<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K
                            ------------------------

     [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

                    FOR FISCAL YEAR ENDED DECEMBER 31, 1999.

                                       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)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      95-4408171
       (STATE OF OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
</TABLE>

               12744 SAN FERNANDO ROAD, SYLMAR, CALIFORNIA 91342
       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 362-5958

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                              TITLE OF EACH CLASS

                          COMMON STOCK, $.01 PAR VALUE
                        PREFERRED STOCK PURCHASE RIGHTS

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K or any amendment to
this Form 10-K.  [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 21, 2000 was $3,094,488,657 (based on closing sale price
of $107.50 per share as reported on the Nasdaq National Market). The total
number of shares outstanding of the registrant's Common Stock as of March 21,
2000 was 31,671,496.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the following document are incorporated herein by reference:
Part III -- The Registrant's Proxy Statement for its 2000 Annual Meeting (the
"2000 Proxy").

                     Exhibit Index is located at page [67]

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                     PART I

     Some of the information in this Annual Report on Form 10-K contains
forward-looking statements, including statements relating to the anticipated
operating results, growth, financial resources, development of new products and
markets, trends relating to certain expenses, obtaining and maintaining
regulatory approval, commercial acceptance of new products, obtaining and
maintaining reimbursement for our products, expectations regarding competition
from other companies and from other methods of treating medical conditions and
our ability to manufacture and distribute our products our success in
maintaining our license agreements with Medical Research Group, Inc. ("MRG") and
the success of MRG's product development and performance. The forward-looking
statements are based on assumptions, including assumptions of future events.
Although we believe that our expectations are based on reasonable assumptions,
the actual results and our financial position will vary from those projected or
implied in the forward-looking statements, and the variances may be material.
Such variances result from the risks and uncertainties which affect our
business, including changes in economic and market conditions, acceptance of our
products by health care and reimbursement communities, health care legislation
and regulation, new developments in diabetes therapy, administrative and
regulatory approval and related considerations, competitive developments,
effective integration of our acquisitions, maintenance of strategic alliances
and other factors discussed under the caption "Risk Factors" contained in our
Prospectus dated June 29, 1999 filed with the Securities and Exchange
Commission.

ITEM 1. BUSINESS

     We design, develop, manufacture, market and sell advanced microinfusion
systems and continuous glucose monitoring systems for the intensive management
of diabetes. Our primary goal is to continue to be an innovator in designing and
bringing to market advanced medical devices for the treatment of diabetes. We
are also using our drug delivery expertise to develop infusion devices for the
treatment of other chronic medical conditions. Our development efforts are
focused on creating products which will offer patients a comprehensive and
integrated approach to enhanced disease management.

     We have been selling external insulin infusion pumps and related supplies
since 1983, and we believe we have established a reputation for quality and
service associated with the MiniMed name. We believe that we are the leading
provider of insulin infusion systems in the world, with a present market share
in the United States which we estimate to be approximately 80% of new product
sales. Our net sales of these external pumps and related disposables have grown
at a compounded annual growth rate of approximately 46% from $43.7 million in
1995 to $197.5 million in 1999. In turn, this growth has driven our overall net
income from $2.3 million to $21.9 million over the same period. We intend to
leverage our existing customer base and current distribution channels to
introduce new products to satisfy more of our customers' needs and provide more
complete diabetes management solutions.

MARKET OVERVIEW

     Diabetes is a chronic, life-threatening disease, for which there is no
known cure. In patients with diabetes, the body does not produce or respond
adequately to insulin, a hormone produced by the pancreas that is critical to
the metabolism of glucose. In the normal digestive process, carbohydrates in
food are broken down into glucose, which is circulated in the bloodstream to the
cells of the body, where it is converted into energy.

     The concentration of glucose in the bloodstream must be controlled within a
relatively narrow range to maintain normal health. Insulin, which is secreted by
the islet cells in the pancreas, is the primary regulatory mechanism by which
the body metabolizes glucose. A normal pancreas produces the correct amount of
insulin required to maintain a person's glucose at proper levels. In patients
with diabetes, however, glucose is not fully metabolized. This is either because
insulin-producing cells are destroyed or exist in reduced numbers, or some
combination of both and, as a result, the body's cells do not effectively
metabolize glucose.

     Although we believe that our most significant growth opportunity is to
expand our diabetes business, we also believe that opportunities involving
application of our technology to the delivery of other drugs may become
increasingly important in the future.
                                        2
<PAGE>   3

TYPE 1 VERSUS TYPE 2 DIABETES

     Diabetes is typically classified into two primary types. Type 1, sometimes
referred to as juvenile onset, is the more severe form of the disease and is
characterized by a complete lack of insulin secretion by the pancreas. In order
to maintain body chemistry balance and sustain life, Type 1 patients require
life-long, daily insulin therapy. In Type 2 diabetes, the more prevalent form of
the disease, sometimes referred to as adult onset, the pancreas produces some
insulin but glucose levels are still not adequately controlled. There is a
spectrum of the severity in Type 2 diabetes, ranging from those patients whose
disease is mild and even undiagnosed, to those who can usually manage their
disease by diet and exercise, to those who use various oral medications and to
the most serious segment that requires use of insulin.

HOW MANY PEOPLE HAVE DIABETES?

     According to the American Diabetes Association, which we call the ADA,
diabetes afflicts approximately 16 million people in the Unites States, or
approximately 6% of the total population, 800,000 to 1 million of whom are
estimated by the ADA to suffer from Type 1 diabetes. The Health Care Financing
Administration which administers the Medicare Program estimates that there is an
incidence of 30,000 new diabetes cases per year. Although patients with Type 1
diabetes represent the primary market for our programmable insulin pumps, there
is a small but growing use of programmable insulin pumps for Type 2 diabetes.
Based on industry sources, we estimate that there are approximately 3 million
Type 2 patients using insulin in the U.S.

THE COMPLICATIONS OF DIABETES

     People with diabetes experience distress at both high levels of glucose
 -- "hyperglycemia," -- and low levels of glucose -- "hypoglycemia," with
significant short and long-term negative impacts on wellness and mortality.
Recurring high glucose levels inhibit the immune system and result in fatigue,
slow healing and lower resistance to infection. In severe cases, high glucose
levels can lead to coma and death. Chronically high glucose levels can result in
major, long-term complications such as eye disease, kidney disease, nerve
disease, male impotence and cardiovascular complications, including heart
attacks and strokes. Low glucose levels can also lead to complications,
including fainting, weakness and, in severe cases, unconsciousness, permanent
loss of cognitive power and death. According to the ADA, diabetes is a leading
cause of:

     - blindness in adults 25 to 74 years old with 12,000 to 24,000 new cases
       annually in the United States;

     - renal failure with approximately 27,900 cases in 1997; and

     - amputations with approximately 56,000 cases annually.

     Based upon data from the ADA, diabetes is the sixth leading direct cause of
death by disease in the United States, accounting for approximately 193,000
deaths in 1996.

COSTS TO THE HEALTH CARE SYSTEM

     The costs to the health care system associated with the treatment of
diabetes and its complications are significant. According to the ADA, the total
health care costs in the United States of treating people with all types of
diabetes was estimated to be $98.0 billion in 1997. This included $7.7 billion
for diabetes and acute glycemic care, $11.8 billion for related chronic
complications and $24.6 billion for general medical conditions. Another $54.1
billion was for indirect costs, including premature mortality and disability.

THERAPY FOR DIABETES

     To avoid the acute effects of diabetes and to reduce the associated
complications, patients with Type 1 diabetes, and many Type 2 patients, must use
insulin daily to control glucose levels. A person's glucose level will vary
depending upon food intake, insulin availability, exercise, stress and illness.
To achieve good control a patient needs a continuous supply of insulin to
provide his or her background metabolic needs, as well as

                                        3
<PAGE>   4

periodic larger amounts for meals, known as bolus infusions. Patients generally
follow one of two therapy protocols:

     - conventional, which involves one or two self-administered, daily
       injections of long-acting, timed-release, insulin, as well as short
       acting insulin along with diet control and exercise; or

     - intensive, which consists either of (1) pump therapy with fast-acting
       insulin or (2) at least three injections per day of mixtures of
       long-acting and fast-acting insulins.

     Pumps can be programmed to better meet these needs because they usually use
only fast-acting insulin delivered in hundreds of microinfusions throughout the
day in a profile that provides both a constant flow of insulin, or basal rate,
and also bolus infusions when needed. Because of the limited number of
injections and the uneven absorption of timed-release insulins, we believe that
in many patients neither conventional nor multiple injection therapy controls
glucose levels as well as pump therapy. Our products have been shown in clinical
trials to provide reduced glycemic variability and significantly fewer severe
hypoglycemic events than conventional or multiple daily injection therapy.

THE DAILY RITUAL: WHAT THE DIABETES PATIENT CURRENTLY MUST DO

     In order to gauge insulin dosage, a patient should measure his or her
glucose level at least several times per day. Currently, this is done by:

     - pricking a finger with a needle;

     - drawing a drop of blood;

     - placing it on a disposable strip;

     - inserting the strip into a small meter about the size of a pager; and

     - waiting twelve seconds to two minutes for a number to appear on the
       display.

     The patient must then assess his or her carbohydrate intake and, using the
measurement of glucose concentration, determine the appropriate amount of
insulin required. If necessary, the patient then administers that amount of
insulin using a syringe, a pen injector or a programmable infusion pump.

     We believe that the discomfort, complexity and time associated with this
entire process discourages patient compliance. In addition, the current glucose
monitoring procedure provides measurements at only a few points in time. With
each determination the patient does not know for sure if his or her glucose
level is rising, falling or remaining stable. This can lead to erroneous
conclusions as to the amount of insulin needed. In spite of these limitations,
we estimate the present worldwide market for these glucose meters and strips and
related disposables to be approximately $3.25 billion. The continuous glucose
monitoring technology we are currently developing is intended to compete
eventually with these glucose meters and strips, especially for insulin-using
patients, who use over half of the total worldwide supply of glucose meters and
strips. We cannot assure you, however, that our continuous glucose monitoring
systems will prove to be sufficiently accurate and effective or that we will be
able to commercially market these products.

NIH LANDMARK STUDY: DCCT

     In 1984, the National Institutes for Health, or NIH, started a $165.0
million study known as the Diabetes Complications and Control Trial, which is
generally referred to as the DCCT, involving 1,441 Type 1 patients who
participated over the entire approximately ten-year term of the study. The study
was designed to determine whether close control of blood glucose levels,
approaching "normal" levels, could prevent the onset and the progression of
severe, long-term complications of Type 1 diabetes. Individuals with diabetes
with mild or no significant complications were randomly divided into two groups:

     - the conventionally-managed patients took one or two injections daily of a
       variety of types of mixed insulins and were required to measure their
       blood glucose levels once or twice per day; and

                                        4
<PAGE>   5

     - the intensively-managed patients were given the choice of three or more
       injections per day, or use of an insulin pump. These patients were
       required to take at least four glucose measurements daily.

     The NIH provided to patients who used insulin pumps our earlier Model
504-S, although a small number of patients who had already been using other
pumps were permitted to continue using their existing pumps. Among the
intensively-managed patients, 34% overall used external pumps, and at the end of
the study 42% of the intensively-managed patients were using pumps.

     In September 1993, The New England Journal of Medicine published the
results of this landmark study, which concluded that:

     - Serious consequences of diabetes were reduced significantly for the
       intensively-managed patient group as a whole.

