiniMed
Inc. dated June 11, 1999.
27.1 Financial Data Schedule
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(b) Reports on Form 8-K
Current Report on Form 8-K filed May 7, 1999, reporting an amendment to
the Rights Agreement between MiniMed Inc. and Harris Trust Company of
California, as Rights Agent.
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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 16, 1999 /s/ KEVIN R. SAYER
----------------------------------
Kevin R. Sayer
Senior Vice President, Finance &
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- ---------------------------------------------------------------
3(i).1 Amended and Restated Articles of Incorporation
3(ii).1 Amendment to Bylaws of MiniMed Inc.
4.1 Amendment to Rights Agreement effective as of May 1, 1999 by
and between MiniMed Inc. and Harris Trust Company of California
(previously filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-3, Registration No. 333-80527 on June 11,
1999, and incorporated by reference)
10.1 Ground Sublease by and between North Campus-University Park
Development Corporation and First Security Bank, N.A. as Owner
Trustee dated as of May 18, 1999.
10.2 Participation Agreement among MiniMed Development Corp. as
Construction Agent and Lessee, MiniMed Inc. and First Security
Bank, N.A. as Trustee, et. Al. dated May 18, 1999.
10.3 Parent Guaranty dated as of May 18, 1999 from MiniMed Inc. to
First Security Bank, N.A. as Trustee.
10.4 Master Lease between First Security Bank, N.A. as Trustee and
MiniMed Development Corp. dated May 18, 1999.
10.5 Revolving Credit Agreement dated as of May 18, 1999, among
MiniMed Inc., the Revolving Credit Lenders and ING (U.S.)
Capital LLC.
10.6 Security Agreement dated as of May 18, 1999, among MiniMed
Inc., certain subsidiaries of MiniMed Inc. and ING (U.S.)
Capital LLC.
10.7 License Supply and Distribution Agreement between Eli Lilly and
Company and MiniMed Inc. dated February 1, 1999.
10.8 Amendment to License Supply and Distribution Agreement between
Eli Lilly and Company and MiniMed Inc. dated as June 28, 1999.
10.9 Development, License and Supply Agreement between Elan
Pharmaceutical Technologies, Elan Pharma International Limited
and MiniMed Inc. dated June 11, 1999.
10.10 License and Manufacturing Agreement between Elan Pharmaceutical
Technologies, Elan Pharma International Limited and MiniMed
Inc. dated June 11, 1999.
27.1 Financial Data Schedule
22