     - Progression of the three primary conditions that were evaluated was
       reduced in the intensive group relative to the conventional group: eye
       disease by 76%, kidney disease by 50% and nerve disease by 60%.

     - The incidence of hypoglycemic events for the intensively-managed group
       was three times higher than for the conventionally-managed group.

     - In spite of the finding with respect to hypoglycemic events, the NIH
       concluded that Type 1 patients should be treated intensively because the
       reduction in long-term complications greatly outweighed the risk of
       hypoglycemic events. In fact, the results of the study were so compelling
       that the study was terminated a year earlier than planned.

MORE RECENT CLINICAL STUDIES

     Although the DCCT was not intended to compare the benefits of pump therapy
with multiple daily injections, more recent studies have focused on this
comparison and have concluded that pump therapy has significant advantages.

     In November 1999, Diabetes Care, a respected scientific journal, published
the results of a study conducted by Elizabeth Boland, MSN, APRN, PNP, CDE and
others, involving 75 adolescents between the ages of 12 and 20 years who were
candidates for intensive therapy. Twenty-five of the patients chose the external
programmable pump as their mode of diabetes treatment while the other fifty
patients chose multiple daily injections. The study found that the rate of
severe hypoglycemic events was reduced by almost 50% in the group using the
pump. The pump patients also used less insulin than those receiving multiple
daily injections. Furthermore, the patients using pumps found coping with
diabetes to be less difficult than adolescents using multiple daily injections.

     In April 1996, Diabetes Care published the results of a study by Bruce
Bode, M.D. and others, involving 55 patients who managed their glucose levels
intensively, using multiple daily injections for at least 12 months before
switching to our external programmable pump for a minimum of 12 months. The
study found that the patients achieved reduced glycemic variability and a
four-to six-fold reduction in severe hypoglycemic events with the pump.

     The EVADIAC study group in France presented two studies in 1996 which
included a comparison of pump therapy using implantable pumps to multiple daily
injections and external programmable pumps. We manufactured a majority of the
implantable pumps used in the studies. The studies, involving more than 240
patients, found that implantable pumps had significant advantages over
alternative intensive management therapies for Type 1 patients. The studies also
showed that patients with implantable pumps had an even greater reduction in
severe hypoglycemic events than patients with external pumps.

     In October 1996, the Journal of the American Medical Association, generally
known as JAMA, published the results of a prospective, randomized study
performed for the U.S. Department of Veterans Affairs which compared pump
therapy using our implantable pump to multiple daily injections in a total of
105 Type 2 patients. The study found that Type 2 patients with implantable pumps
achieved reduced glycemic

                                        5
<PAGE>   6

variability and reduced risk of hypoglycemic events without weight gain, as
compared to those patients using multiple daily injections. The study also
showed that the pump patients had an enhanced quality of life.

     In 1998, the UK Prospective Diabetes Study published in The Lancet, found,
over a ten-year period, that intensively-managed Type 2 patients had a 25%
reduction in the risks of microvascular clinical complications, such as eye
disease and kidney disease. The only disadvantages according to the study to
intensive management for Type 2 patients were weight gain and risk of
hypoglycemia. There was also no evidence that intensive treatment had any
specific adverse effect on macrovascular disease.

THE MINIMED SOLUTION

     We believe our insulin pumps and continuous glucose monitoring technologies
offer patients with diabetes substantial benefits over the current alternative
therapies. In addition, we believe our technologies for external programmable
pumps can be used in the controlled delivery of other large molecule compounds
with advantages over current treatment options.

INSULIN PUMP TECHNOLOGIES

     Our diabetes products, both those already available commercially and others
under development, reduce the serious complications of diabetes by enabling
patients to more easily, accurately and intensively manage their glucose levels.
Our programmable insulin pumps have substantial advantages over conventional or
intensive injection therapy, because they:

     - Result in Fewer Severe Hypoglycemic Events. The Diabetes Care, EVADIAC
       and JAMA studies referred to above all demonstrated this using our pumps.

     - Enable Rapid Insulin Absorption and Availability. Our pumps use
       fast-acting insulin which is more quickly absorbed into the blood.
       Regular and timed-release insulins take considerable time before
       initiating metabolism of glucose, which means that a patient using
       injection therapy must administer an injection well before the insulin is
       actually needed. Changing plans can cause problems. For example, a bolus
       injection -- a single sizable dose -- of regular insulin should be taken
       5-15 minutes before a meal. If the carbohydrate intake or the timing
       changes, glucose control is impaired. In pump therapy, which uses only
       fast-acting insulin, only a few minutes of lead time are required between
       the infusion of a bolus and the meal.

     - Improve Consistency of Insulin Absorption. Fast-acting insulin delivered
       by a pump in tiny microinfusions also has lower variability in
       absorption. By contrast, both conventional therapy and multiple daily
       injections require the use of timed-release insulins, which vary in
       absorption within the same patient by as much as 52% or more from one day
       to the next. Insulin delivered by pumps has been shown to have
       variability levels of less than 2.8% in most patients. In addition,
       injection therapy requires the patient to administer multiple injections
       of insulin in different locations in the body. Each location in the body
       may have different absorption characteristics. Pumps, in contrast,
       deliver the insulin through an infusion set that is connected for two to
       three days to a single site, usually in a patient's abdomen, which
       provides more consistent absorption.

     - Enhance Control Through Programmable Delivery. Because our pumps deliver
       hundreds of microdoses of insulin and are programmable, they enable the
       delivery of insulin to be more closely matched to a patient's needs as
       they vary throughout the day. This capability is important throughout the
       day, and is especially advantageous during sleep. Many patients have been
       shown to suffer from a rise in early morning glucose levels. The patient
       can program our pumps to address this condition, known as the Dawn
       Phenomenon, as well as the many other predictable fluctuations in glucose
       levels.

     - Provide Continuous Insulin Supply. Our pumps deliver a virtually
       continuous infusion of insulin to provide for a patient's background
       metabolic needs. Injection therapy, in contrast, requires the repeated
       administration of boluses, which form a subcutaneous depot or collection
       of insulin and can result in tissue scarring at the injection site. In
       pump therapy, fast-acting insulin is delivered in hundreds of
       microinfusions throughout the day, thereby reducing the creation of such
       depots.
                                        6
<PAGE>   7

     - Improve Patient Quality of Life. In addition to advantages related to
       glucose control, we believe our pumps provide patients with a more
       flexible lifestyle, an important advantage that makes pumps a
       particularly attractive alternative to injection therapy. Because of the
       flexibility of infusion pumps to deliver both a continuous background
       profile of fast-acting insulin and larger episodic boluses when needed
       before meals, patients are not restricted to the fixed schedule of eating
       and exercise that is required for both conventional and intensive
       injection therapy. They are less likely to have glucose level
       fluctuations as the insulin demands of an active life are met. In
       addition to these lifestyle benefits, many people using the pump report
       that they feel much better with pump therapy.

GLUCOSE SENSOR TECHNOLOGY

     In June 1999, the U.S. Food and Drug Administration, which we call the FDA,
approved our first generation continuous glucose monitoring system designed to
be used by physicians in treating patients with diabetes. Patients can wear this
initial model for several days to enable a physician to retrospectively analyze
patients' glucose levels. Physicians are able to use the information to modify
patients' treatment, which may include the prescription or reprogramming of an
insulin pump. Our current continuous glucose monitoring system is not a
substitute for the traditional methods of glucose measurement. Subject to
receipt of a separate FDA approval, we intend to introduce a consumer model of
the glucose monitoring system that would provide the patient with continuous
glucose readings and enable us to compete in the worldwide market for glucose
strips and meters, which we estimate to be approximately $3.25 billion.

     We are developing a series of subsequent generations of continuous glucose
monitoring systems that utilize a small, thin, pliable sensor to be inserted
into subcutaneous tissue, the tissue immediately under the skin, usually in the
abdomen or upper arm. The sensing element produces an electrical signal
proportional to glucose in the interstitial fluid, the fluid in the subcutaneous
tissue. The current product utilizes a sensor connected by cable to a small
recording/display unit, and we expect future versions will transmit the signal
by telemetry to a recording/display unit. We are designing future models of our
external pumps to receive information from the sensor and react to sensor
commands, although these products, if they are successfully developed, will not
be available for several years.

     We believe that our continuous glucose monitoring systems will, if
successful, offer significant advantages over current methods of monitoring
glucose levels because our systems would:

     - Improve Patients' Ability to Normalize Glucose Levels. Our continuous
       glucose monitoring systems have been shown in limited human trials to
       continuously and accurately measure glucose levels as compared to
       standard laboratory reference equipment. This information not only
       presents quantitative measurements but will allow patients to determine
       whether glucose levels are rising, falling or remaining stable. This will
       provide the patient a means to better manage his or her glucose level.

     - Warn Against Dangerously High or Low Blood Glucose Levels. Studies
       indicate that during a 24-hour period patients experience wide swings of
       glucose levels which are not easily detected even by testing with four to
       six finger pricks per day. In our next generation continuous glucose
       monitoring system product, when a sensor measurement indicates a glucose
       level above or below an acceptable range, an alarm will activate. Our
       sensing systems will also operate during periods of sleep and will sound
       an alarm to wake the patient if his or her glucose level gets too high or
       too low.

     - Improve Patient Compliance. Our subcutaneous glucose sensor is inserted
       through the skin approximately every three days. Because it is small,
       thin and pliable, the microsensor causes little, if any, patient
       discomfort. By avoiding the discomfort, complexity and time associated
       with repeatedly pricking a finger to draw blood and waiting for a meter
       reading of the sample, our continuous glucose monitoring system is
       expected to remove many of the obstacles which are believed to deter
       patient compliance, particularly in the case of intensive management of
       diabetes. A patient using our continuous glucose monitoring system would
       need only two or three sensor insertions, and only a few calibrations per
       week, as compared to at least 28 finger pricks per week for recommended
       monitoring with strip meters in an intensive management regimen.

                                        7
<PAGE>   8

     - Enable Health Care Professionals to Establish Improved Treatment
       Protocols. The challenge of establishing a suitable treatment program for
       patients beginning intensive management is great. In some medical
       practices, patients are hospitalized for several days so that frequent
       glucose measurements can be made to generate a suitable treatment
       protocol. Even this procedure is limited in its effectiveness because the
       patient's behavior in the hospital differs from his or her normal
       lifestyle. Continuous sensing and recording outside a hospital will
       permit better treatment protocols to be generated at lower cost and
       without the need for hospitalization or close surveillance.

USE OF OUR INFUSION PUMP SYSTEMS FOR OTHER MEDICAL CONDITIONS

     We have gained considerable expertise from our experience with insulin
infusion and believe that this expertise can be applied to meet the delivery
requirements of many other complex drugs. Many genetically engineered and
manufactured proteins and peptides have delivery problems similar to insulin.
Delivery for these drugs is difficult because they:

     - comprise fragile, large molecules;

     - cannot be ingested orally;

     - have short half-lives in the body;

     - require site specific delivery;

     - have very narrow effective ranges of concentration; or

     - require a profiled delivery pattern or would otherwise require large
       amounts of drugs that are either expensive or toxic in the high doses
       required to achieve therapeutic value.

     We believe that our external programmable pumps used in the controlled
delivery of a variety of large molecule compounds may have advantages as
compared to current treatment options.

BUSINESS STRATEGY

     Our primary goal is to continue to be an innovator in bringing to market
advanced medical devices for the treatment of diabetes, but we also intend to
use our drug delivery expertise to develop devices for the treatment of other
chronic medical conditions. To achieve these objectives, we are pursuing the
following business strategy:

     - Expand the Market for Insulin Pumps. The NIH and the ADA have established
       intensive therapy as the standard of care for most Type 1 patients, in
       part as a result of the DCCT. Clinical results have shown that continuous
       insulin therapy using programmable insulin pumps is the most effective
       way to provide intensive management. Since the benefits of intensive
       therapy have only recently been verified, and since many patients are
       treated by primary care physicians who do not have the facilities and
       support personnel to pursue intensive management, the majority of Type 1
       patients and most insulin-using Type 2 patients are still being treated
       with conventional therapy. We estimate that in the United States only
       approximately 8% of Type 1 patients and a very small number of Type 2
       patients are using pump therapy. As a result, we believe that we have a
       significant opportunity to expand the market for our insulin pumps.

     - Offer Comprehensive Array of Products for the Treatment of Diabetes. In
       1998, we acquired two distributors of our products and related supplies,
       Home Medical Supply, Inc. and its affiliated companies, which we call
       HMS, and Diabetes Support Systems, Inc., which we call DSS. With these
       acquisitions, we have established a presence in the market for additional
       diabetes products and supplies such as strips and meters, complementing
       our existing distribution network for insulin pumps and supplies. We also
       believe that these acquisitions will provide a means to efficiently
       distribute our continuous glucose monitoring systems, as well as a new
       formulation of Lilly's insulin lyspro for programmable infusion pump
       patients, if and when FDA approval for some of these products is
       received. Our disposable infusion pump system for Type 2 diabetes, if and
       when approved by the FDA,

                                        8
<PAGE>   9

       is expected to provide us a significant new market. By increasing our
       ability to satisfy more of our customers' needs and continuing our
       extensive customer service efforts, we believe that we can maximize our
       revenues over the long term and create barriers to entry for competitors.

     - Diversification Into Treatment of Other Medical Conditions. We believe
       that there are many opportunities to use our infusion pump technology
       with medications other than insulin. We are, therefore, exploring
       opportunities for applications of our delivery systems for other drugs
       with several biopharmaceutical companies and have entered into agreements
       with two companies. We have entered into an agreement with United
       Therapeutics Corporation, which we refer to as "UT." The agreement with
       UT relates to the development of a treatment for pulmonary hypertension.
       For more information regarding our efforts to diversify into treatment of
       other medical conditions, please read the section entitled "General
       Purpose Infusion Pump."

     - Generate Recurring Revenue Stream. Our insulin infusion products include
       a variety of disposable products and accessories which are labeled to be
       replaced every 48 to 72 hours and provide a continuing source of revenue
       from each patient. In addition, both our continuous-flow infusion system
       for Type 2 diabetes and our continuous glucose monitoring systems are
       also disposable products or have disposable components which are
       anticipated to be replaced every 72 hours. We will seek to continue to
       expand our recurring revenue stream by adding new proprietary disposables
       and accessories, as well as by distributing other supplies to our
       customers, such as pre-filled insulin cartridges, strips and meters.

     While these are the strategies we are pursuing in our business, we cannot
assure you that:

     - any of the future products mentioned above can be successfully developed
       or commercialized;

     - the various components of any of the systems can be made to work
       together;

     - regulatory approval for commercial distribution will be obtained;

     - reimbursement by third-party payors will be available; or

     - the products will be accepted in the marketplace by health care
       professionals, patients and third-party payors.

                                        9
<PAGE>   10

PRODUCTS

     The following table summarizes some information with respect to principal
products we own or distribute and products under development.

<TABLE>
<CAPTION>
       PRODUCT              DESCRIPTION           REGULATORY STATUS         TARGET MARKETS
       -------              -----------           -----------------         --------------
<S>                    <C>                       <C>                     <C>
INFUSION PUMPS AND
  SYSTEMS
External programmable  Several models;           Commercially            Type 1 patients;
insulin pump           currently on fifth        available               insulin-using Type 2
                       generation                                        patients

Type 2 insulin         Disposable,               FDA approval            Insulin-using Type 2
infusion system        constant-flow infusion    required                patients
                       device licensed from
                       Elan Corporation, plc

Implantable insulin    Implanted under the       CE Mark received in     Type 1 patients
pump                   skin of the abdomen;      EU; FDA approval
                       used for insulin          required; insulin
                       therapy                   approval required

General purpose        Multipurpose drug         Commercially            Pulmonary
infusion pump          infusion for              available               hypertension; HIV
                       non-insulin                                       infection; cancer;
                       applications                                      and other medical
                                                                         conditions
DISPOSABLE AND
  ACCESSORIES
Sof-set(R) infusion    Multiple versions;        Commercially            Type 1 and 2
set                    insulin-compatible        available               patients
                       tubing set with soft
                       cannula (instead of a
                       needle)

Polyfin(R) infusion    Two versions; insulin-    Commercially            Type 1 and 2
set                    compatible tubing set     available               patients
                       with needle

Sof-serter(R)          Automatic Sof-set         Commercially            Type 1 and 2
                       cannula inserter          available               patients

Silhouette(R)          Insulin-compatible        Commercially            Type 1 and 2
infusion set           tubing set with angled    available               patients
                       soft cannula

Medication reservoir   Syringe-like reservoir    Commercially            Type 1 and 2
                       used with external        available               patients
                       insulin pump

Prepackaged insulin    Worldwide license to      FDA approval            Type 1 and 2
cartridges             package and sell a new    required                patients
                       formulation of Lilly's
                       insulin lyspro for use
                       with programmable
                       infusion pumps

Data collection        Communication cradle      In test marketing;      Physicians who treat
system                 to download patient       no FDA approval         diabetes
                       information from          required
                       external insulin pumps

Strips and meters      Manufactured by other     Commercially            Type 1 and 2
                       companies and used to     available               patients
                       measure glucose levels
</TABLE>

                                       10
<PAGE>   11

<TABLE>
<CAPTION>
       PRODUCT              DESCRIPTION           REGULATORY STATUS         TARGET MARKETS
       -------              -----------           -----------------         --------------
<S>                    <C>                       <C>                     <C>
GLUCOSE MONITORING
  SYSTEMS
Physician diagnostic   Used by health care       Commercially            Physicians who treat
device                 professionals to          available               Diabetes patients
                       monitor patients
                       continuously for 2-3
                       days

Patient glucose        To be used by the         Under development;      Type 1 and 2
monitoring system      patient to                FDA approval            patients
                       continuously monitor      required
                       glucose levels,
                       includes a
                       hypoglycemia/
                       hyperglycemia alarm

Long Term Glucose      Under development by      Under development;      Type 1 and 2
Sensor                 MRG, with our option      FDA approval            patients
                       to acquire marketing      required
                       rights for $30 million
</TABLE>

INFUSION PUMPS AND SYSTEMS

     External Insulin Pump. We introduced our most recent version, the Model
508, in October 1999. This model weighs about 3.5 ounces and is about the size
of a pager. The pump can accurately deliver, throughout the day, a controlled,
programmable profile of insulin in several hundred microinfusions of one
microliter, i.e., 0.1 unit of insulin, each. The insulin delivery profile can
thus be adjusted to meet individual needs. Insulin is delivered from the pump
through special insulin-compatible tubing either to a needle or soft cannula, a
tiny tube which penetrates the skin, usually into the subcutaneous tissue of the
abdomen.

     The Model 508 is an upgrade to the fifth generation of our external pumps,
the first of which was introduced in 1983. We continually seek to improve our
existing external pumps with additional features and capabilities. Our pumps
have many safety features, including numerous alarms, maximum limitations on the
rate and amount of basal and bolus deliveries, and automatic shut-off mechanisms
to prevent excessive delivery of insulin. The Model 508 stores a record of the
timing and size of the last 450 bolus doses administered plus daily totals for
the past 90 days' insulin delivery. It provides the ability to set a temporary
basal rate for particular activities such as exercise, and it can be programmed
to turn itself off if the user does not enter a command for a specified period
of time. It offers an extended bolus delivery over time which can be especially
useful with very fast-acting insulin analogs and for high fat content foods. The
Model 508 also incorporates a backlight that makes it easier for a patient to
program his or her pump in low light conditions.

     The Model 508 includes several new features as compared to its predecessor
Model 507C which was introduced in June 1998. The Model 508 has a remote
programmer which enables a user to program a bolus delivery from a short
distance. This feature also allows, boluses to be programmed inconspicuously by
a patient. For instance, when a pump is hidden under clothing, a patient may use
the remote programmer to change delivery rates without exposing the pump.
Furthermore, a parent or a caregiver can program a bolus for a child without the
need to touch the pump case or disturb the child.

     To further enhance privacy, the Model 508 has a vibration option which
allows a patient to select either an audible or vibration alert for the purpose
of programming and alarms.

     In addition to the above, the Model 508 also has the following new
features:

     - low reservoir volume alert;

     - greater bolus programming flexibility; and

     - child block feature.

     Physicians prescribe insulin pumps and associated disposables to achieve
better control of glucose levels. When a pump is prescribed, a nurse usually
assists in teaching the patient how to use the pump and the related skills, such
as calculating the appropriate amount of insulin for boluses. A patient
typically returns to the

                                       11
<PAGE>   12

physician's office for periodic check-ups and often contacts our Clinical
Services Department for information. While we believe that our external pumps
significantly improve the quality of life of their users and have also become
increasingly easy to use, some physicians do not prescribe external pumps for
patients using intensive therapy because they feel that some patients may not
have the motivation and ability to understand and correctly use them. Also, some
patients, particularly in their teenage and early adult years, may object to
pumps because they do not like the idea of having a device attached to their
bodies. We believe that our educational programs and publicity about our more
famous pump users, such as Nicole Johnson, Miss America 1999, are countering
some of these objections.

     Type 2 Insulin Infusion System. In June 1999, we obtained a license for the
distribution rights to a constant-rate disposable infusion system for Type 2
diabetes developed by Elan Corporate plc. The infusion system is attached to the
body with an adhesive and delivers a pre-set constant rate of drug. We believe
this pump has the potential to distinguish itself in the market by its
convenience and ease of use, and we intend to market the device primarily to
insulin-using Type 2 diabetes patients. The device is designed to be used as a
system, with a drug cartridge packaged with the pump. Before we can market and
sell the device, some improvements must be completed, and we must obtain
regulatory approval for the system.

     Under a separate agreement, we will be the exclusive worldwide manufacturer
of the constant-flow disposable infusion system for all applications. Elan has
granted distribution rights to the product to other companies for use as a
system with specific pharmaceutical compounds. We are now establishing a manual
production capability, and later we will establish an automated, high-volume
manufacturing line for the product.

     Implantable Insulin Pump. The implantable insulin pump, the MIP 2007A, for
which we maintain exclusive worldwide marketing rights for diabetes and certain
other applications, is similar in function to the external insulin pump but is
implanted under the skin of the abdomen in a relatively minor surgical
procedure. This pump releases a basal flow of insulin, with larger bolus doses
delivered before meals. The amount of insulin released can be programmed by the
patient with a hand-held communicator to meet individual needs. The communicator
uses radio waves to control the pump. The pump is used with a special, highly
concentrated insulin developed by Aventis (formerly known as Hoechst Marion
Rousel, or Hoechst). The pump is designed to store several months supply of the
special insulin and is refilled during check ups at about three month intervals
in the doctor's office from a special syringe by inserting a needle through the
skin and into the pump, which then automatically draws the insulin into its
negative pressure reservoir. The negative pressure reservoir is a significant
safety feature which virtually prevents the possibility of a spill of the stored
medication from a reservoir leak or during refilling.

     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,
and also entered into a series of related transactions. 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.

     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. In the United States, we are preparing to file a combined application
for approval of the pump and the special insulin. We cannot assure you that any
of these approvals will be obtained or as to the timing of obtaining them.

     Approximately 1500 implantable pumps have been used by patients. During the
early phase of the trials approximately 10% to 15% of patients experienced
blockage or clogging of the catheter that delivers the insulin or the collecting
of deposits on a pump valve. These problems were traced to changes in the
manufactured insulin. We believe that the problems have been corrected, but we
cannot be sure that they will not occur again.

     On February 2, 2000, a "CE" approval mark was received for MIP 2007A. MIP
2007A is the next generation implantable insulin pump to MIP 2001. MIP 2007A,
which is manufactured for us by MRG, incorporates several technology
improvements not available in the MIP 2001. MIP 2007A has a longer battery life,
an improved memory and is slightly lighter in weight. European sales are
expected to be initiated in our

                                       12
<PAGE>   13

second fiscal quarter. Sales will be limited until specially formulated
implantable pump insulin is approved for commercial use. We cannot assure you
that any of these approvals will be obtained or as to the timing of obtaining
them. Neither the implantable pump nor the special insulin have been approved
for marketing or use in the United States.

     General Purpose Infusion Pump. We have developed a general purpose
programmable infusion system that we expect to use for non-insulin applications.
We anticipate that our first application will be for pulmonary hypertension. In
September 1997, we entered into an agreement with United Therapeutics
Corporation, which we call UT, a biopharmaceutical company, to work together in
the design, development and implementation of therapies for the treatment of
pulmonary hypertension. Pulmonary hypertension is a disease that constricts the
blood vessels serving the lungs, slowing oxygen absorption and ultimately
causing heart failure. There is no known cure, and current treatments are
limited to heart/lung transplants or the intravenous administration in or near
the heart of an unstable compound with a half-life of approximately two minutes
in plasma.

     Current drug therapy is exceedingly expensive and deters compliance. The
drug formulation must be mixed daily and be delivered from a bulky, refrigerated
unit worn on the patient's back. This arrangement is a cumbersome process and
likely to cause complications.

     By contrast, the UT compound appears to be similarly effective at reducing
pulmonary arterial pressure but can be delivered using a model of our
programmable external infusion pump. UT has launched trials to test UT's UT-15
compound at twenty-one sites within the United States and in thirteen countries
abroad. Results from early clinical trials have shown a reduction in pulmonary
arterial pressure, and we believe that this therapy will improve patients'
health and quality of life. Our agreement provides that we will be the exclusive
supplier of pumps and related supplies for the therapy. Under the arrangement,
UT will have primary responsibility for distribution of the therapy, while both
parties will participate in marketing efforts.

     In addition to pulmonary hypertension, we have conducted preliminary work
with compounds designed to treat other chronic conditions, including HIV/AIDS
and certain forms of cancer.

     While we believe that new applications for our infusion pumps represent a
significant opportunity for the future, our efforts in the area are at a
preliminary stage. We cannot assure you that:

     - our anticipated cooperative efforts with biopharmaceutical companies will
       be commercially implemented;

     - the development of new applications for our pumps will be successful; or

     - the applications will be approved by the FDA or other regulatory
       authorities.

     Also, many of the new applications may involve new drugs which themselves
must be approved by the FDA in addition to the approval required for the use of
our infusion systems to deliver the drugs.

DISPOSABLES AND ACCESSORIES

     Disposables for Insulin Pumps. Our external pumps are used with disposable
elements consisting of a tubing set and a special syringe-type reservoir, which
stores the insulin in the pump. The most popular tubing sets with soft cannulas
have been marketed under the trade name Sof-set. We have introduced more
advanced versions, called:

     - the Sof-set QR(R) -- for Quick Release;

     - the Sof-set Ultimate QR -- incorporating several enhancements over the
       Sof-set QR which are designed to provide greater patient comfort;

     - the Sof-set Micro -- which has a shorter length cannula and is designed
       for greater comfort for pediatric patients and patients with low body
       fat; and

     - the Polyfin QR.

                                       13
<PAGE>   14

     All of these versions incorporate a quick release connector so that
patients can more conveniently and discreetly disconnect the pump for showering,
bathing, swimming, exercise or intimacy. To make the insertion of the cannula
through the skin easier, we have developed other devices, including:

     - the Sof-serter, which allows the patient to automatically insert the
       cannula; and

     - the Silhouette, a new model of infusion set, with an angled cannula to
       facilitate insertion into the skin and a disconnect feature.

     These disposables provide us with a continuing source of revenue from pump
customers. Most of these products are labeled to be replaced every 48-72 hours.

     Pre-Packaged Insulin Cartridges. Our new license and supply agreement will
enable us to manufacture and market a new formulation of Lilly's insulin lyspro
for our programmable insulin pumps once Lilly obtains FDA approval for the
insulin analog. We intend to contract with another company to do the
manufacturing, and we propose to offer the insulin analog in cartridges designed
for use with our external insulin pumps.

     Data Collection System. We are developing a data collection system which
will permit health care professionals to download to a personal computer
information from our current and future external pumps, process the information
using special software and print out the results in summary or graphical form.
This information will enable the professional to assess the glucose control of
the patient over a three-month period and, where indicated, to adjust the
insulin delivery process for the patient. We are in the process of testing this
product.

CONTINUOUS GLUCOSE MONITORING SYSTEMS

     We are planning a series of continuous glucose monitoring products:

     Physician Diagnostic Device. The first product, which received FDA approval
on June 15, 1999, involving our glucose sensor connected by wire to a recording
and display device, is used by health care professionals to records but not
display actual glucose readings, including glucose levels and trends for two to
three days. The data is downloaded by the professional into a personal computer
for evaluation. With this system, the patient is typically asked to use various
prompts to input times of meals, insulin administration, exercise times, and
other events affecting glucose metabolism. Patients can wear this initial model
for several days to enable the health care professional to analyze
retrospectively the patient's glucose levels and modify the patient's treatment,
which may include the prescription or reprogramming of an insulin pump. The
system is intended for prescription use only and for occasional use rather than
everyday use. When used, this product is only a supplement to, and not a
replacement for, standard invasive measurement of glucose levels. This product
allows identification of patterns of glucose level excursions above or below the
desired range, and is designed to facilitate therapy adjustments, which may
minimize these excursions. As discussed below, we intend to develop and seek
approval for a consumer model of the continuous glucose monitoring system that
would provide the patient with continuous glucose readings and enable us to
compete in the worldwide market for glucose strips and meters, which we estimate
to be $3.25 billion.

     Patient Continuous Glucose Monitoring System. We anticipate filing for FDA
approval for a product that will be used by patients to continuously monitor
glucose levels. In future products, we expect to make the display unit smaller
for this device so that it can be worn like a wristwatch or carried in a pocket.
We also expect that, future products will use telemetry, to permit wireless
communication between the sensor and the recording and display device. In
furtherance of this goal, we recently filed a supplement to our "parent"
regulatory approval of the physician device for a wireless version of that
device. We anticipate that our next generation product will also include a
programmable hypoglycemia and hyperglycemia alarm, designed to alert patients
when glucose levels drop below or rise above limits established by the
administering physician. Although our development and regulatory efforts are at
a relatively advanced stage, we cannot assure you that the development of these
products will be successful or that they will be approved for commercial
distribution. We have not completed the development and production engineering
of these products and various accessories, including the introducer, the
transmitter and the receiver/display devices.

                                       14
<PAGE>   15

     We believe that there will be a substantial market for our continuous
glucose monitoring systems even if the cost of the sensors exceeds the cost of
the glucose strips that they would replace. However, to maximize penetration of
the glucose meter and strip market, we believe that it may be necessary for the
patient cost of using our sensors over their useful lives to be reasonably
comparable to the current cost of using strips in intensive management. We
cannot assure you that we will achieve this price, particularly if glucose meter
companies try to compete with us by reducing prices. Also, because the potential
market is large, many other companies are attempting to develop non-invasive
and/or continuous glucose measuring systems.

RESEARCH AND DEVELOPMENT

     Our research and development activities are performed primarily by our
research and development organization, which consisted of 112 persons as of
March 21, 2000. We obtain our product ideas from our staff, patients, health
care professionals and our Medical Advisory Board, all of whose opinions on
products we actively seek through surveys, field visits, medical symposia, focus
groups and personal relationships. We expense all research and development costs
as we incur them. Research and development expenses were $7.9 million for 1996,
$9.4 million for 1997, $16.5 million for 1998 and $26.8 million for 1999.

     From time to time, we attempt to obtain U.S. governmental grants to
strengthen our research and development efforts on technically difficult
projects. These grants allow us to pursue the development of new and novel
products with less financial risk. In 1998, we were awarded a three year, $2.0
million grant under the Advanced Technology Program, which we refer to as ATP,
by the National Institute of Standards and Technology. With this money and $1.5
million in matching research and development expenses, we plan to develop and
test components for a simple, accurate, minimally invasive system for measuring
glucose levels which uses different technology from our existing sensor and may
be appropriate for Type 2 diabetes patients. The new chemistries, materials, and
devices developed under this research award may also serve as a platform for the
development of other sensing applications. We were also awarded two multi-year
NIH grants aggregating approximately $1,050,000 that will help us strengthen the
research being conducted under the ATP award. We will own all new technology
resulting from these activities.

MARKETING AND SALES

     Patients in the United States usually place orders for our external insulin
pumps upon the advice and recommendation of their physicians, who provide the
prescriptions. Our marketing focus is on endocrinologists, diabetologists and
other health care professionals who treat diabetes patients and on third-party
payors. We have also started to focus our efforts on those primary care
physicians who treat relatively large numbers of diabetes patients in managed
care organizations. We believe that more than 90% of our revenues from the sale
of our external pumps and related disposables are reimbursed by third-party
payors, subject to applicable deductible and copayment amounts.

     Our marketing efforts include sponsoring educational symposia in intensive
diabetes management and insulin pump therapy for physicians, other health care
professionals and third-party payors. We have trained over 5,000 health care
professionals in the use of our insulin pumps for intensive management of
patients. In 1999, we conducted over 60 one-day and 9 two-day symposia in the
United States and over 20 symposia internationally. Roche Diagnostics has
contributed to the funding of these educational programs. We also conduct
numerous presentations to case managers for managed care organizations.

     Agreement With Nicole Johnson, Miss America 1999. We have entered into an
agreement with Nicole Johnson, Miss America 1999 and the Miss America
Organization to further promote early diagnosis and aggressive treatment of
diabetes. Miss Johnson was diagnosed with Type 1 diabetes at the age of 19 and
uses our external insulin pump to treat her diabetes. Together with Miss
Johnson, we have developed a program to educate physicians, particularly primary
care physicians, and the public at large regarding diabetes diagnosis and
treatment. As part of this program, we are sponsoring Miss Johnson's personal
appearances at several diabetes related events. Also, Miss Johnson is an
important part of a print advertisement campaign aimed at advancing Miss
Johnson's platform of increasing diabetes awareness, including awareness of pump
therapy.

                                       15
<PAGE>   16

Miss Johnson is also involved in similar promotional arrangements with other
companies in the diabetes business, such as Eli Lilly, which do not compete
directly with us.

     Customer Service and Support Network. We also seek to develop patient
interest in and demand for our diabetes products by providing patients with
access to our service and support network, including:

     - services of an experienced clinical services department available by
       telephone, toll-free, 24-hours per day, seven days per week, to answer
       patient questions and provide guidance, advice and trouble-shooting
       regarding daily pump use;

     - free, short-term replacement pumps sent within 48 hours or less to
       promote continuous therapy;

     - an insurance assistance department consisting of 135 people as of March
       21, 2000 to answer questions, simplify and expedite claims processing and
       assist patients in obtaining third-party reimbursement;

     - participation in a patient advocacy program which works with the American
       Association of Clinical Endocrinologists;

     - an extensive Internet web site at www.minimed.com;

     - advertisements in targeted media; and

     - free videotapes and other educational material.

     Managed Care. We continue to increase our presence in the managed care
marketplace. Field insurance managers are responsible for relationships with,
and the solicitation and negotiation of contracts with, third-party payors. In
1999, we increased the number of arrangements we have entered into with
third-party payors by 131. The number of contracts with managed care entities
and other third-party payors providing for reimbursement for our external pumps
and disposables and other diabetes supplies, as of December 31, 1999, was almost
300. We have also recently expanded our insurance support activities whereby we
assist patients in obtaining reimbursement for our products to better address
the growing managed care segment of health care payors in the United States.

     Expanded Sales Force. We market our diabetes products and serve customers
through our direct sales organization and distributors. We significantly
increased the size of our sales force with the acquisition of HMS and DSS. In
addition to senior sales and marketing management and an extensive in-house
support staff, as of December 31, 1999, our direct sales organization in the
United States consisted of 4 regional directors, 8 regional managers and 143
field staff personnel, including a Director of Managed Care and 10 field
insurance managers. These representatives are extensively trained and specialize
in diabetes therapy and the use of our products. We compensate our sales
representatives in the United States with a base salary, a sales commission and
an annual bonus based on meeting performance objectives. In the United States,
we also contract with nurse educators who are certified pump trainers to assist
in educating potential patients about use of our external pumps.

     Use of Distributors. We believe that our strategy of maintaining our own
direct sales force dedicated to diabetes is an important factor in market
development and an important competitive advantage. Nevertheless, we also use
independent distributors in the United States to strengthen our direct sales
force and increase the number of physicians served. Some third-party payors in
the United States require that some classes of purchases be made through
specified distributors, and some distributors in the United States and
internationally maintain a substantial infrastructure to support physician and
patient needs. Internationally, independent distributors are used to provide
sales coverage in geographic areas not served by the direct sales force employed
by our international subsidiaries. In 1999, we increased the relative percentage
of sales processed directly through us. As a result of our continued investment
in our internal reimbursement capabilities, our acquisition of HMS and DSS and
the activities of our field insurance managers, we expect the percentage of our
sales made through our direct sales force will continue to rise.

     International Sales. We have our own international sales organizations
consisting of 59 people as of December 31, 1999, including administrative staff,
serving France, Germany, the Netherlands, Belgium, Scandinavia and the Baltic
region. We also have a distribution manager in the United Kingdom and use
                                       16
<PAGE>   17

independent distributors in other countries. We believe that the international
market provides a large opportunity for growth and are seeking to expand our
international business. International sales of diabetes products increased over
44% to $15.8 million in 1999. Also, we expect that some of our new products and
new applications will be introduced in foreign countries before being introduced
in the United States because the regulatory approval process in other countries
has generally been less time consuming and less expensive than in the United
States.

     In January 1998, we acquired all of the assets of Dartec A.B., a
distributor of diabetes products located in Sweden, for $2.7 million in cash.
Dartec had been a distributor of our products, and the acquisition of its
business gives us a direct sales organization covering the Scandinavian
countries and the Baltic region.

MANUFACTURING

     We purchase most of our components, some subassemblies and various services
used in the manufacture of our products from outside vendors. These outside
vendors generally produce their items to our specifications and in many
instances to our designs. We then assemble the components into finished
products. We purchase some disposable products from OEM suppliers.

     Our Quality Assurance Department provides guidance to vendors and inspects
and tests products at various steps in the manufacturing cycle. This ensures
that products comply with our stringent specifications. The manufacturing
facilities are subject to periodic inspection by regulatory authorities.

     We have received approvals from the International Standards Organization,
which we refer to as ISO, that allow us to introduce some products into the EU
more quickly based on annual certification of our quality system. These
approvals are the ISO 9002 relating to quality standards, which we received in
1995, and the ISO 9001 relating to design control standards, which we received
in 1996.

     We rely on single sources for some important parts, including hybrid
circuits, integrated circuits, special insulin formulations and various
disposable products and components. We also have a sole source subcontract
arrangement for sterilization services.

     We have established secondary source suppliers in some circumstances when
appropriate, and we create safety stocks to address changes in market demand.
Arrangements for additional or replacement suppliers for some of these parts
could not be accomplished quickly. The loss of any of the critical sole source
vendors could harm our business, financial condition and results of operations.
In 1998, we established and validated a semi-automated sensor manufacturing
department to address initial market requirements.

COMPETITION

     We currently consider our primary competition in the diabetes market to be
injection therapy, and we compete against this delivery modality chiefly by
educating doctors, nurses, patients, managed care organizations and other
third-party payors about the need for intensive management of glucose levels and
the advantages of pump therapy over multiple daily injections.

     Insulin Pumps. In the sale of our external pumps, we compete with
Disetronic Medical Systems, Inc., which we will call Disetronic. Disetronic
introduced a competitive external pump product in the United States
approximately eight years ago. We estimate that Disetronic currently has less
than 20% of the U.S. market for external pumps for new patients but is still the
dominant supplier in certain markets in Europe. We believe that our success will
encourage other companies to enter this market, although we believe that there
are substantial barriers to entry, including access to technology and the need
for extensive distribution and customer service organizations. In February 2000
a new company, Animas Corporation, received 510(k) clearance on a new insulin
pump. We do not believe Animas has initiated commercial sales of its pump.

     Internationally, in addition to Disetronic, we compete in the insulin pump
market against several smaller suppliers which generally offer less
sophisticated products in certain countries with relatively small markets. We
compete with other pump makers primarily on the basis of product design, quality
and utility, physician

                                       17
<PAGE>   18

and patient education, support services and price. We cannot assure you that
past, current and potential makers of competitive pumps, some of which may have
substantially greater financial, technical, marketing and other resources, will
not become more significant competitive factors in the future. We believe that
we may be faced with additional competition in the near future.

     A number of companies and medical researchers are working on new delivery
devices, delivery technologies, procedures, drugs and bioengineered therapeutics
for the treatment and prevention of diabetes, such as, for example, pancreas
transplantation and insulin-producing islet and beta cell preparations and
devices. If successful, these technologies and/or medical procedures could
adversely affect our business and results of operations and could possibly make
our products obsolete.

     Diabetes Supplies and Prescription Drugs. We believe that our most
significant competition in the areas of diabetes supplies and prescription drugs
comes from national mail order pharmacies, World Wide Web based pharmacies,
local and national retail and hospital pharmacies, cost containment and managed
care companies and other distributors of diabetes supplies. Many of these
companies have substantially greater resources than we have. Moreover, companies
in the health care industry, and in the provider segment in particular, are
consolidating to a significant extent. This trend could produce additional
competitors with larger and substantially greater resources. Competitive
pressure could adversely affect our market share, and we could experience
significant price erosion. We compete in this segment on the basis of customer
service, convenience, product availability, and price. We believe that our
installed base of pump patients offers a significant opportunity for these
sales.

     In the field of diabetes supplies, Polymedica Industries, Inc., Chronimed
Inc., and Transworld Home Healthcare, Inc. are publicly-held companies that
compete with us. We expect to have direct competition in our pharmacy operations
from other national mail service companies such as Merck/Medco Managed Care,
L.L.C., Express Scripts Inc., PCS Health Systems, Inc., Drugstore.com,
PlanetRx.com and Diversified Pharmaceutical Services, Inc., as we seek to
redirect focus on distribution of prescription drugs by mail order. We will also
begin to concentrate on the distribution of pharmaceuticals to which we have
proprietary rights.

     Glucose Measurement. Numerous companies, some of which have substantially
greater financial, technical, manufacturing, marketing and other resources, are
attempting to develop a variety of products for glucose measurement. Some of
these products and their corresponding technologies are directed toward non-
invasive measurement systems. They generally use infrared light directed through
tissue, analyzing the reflectance from an arm or transmission through a finger
inserted into a well, through an ear lobe or through other tissue. These
products appear to face substantial technical obstacles, and to date none has
been approved by the FDA for commercial distribution. If, however, any of these
products are successfully developed some patients may prefer such products to
our continuous glucose monitoring systems.

There are also several efforts aimed at reducing the discomfort associated with
the finger pricks required with current glucose meter systems. These efforts
include reducing the depth of penetration of the needle, using a laser and/or
using other methods to breach the outer derma layers to extract interstitial
fluid rather than blood. Still other approaches are being pursued for glucose
level determination including attempts to draw out interstitial fluid by
electrical or chemical means and then measuring the glucose. We know of at least
three other efforts that are being directed toward subcutaneous measurement with
electrochemical sensors.

     Cygnus, Inc. is one company pursuing the development of a method of
measuring glucose levels. On December 6, 1999, an FDA advisory committee
recommended approval of Cygnus' GlucoWatch Monitor. The GlucoWatch Monitor is a
device worn like a watch that uses electric currents to extract interstitial
fluid and measure glucose levels of diabetic patients. The FDA panel imposed the
following three conditions for the approval: (i) education; (ii) labeling; and
(iii) a post market study to detect hypoglycemia and hyperglycemia. The FDA does
not have to follow the recommendations of its advisory committees, although it
usually does.

     It is possible that some patients might prefer the GlucoWatch or other
systems to our continuous glucose monitoring systems for routine monitoring of
glucose levels. The successful development and acceptance of

                                       18
<PAGE>   19

non-invasive or minimally invasive glucose measurement systems or systems
without pain could adversely affect our continuous glucose monitoring system
program.

PATENTS, PROPRIETARY RIGHTS AND TRADEMARKS

     We file patent applications to protect technology, inventions and
improvements that we consider important to the development of our business. We
prosecute and manage our patent portfolio using our in-house patent counsel and
technical advisors as well as outside patent counsel. We currently hold over 110
issued U.S. patents and foreign patents. Many U.S. and foreign patent
applications that cover various aspects of our technology are also pending. In
addition, we have exclusive licenses under a number of patents.

     Litigation may be necessary to enforce patents issued to us, to protect
trade secrets or know-how owned by us or to determine the enforceability, scope
and validity of the proprietary rights of others. Although we know of no
infringement of patents held by others, it is always possible that a third-party
may assert infringement. We believe that we own or have the right to use all
technology incorporated into our products, but an adverse determination in any
litigation or interference proceeding to which we may become a party could
subject us to significant liabilities to third parties or require us to seek
licenses from third parties.

     Although patent and intellectual property disputes in the medical device
area have often been settled through licensing or similar arrangements,
associated costs may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that necessary licenses would be
available to us on satisfactory terms or at all. Accordingly, an adverse
determination in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from manufacturing and selling some of our
products or planned products, which would adversely affect our business,
diversification opportunities, financial condition and results of operations.

     We own the registered trademarks MiniMed(R), Sof-set(R), QR(R), Polyfin(R),
Silhouette(R), and "Making a Difference in Diabetes(R)" and other trademarks are
being used and/or pursued for registration. We also rely on trade secrets and
proprietary know-how that we seek to protect, in part, through confidentiality
agreements with our employees and consultants. We cannot assure that any
unprotected information will not also be developed by others.

GOVERNMENT REGULATION

     Clinical testing, manufacture and sale of our products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign agencies. In the United States, we are required
to register as a medical device manufacturer with the FDA and state agencies
such as the Food and Drug Branch of the California Department of Health
Services. We are subject to inspection on a routine basis by both the FDA and
the California Department of Health for compliance with the FDA's Quality System
Regulations, which is commonly referred to as QSR. These regulations impose
procedural and documentation requirements upon us with respect to manufacturing
and quality assurance activities.

     Unless an exemption applies, each medical device that we wish to market in
the United States must receive either "510(k)" clearance or "PMA approval" in
advance from the FDA pursuant to the Federal Food, Drug, and Cosmetic Act. The
FDA's 510(k) clearance process usually takes from two to twelve months, but it
can last longer. The process of obtaining PMA approval is much more costly,
lengthy and uncertain. The FDA's PMA approval process generally requires from
one to three years or even longer. No assurance can be given that 510(k)
clearance or PMA approval will ever be obtained for any product we propose to
market.

     The FDA decides whether a device must undergo either the 510(k) clearance
or PMA approval process based upon statutory criteria. These criteria include
the level of risk that the agency perceives is associated with the device and a
determination of whether the product is within a type of device that is similar
to devices that are already legally marketed. Those devices deemed to pose
relatively less risk are placed in either class I or II, which require the
manufacturer to submit a premarket notification requesting 510(k) clearance
unless an exemption applies. The premarket notification must demonstrate that
the proposed device is substantially

                                       19
<PAGE>   20

equivalent in intended use and in safety and effectiveness to a legally marketed
"predicate device" that is either in class I, class II, or is a "pre-amendments"
class III device, for example, one that was in commercial distribution before
May 18, 1976, for which the FDA has not yet decided to require PMA approval. In
contrast, devices deemed by the FDA to pose the greatest risk, or to be novel
devices lacking a legally marketed predicate, are placed in class III and are
required to undergo the PMA approval process. This process requires the
manufacturer to file a PMA application presenting extensive clinical testing
data and other information to prove the safety and effectiveness of the device
to the FDA's satisfaction, and FDA's completion of satisfactory QSR inspection
of the manufacturing facilities. In addition, a new PMA or PMA supplement is
required in the event of a modification to a PMA device, its labeling or its
manufacturing process affecting the safety or effectiveness of the device.

     External pumps have generally qualified for clearance under the 510(k)
process, although some features of advanced pumps may require clinical
validation. Our Models 508, 507C, 407C, 507, 506, and 505 external pumps have
all been cleared by the FDA pursuant to the 510(k) process. Our second
generation continuous glucose monitoring system is going through the PMA
process.

     We cannot assure you that future models of our external pumps will qualify
for 510(k) clearance as opposed to the more extensive PMA process.

     After a device receives 510(k) clearance, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in the intended use of the device, requires a new 510(k) clearance.
The FDA requires each manufacturer to make this determination in the first
instance, but the FDA can review any such decision. If the FDA disagrees with a
manufacturer's decision not to seek a new 510(k) clearance, the agency may
retroactively require the manufacturer to submit a premarket notification
requiring 510(k) clearance. The FDA also can require the manufacturer to cease
marketing and/or recall the modified device until 510(k) clearance is obtained.
We have made modifications to our cleared devices for which we have concluded
510(k) clearance is not required. We cannot assure you that the FDA would agree
with any of our decisions not to seek 510(k) clearance. If the FDA requires us
to seek 510(k) clearance for any modification, the FDA also may require us to
cease marketing and/or recall the modified device until we obtain a new 510(k)
clearance.

     Under the Federal Food, Drug, and Cosmetic Act, a non-biologic drug for
human use requires regulatory approval of a New Drug Application, or NDA, before
it may be commercialized. This process is lengthy, expensive and uncertain.
Among other things, it requires adequate and well-controlled human clinical
trials to establish the safety and efficacy of the product and a satisfactory
FDA inspection of the drug manufacturing facilities to assess compliance with
Current Good Manufacturing Practice or GMP, which includes elaborate testing,
control, documentation and other quality assurance procedures. We cannot assure
you that FDA approval of any NDA that we or Aventis submit will be granted on a
timely basis, or at all. After approval is obtained, a supplemental NDA approval
is generally required for each proposed new indication, often accompanied by
data similar to that submitted with the original NDA.

     After the FDA grants a manufacturer approval to bring a device or drug to
market, a number of postmarket regulatory requirements apply, including labeling
regulations, the QSR, and the Medical Device Reporting regulation which requires
that manufacturers report to the FDA certain types of adverse events involving
their products. Class II devices can be subject to additional special controls,
for example performance standards, postmarket surveillance, patient registries,
and FDA guidelines that do not apply to class I devices. Clearances and
approvals restrict devices and drugs to specifically labeled uses, and the FDA
actively enforces regulations prohibiting marketing of products for unapproved
or "off label" uses. Changes in existing requirements or adoption of new
requirements could have a material adverse effect on our business.

     The FDA also conducts inspections to determine whether we conform with QSR,
and subsequent QSR inspections will continue after the FDA clearance or
approval. The FDA completed an inspection in May 1997 under the Good
Manufacturing Practices regulations for devices, which are the predecessor of
QSR. We received only minor citations, which have all been corrected. In 1999
the FDA conducted a directed inspection of our facilities. We did not receive
any citations as a result of such inspection. In January 2000, the FDA conducted
another directed inspection of our facilities. Following the January 2000
inspection, we
                                       20
<PAGE>   21

received only minor citations, which have all been corrected. A further
inspection may be conducted relative to any PMA application submitted by us for
other products or pursuant to the FDA's practice of performing periodic
inspections.

     If we fail to comply with the FDA's requirements, the agency can institute
a wide variety of enforcement actions. The FDA sometimes issues a public warning
letter, which could have an adverse impact on our business. The FDA also can
pursue stronger remedies, such as:

     - refusing our requests for 510(k) clearance or PMA approval of new
       products, withdrawing product approvals already granted, requiring us to
       recall products;

     - asking a court to require us to pay civil penalties or criminal fines or
       adhere to operating restrictions; or

     - closing down our operations.

     Ultimately, criminal prosecution is available to the FDA as punishment for
the most serious offenses. Any FDA enforcement action could have an adverse
effect on our business, financial condition and results of operations.

     The FDA can withdraw an NDA or PMA if new evidence or new information shows
the drug or device is no longer safe or effective, or if the FDA discovers that
the NDA or PMA contains any untrue statement of material fact. Other reasons
justifying withdrawal of an NDA or PMA by the FDA include, but are not limited
to, failure to maintain required records or to file records and reports, new
questions regarding manufacturing, and whether labeling is false or misleading.

     Our implantable pump will require PMA approval, and Aventis' insulin for
this pump will require NDA approval prior to our ability to commercially offer
the implantable pump system in the U.S. Even after approval, each batch of
insulin produced by Aventis would require the FDA's certification that the batch
meets requisite strength, quality and purity standards.

     In late 1991, the FDA adopted new procedures for the review of products
that involve both devices and drugs, permitting clinical investigation and
approval to be coordinated by a lead center of the FDA. At that time, we
withdrew our initial PMA application, expecting that we and Aventis would file a
single application containing an NDA element for the insulin and a PMA element
for the pump. Under this scenario, we expect that the FDA's Center for Drug
Evaluation and Research will be the lead center and responsible for reviewing
the NDA portion of the application, while the Center for Devices and
Radiological Health will be responsible for reviewing the PMA portion; the FDA's
approval would consist of an approved NDA for the insulin and an approved PMA
for the pump. The FDA has indicated that there would be only one holder of the
approved application for the pump and insulin combination product. The holder
would be the entity to file supplements. We believe that Aventis will permit us
to be the holder of the approved application.

     We, however, submitted a written request to the FDA asking that the PMA for
the pump and the NDA for the insulin be reviewed separately, rather than
pursuant to a single application. Under this approach, our hope is that our PMA
application and Aventis' NDA application would proceed separately through the
regulatory process, although both would rely upon the same clinical data. Also,
we would own the ultimate PMA approval for the pump and Aventis would own the
NDA approval for its insulin, and each product would be labeled for use with the
other. We would have the right to seek necessary supplemental approvals for the
PMA, but would depend upon Aventis to obtain necessary supplemental approvals
for the NDA. The FDA granted our request.

     Exports of products subject to 510(k) notification requirements, but not
yet cleared to market, are permitted without FDA export approval if statutory
requirements are met. Unapproved products subject to PMA requirements must
receive prior FDA export approval unless they are approved for use by any member
country of the EU and other countries, including Australia, Canada, Israel,
Japan, New Zealand, Switzerland and South Africa, in which case they can be
exported to any country without prior FDA approval.

     International sales are subject to foreign government regulation, the
requirements of which vary substantially from country to country. The time
required to obtain approval by a foreign country may be longer

                                       21
<PAGE>   22

or shorter than that required for FDA approval, and the requirements may differ.
The EU requires that a company must obtain the CE Mark prior to sale within the
EU of some medical devices, including implantable products. During this process,
the sponsor must demonstrate compliance with designated manufacturing and
quality requirements known as the "ISO" requirements. In March 1995, we obtained
the CE Mark to market the implantable pump throughout the EU, but commercial
distribution of the implantable pump in the EU has been, and will continue to
be, limited until the special insulin required for use in the pump is approved
and made available. In March 1995, we received certification under quality
standards known as the ISO 9002 standards, and in July 1996, we received
certification under the ISO 9001 design control standards. Most recently, in
February 2000, a CE Mark for the next generation implantable pump, the MIP
2007A, was granted. We currently maintain exclusive worldwide marketing rights
for MIP 2007A. As is the case with QSR inspections in the United States,
inspections by various foreign bodies continue in the EU on a periodic basis
after receipt of the CE Mark.

     We are also subject to numerous federal, state and local laws relating to
matters as billing third-party payors, avoiding unlawful inducements to purchase
or prescribe our products, safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. Additionally, we must comply with various FDA,
and in some cases Federal Trade Commission, requirements for design, safety,
advertising, labeling, record keeping and reporting of adverse experiences with
the use of a product. We cannot assure you that we will not be required to incur
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a material adverse effect upon our
ability to do business.

     Our pharmacy businesses are subject to various federal and state regulatory
requirements relating to the distribution of prescription pharmaceuticals. For
example, the U.S. Drug Enforcement Administration, which we call the DEA,
regulates controlled drug substances, such as narcotics, under the Controlled
Substances Act and the Controlled Substances Import and Export Act.
Manufacturers, distributors and dispensers of controlled substances must be
registered and inspected by the DEA and are subject to reporting and record
keeping requirements. We cannot assure you that we will not be required to incur
significant costs to comply with such laws and regulations in the future or that
such laws or regulations will not have a material adverse effect upon our
ability to do business.

THIRD-PARTY REIMBURSEMENT

     In the United States, our products are generally purchased directly by
patients and dealers and in some cases physicians, physician groups, and/or
hospitals. In many cases, on behalf of the patients, we bill third-party payors,
including private insurance companies, health maintenance organizations,
preferred provider organizations, other managed care providers, and, to a
limited extent, Medicaid. Under the Medicaid program, states generally reimburse
for approved procedures on a reasonable cost basis or a fee schedule. Currently,
some states reimburse our products under the Medicaid program. Although we do
not currently derive revenues from the Medicare program for any of our products,
our external pumps were approved for coverage in September 1999. The Health Care
Financing Administration is currently evaluating the reimbursement levels for
our external pumps and disposable supplies, and we expect to be able to begin to
bill Medicare commencing in the second quarter 2000. We can not guarantee that
the reimbursement rates will be favorable to our business. The Balanced Budget
Act of 1997 passed by Congress and signed into law by President Clinton provides
for coverage of diabetes education and training, as well as funds for diabetes
products. We cannot assure you that the Budget Reconciliation Act of 1997, or
any other legislation expanding coverage for diabetes, will benefit our
products.

     We maintain an insurance assistance department consisting of 135 people as
of March 21, 2000 to simplify and expedite claims processing and to assist
patients in obtaining third-party reimbursement. We believe that more than 90%
of the revenues derived from our external pump and related disposable sales are
reimbursed by third-party payors, subject to applicable deductible and copayment
amounts.

     Third-party payors may decline to reimburse for procedures, supplies or
services determined to be not "medically necessary" or "reasonable." Some payors
have initially indicated that they would decline to

                                       22
<PAGE>   23

reimburse for some of our products on that basis. We try to deter and reverse
such practices through education and have expanded our insurance assistance
efforts toward this end. Our efforts are usually successful, but such
reimbursement may become less likely in the future as pressure increases for
lower health care costs and particularly near-term costs.

     Medicare and many other third-party payors also do not reimburse for
"experimental" or "investigational" procedures. There is usually no precise date
when a procedure ceases to be experimental or investigational, but devices in
clinical investigation under an investigational device exemption are usually
deemed to be experimental or investigational. The failure to cover early use of
a procedure deters usage, delaying acceptance even longer. In the United States
many third-party payors still consider use of implantable pumps to be an
investigational procedure. Reimbursement for the small number of pumps sold in
the United States has therefore been limited to date.

     There is widespread concern that health care market initiatives in the
United States may lead third-party payors to decline or further limit
reimbursement. The extent to which third-party payors may determine that use of
our products will save costs or will at least be cost effective is highly
uncertain, and it is possible, especially for diabetes, that they will merely
focus on the lower initial costs associated with injection therapy or will
otherwise limit reimbursement for insulin pumps or other products we develop.
Because of uncertainties regarding the possible health care reform measures that
could be proposed in the future and initiatives to reduce costs by private
payors, we cannot predict whether reimbursement for our products will be
affected or, if affected, the extent of any effect. The unavailability of
third-party coverage or the inadequacy of reimbursement for our products would
adversely affect our business and operating results.

PRODUCT LIABILITY AND WARRANTIES

     We usually give two to four-year warranties on our external pumps. The
special motors contained in our external pumps are warranted for life. We set
aside a reserve based on monthly return rates to pay for customer service and
repair of products. We set aside additional reserves during early stages of
product introduction. We believe such reserves are enough, but in the event of a
major product problem or recall, the reserves may not be enough to cover all
costs. Such an event could adversely affect our business and operating results.

     Our business involves the inherent risk of product liability claims. We
maintain product liability insurance with coverage limits of $15.0 million per
occurrence and an annual aggregate maximum of $15.0 million, with a deductible
of $50,000 per occurrence. We cannot assure that this insurance coverage will
continue to be available on acceptable terms or that the coverage will be enough
to pay all future product liability claims.

EMPLOYEES

     As of March 21, 2000, we employed approximately 1260 full-time persons
including 112 in research and development, 326 in manufacturing, production
engineering and quality assurance, 418 in administration and support and 269 in
sales and marketing. We also used 111 temporary workers as of March 21, 2000. We
believe that the success of our business depends, in part, on our ability to
attract and retain qualified personnel, particularly scientific, technical and
key management personnel. We believe that our relationships with our employees
are good.

ITEM 2. PROPERTIES

     We own our current primary facilities which consist of an aggregate of
about 175,000 square feet in Sylmar, California. Approximately 23,400 square
feet of the space is leased to Alfred E. Mann, our Chairman and Chief Executive
Officer and approximately 9,711 square feet is leased to MRG. We own a facility
in Hollywood, Florida which consists of an aggregate of approximately 32,000
square feet, and lease an additional 21,135 square feet of warehouse space
adjacent to this facility. We also lease approximately 44,000 square feet of
space in two locations in Northridge and Chatsworth, California. Under a lease
and sublease, we are constructing on the campus of California State University
Northridge up to 710,000 square feet of building
                                       23
<PAGE>   24

of space in two phases over a three to five-year period to address our future
space requirements for our manufacturing, administrative and other activities.
The first phase of the construction which is currently underway consists of
approximately 525,000 square feet on 19 acres and expect to begin our move to
Northridge following the first phase of construction beginning in August 2000
and predict that our move will be completed over several months. We do not
anticipate any significant disruptions in our daily business operations
resulting from our move although no assurances can be given that unanticipated
adverse consequences from our move will not occur. See "Management's Discussion
and Analysis of Financial Condition -- Liquidity and Capital Resources."

ITEM 3. LEGAL PROCEEDINGS

     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.
The agreement expired and 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 agreement, violated applicable trade secret laws and
defamed IIS. IIS did not specify the amount of damages it is seeking in its
complaint. We removed the action to Federal Court, filed an answer denying the
material allegations, and filed a counterclaim seeking damages for unfair trade
practices. We have filed an amended counterclaim seeking damages based on IIS's
failure to pay amounts due and owing. We believe that we have meritorious
defenses to the claims asserted by IIS. Trial in the matter has been set for
September 25, 2000. Discovery in this litigation is continuing.

     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 of an HMS Pharmacy 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 those
billing practices. The allegations regarding billing practices could give rise
to claims against us by the State of Florida.

     On January 21, 2000, Mr. Kusher filed a motion to add a counterclaim
against us and our wholly owned subsidiary MiniMed Distribution Corp. Mr. Kusher
is alleging that we published false written and oral statements with respect to
Mr. Kusher and the billing practices carried on prior to the sale of HMS. Mr.
Kusher's motion to add the counterclaims was granted on March 8, 2000. We
believe that we have meritorious defenses against Mr. Kusher's claims.

     We are not presently a party to any other pending legal proceedings which
we believe are material. From time to time we are subject to various legal
proceedings for product liability and employment related claims. These claims
arise out the ordinary course of our business. We do not believe that any of
these claims, individually or collectively, will have any material adverse
effect on our business or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not Applicable.

                                       24
<PAGE>   25

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our Common Stock began trading on the Nasdaq National Market under the
symbol "MNMD" on July 25, 1995. The following table summarizes, for the periods
indicated, the intra-day high and low sales prices per share of our Common Stock
as adjusted for a 2:1 stock split paid on April 16, 1999 to stockholders of
record on April 1, 1999:

<TABLE>
<CAPTION>
                                                               HIGH       LOW
                                                              -------    ------
<S>                                                           <C>        <C>
1999
  Fourth Quarter Ended December 31, 1999....................  $ 91.25    $50.13
  Third Quarter Ended October 1, 1999.......................   108.25     67.50
  Second Quarter Ended July 2, 1999.........................    79.00     45.81
  First Quarter Ended April 2, 1999.........................    59.38     38.50

1998
  Fourth Quarter Ended January 1, 1999......................  $ 59.00    $25.00
  Third Quarter Ended October 2, 1998.......................    34.44     20.19
  Second Quarter Ended July 3, 1998.........................    29.38     21.38
  First Quarter Ended April 3, 1998.........................    22.50     16.00
</TABLE>

RECORD HOLDERS

     The last reported sale price of our Common Stock on the Nasdaq National
Market on March 21, 2000 was $107.50. As of March 21, 2000, our company had
approximately 1,111 stockholders of record.

DIVIDENDS

     We have never declared or paid any cash dividends on our Common Stock. We
currently intend to retain all of our available funds for use in our business.
We do not anticipate paying any cash dividends in the foreseeable future. The
Board of Directors will make future determinations relating to our dividend
policy, considering the following in making any such determination:

     - our future earnings;

     - our capital requirements;

     - our financial condition;

     - our future prospects; and

     - other factors which the Board of Directors might deem relevant.

SALES OF UNREGISTERED SECURITIES

     Not Applicable.

                                       25
<PAGE>   26

ITEM 6. SELECTED FINANCIAL DATA

     The following table summarizes certain selected consolidated financial
data, which should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere herein and with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The
selected consolidated financial data as of December 31, 1999, January 1, 1999,
January 2, 1998, December 27, 1996, and December 29, 1995, and for each of the
five fiscal years in the period ended December 31, 1999 have been derived from
the audited financial statements of MiniMed Inc. The audited financial
statements, which are included elsewhere in this Annual Report, have been
audited by Deloitte & Touche LLP, our independent auditors.

<TABLE>
<CAPTION>
                                                               FISCAL YEAR
                                  ----------------------------------------------------------------------
                                      1995           1996          1997          1998           1999
                                                                YEAR ENDED
                                  ----------------------------------------------------------------------
                                  DECEMBER 29,   DECEMBER 27,   JANUARY 2,    JANUARY 1,    DECEMBER 31,
                                      1995           1996          1998          1999           1999
                                  ------------   ------------   -----------   -----------   ------------
                                             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                               <C>            <C>            <C>           <C>           <C>
INCOME STATEMENT DATA:
Net sales.......................  $    56,906    $    76,396    $    99,492   $   138,577   $   212,296
Cost of sales...................       22,780         32,314         38,704        51,518        72,907
                                  -----------    -----------    -----------   -----------   -----------
Gross profit....................       34,126         44,082         60,788        87,059       139,389
Operating expenses:
  Selling, general and
     administrative.............       24,379         32,101         41,237        57,059        88,451
  Research and development......        7,095          7,900          9,447        16,531        26,798
  Research and development
     contract...................           --             --             --        (6,000)       (6,000)
  Merger related expenses.......           --             --          1,000            --            --
                                  -----------    -----------    -----------   -----------   -----------
          Total operating
            expenses............       31,474         40,001         51,684        67,590       109,249
                                  -----------    -----------    -----------   -----------   -----------
Operating income................        2,652          4,081          9,104        19,469        30,140
Interest expense................         (418)          (163)          (237)          (47)         (118)
Other income, including interest
  income........................          965          1,062          1,851         1,503         5,143
                                  -----------    -----------    -----------   -----------   -----------
Income before income taxes......        3,199          4,980         10,718        20,925        35,165
Provision for income taxes......         (854)        (1,662)        (4,029)       (7,882)      (13,266)
                                  -----------    -----------    -----------   -----------   -----------
Net income......................  $     2,345    $     3,318    $     6,689   $    13,043   $    21,899
                                  ===========    ===========    ===========   ===========   ===========
Basic income per share..........  $      0.12    $      0.14    $      0.26   $      0.49   $      0.74
                                  ===========    ===========    ===========   ===========   ===========
Basic weighted average shares
  outstanding...................   19,336,000     23,882,000     25,810,000    26,880,000    29,647,000
                                  ===========    ===========    ===========   ===========   ===========
Diluted income per share........  $      0.11    $      0.13    $      0.25   $      0.46   $      0.70
                                  ===========    ===========    ===========   ===========   ===========
Diluted weighted averages shares
  outstanding...................   21,436,000     25,134,000     27,112,000    28,332,000    31,471,000
                                  ===========    ===========    ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                        DECEMBER 29,   DECEMBER 27,   JANUARY 2,    JANUARY 1,    DECEMBER 31,
                                            1995           1996          1998          1999           1999
                                        ------------   ------------   -----------   -----------   ------------
                                                                    (IN THOUSANDS)
<S>                                     <C>            <C>            <C>           <C>           <C>
BALANCE SHEET DATA:
Working capital.......................    $32,133        $36,153       $ 63,409      $ 84,771       $253,891
Total assets..........................     56,561         64,424        105,819       157,652        353,798
Notes payable, net of current
  portion.............................        885          1,528            728         1,059             --
Retained earnings (accumulated
  deficit)............................     (1,924)         1,394          8,083        21,126         43,025
Total stockholders' equity............     42,120         48,131         83,083       133,833        327,098
</TABLE>

                                       26
<PAGE>   27

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS

     The following discussion of the financial condition and results of MiniMed
Inc. should be read in conjunction with the consolidated financial statements
and the related notes thereto included elsewhere herein. The discussion in this
Annual Report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
in the forward-looking statements. See language relating to forward-looking
statements preceding Item 1, "Business."

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 businesses, 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, related disposable products, implantable insulin
pumps and continuous glucose monitoring systems. Future development of the
external pump and disposable product lines will focus upon improving the
existing technologies for our current use of diabetes treatment and utilizing
these technologies for the treatment of other medical conditions. On September
1, 1998, we sold assets and transferred technology related to our implantable
pump program to 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 to create
an "artificial pancreas" capable of controlling glucose levels in patients
without substantive 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
Lilly giving us a worldwide license to formulate, 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 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, the
timing and certainty of which are not predictable.

                                       27
<PAGE>   28

RESULTS OF OPERATIONS

     The following table sets forth for the years indicated the percentage
relationship to net sales of certain items in our consolidated statements of
operations and the percentage changes in the dollar amounts of such items on a
comparative basis for the last three fiscal years:

<TABLE>
<CAPTION>
                                                                                    ANNUAL
                                                                                   INCREASE
                                                                                  (DECREASE)
                                                                                --------------
                                                     PERCENTAGE OF NET SALES     1997     1998
                                                     -----------------------     VS.      VS.
                                                     1997     1998     1999      1998     1999
                                                     -----    -----    -----    ------    ----
<S>                                                  <C>      <C>      <C>      <C>       <C>
Net sales..........................................  100.0%   100.0%   100.0%     39.3%   53.2%
Cost of sales......................................   38.9%    37.2%    34.3%     33.1%   41.5%
                                                     -----    -----    -----    ------    ----
Gross profit.......................................   61.1%    62.8%    65.7%     43.2%   60.1%
Operating expenses:
  Selling, general and administrative..............   41.4%    41.2%    41.7%     38.4%   55.0%
  Research and development.........................    9.5%    11.9%    12.6%     75.0%   62.1%
  Research and development contract................    0.0%    (4.3)%   (2.8)%   100.0%    0.0%
  Merger related expenses..........................    1.0%     0.0%     0.0%   (100.0)%   n/a
                                                     -----    -----    -----    ------    ----
Total operating expenses...........................   51.9%    48.8%    51.5%     30.8%   61.6%
                                                     -----    -----    -----    ------    ----
Operating income...................................    9.2%    14.0%    14.2%    113.9%   54.8%
                                                     =====    =====    =====    ======    ====
</TABLE>

                                       28
<PAGE>   29

     The following table sets forth net sales and gross profits for our
significant business activities for the three years ended December 31, 1999.

<TABLE>
<CAPTION>
                                               FISCAL YEAR              PERCENTAGE OF NET SALES
                                     -------------------------------    -----------------------
                                      1997        1998        1999      1997     1998     1999
                                     -------    --------    --------    -----    -----    -----
                                                           (IN THOUSANDS)
<S>                                  <C>        <C>         <C>         <C>      <C>      <C>
NET SALES:
External pumps and related disposables:
  External pumps:
     Domestic......................  $42,392    $ 66,225    $107,861     42.6%    47.8%    50.8%
     International.................    3,782       6,280       9,173      3.8%     4.5%     4.3%
                                     -------    --------    --------    -----    -----    -----
       Subtotal....................   46,174      72,505     117,034     46.4%    52.3%    55.1%
  Disposable products:
     Domestic......................   31,305      44,605      73,783     31.4%    32.2%    34.7%
     International.................    2,791       4,646       6,639      2.8%     3.4%     3.1%
                                     -------    --------    --------    -----    -----    -----
       Subtotal....................   34,096      49,251      80,422     34.2%    35.6%    37.9%
                                     -------    --------    --------    -----    -----    -----
Total external pumps and related
  disposables......................   80,270     121,756     197,456     80.6%    87.9%    93.0%
Implantable insulin pumps(1).......    1,578       1,391       1,811      1.6%     1.0%     0.9%
Other diabetes supplies(1).........    5,835       6,548       8,729      5.9%     4.7%     4.1%
Glucose Monitoring Systems.........       --          --         163       --       --      0.1%
Pharmacy products(1)...............   11,810       8,882       4,137     11.9%     6.4%     1.9%
                                     -------    --------    --------    -----    -----    -----
          Total Net Sales..........  $99,492    $138,577    $212,296    100.0%   100.0%   100.0%
                                     =======    ========    ========    =====    =====    =====
GROSS PROFITS:
External pumps and related disposables:
  External pumps:
     Domestic......................  $33,011    $ 52,851    $ 84,400     33.2%    38.1%    39.8%
     International.................    2,028       3,970       5,302      2.0%     2.9%     2.5%
                                     -------    --------    --------    -----    -----    -----
       Subtotal....................   35,039      56,821      89,702     35.2%    41.0%    42.3%
  Disposable products:
     Domestic......................   21,592      25,946      42,693     21.7%    18.7%    20.1%
     International.................    1,865       2,505       3,211      1.9%     1.8%     1.5%
                                     -------    --------    --------    -----    -----    -----
       Subtotal....................   23,457      28,451      45,904     23.6%    20.5%    21.6%
                                     -------    --------    --------    -----    -----    -----
Total external pumps and related
  disposables......................   58,496      85,272     135,606     58.8%    61.5%    63.9%
Implantable insulin pumps(1).......   (1,489)     (1,684)       (633)    -1.5%    -1.2%    -0.3%
Other diabetes supplies(1).........    2,416       2,316       3,468      2.4%     1.7%     1.6%
Glucose Monitoring Systems.........       --          --         122       --       --      0.1%
Pharmacy products(1)...............    1,365       1,155         826      1.4%     0.8%     0.4%
                                     -------    --------    --------    -----    -----    -----
          Total Gross Profits......  $60,788    $ 87,059    $139,389     61.1%    62.8%    65.7%
                                     =======    ========    ========    =====    =====    =====
</TABLE>

---------------
(1) Implantable insulin pump sales are international, and other diabetes
    supplies and pharmacy products sales are primarily domestic.

FISCAL 1999 AND FISCAL 1998

     Net Sales. Consolidated net sales increased 53.2% in 1999 over 1998 to
$212,296,000 from $138,577,000. Our sales growth is primarily the result of an
increase of 62.2%, or $75,700,000, in sales of external pumps and related
disposable products. Sales of external pumps grew 61.4% in 1999, with external
pump domestic sales growing 62.9% and external pump international sales
increasing 46.1%. The domestic increase is primarily

                                       29
<PAGE>   30

related to increased unit volume combined with a small increase in average
selling prices. The increase in external pump international sales is unit volume
driven, as realized international average sales prices were slightly lower than
in 1998. The domestic price increase was a function of the 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 last two years. International average selling
prices for pumps and related disposable products were slightly lower in 1999
compared to 1998 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 the related disposable products
increased 63.3% in 1999, with domestic sales growth at 65.4% and international
sales growth at 42.9%. Similar to our external pumps, this increase in sales of
disposable products was primarily volume driven in both the domestic and
international markets. Two other factors influenced the sales growth of our
disposable products. First, we experienced a shift in product mix of the
infusion sets sold, with customers moving to the more expensive models of our
infusion sets. Second, similar to our external pump product line, domestic
average sales prices have increased as a result of processing more sales
directly with third-party payors by our direct sales organization, as contrasted
to sales to independent dealers.

     Sales of implantable pumps increased by 30.2% or $420,000 in 1999 over
1998. 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. We originally received
certification for the implantable pump under the applicable directives issued by
the EU, and received the CE Mark in March 1995, thus permitting commercial sale
throughout the EU. An enhanced version of the implantable pump received the CE
Mark in February 2000. Separate approval from the EU, however, is required for
commercial sale of the insulin for use in the pump. The insulin is manufactured
by an independent pharmaceutical company, which also controls the regulatory
filings for its insulin. The implantable pump and the special insulin also
remain subject to regulatory review and approval in the United States. No
assurance can be given as to when any of these approvals will be received, if at
all.

     Sales of other diabetes supplies increased 33.3%, or $2,181,000 in 1999
over 1998. This increase resulted from overall market growth and the
commencement of internal efforts to market these products to our external pump
patient base. Average sales prices for these products have increased in 1999
over 1998, as a decreasing percentage of our diabetes supplies business was
derived from lower paying Medicare patients. Pharmaceutical products sales
decreased 53.4%, or $4,745,000 in 1999 compared to 1998. The 1999 sales decrease
is a further continuation of our narrowing and restructuring of the pharmacy
operations to better support our future business activities. We believe that our
pharmacy operations can become an important element in our distribution of
pre-filled insulin cartridges, products to treat other medical conditions and
possibly our disposable infusion system for the treatment of Type 2 diabetes.
During the fourth quarter of 1999 we recognized our first revenues on sales of
the continuous glucose monitoring system, although these sales were modest.

     Cost of Sales and Operating Expenses. Cost of sales increased 41.5% in 1999
over 1998 to $72,907,000 from $51,518,000. As a percentage of net sales, cost of
sales decreased to 34.3% in 1999 from 37.2% in 1998. Our overall gross margin
percentage improvement was achieved primarily through margin improvement in the
implantable pump, other diabetes supplies and pharmacy products. Implantable
pump margins improved primarily due to cost reductions achieved because of the
sale of assets and transfer of technology to MRG. Future margins on implantable
pumps may be adversely impacted by a contractual purchase commitment for these
products to MRG (See further discussion in "Liquidity and Capital Resources").
Margin improvements in other diabetes supplies and pharmacy product areas are
the result of our repositioning of these businesses.

     Gross margin percentages on domestic sales of external pumps and the
related disposable products remained constant in 1999 compared to 1998. While
average sales prices on external pumps increased, manufacturing costs of
external pumps also increased, as our latest model external pump incorporates
several technological advancements including a remote bolus programming device.
Additionally, included in cost of sales for domestic external pumps is a
nonrecurring charge of $1.5 million recorded in the fourth quarter of
                                       30
<PAGE>   31

1999 for the estimated costs of correcting a software error on certain external
pumps sold in October and November of 1999. Domestic disposable product gross
margin percentages remained consistent from 1999 to 1998. While the shift in
product mix to more expensive infusion sets resulted in increased sales prices,
the gross profit margin percentages on these enhanced infusion sets are lower
due to higher product costs. International gross margin percentages on external
pumps and related disposable products decreased in 1999 from 1998 due to our
increased expansion into new markets where we are realizing lower prices.

     Selling, general and administrative expenses increased 55.0% in 1999 over
1998 to $88,451,000 from $57,059,000. As a percentage of net sales, these
expenses remained consistent for 1999 compared to 1998. Selling and marketing
expenses increased primarily due to increased sales volumes, which led to
increased sales commissions and other variable field and in-house sales costs.
Additionally, we continued the expansion of our direct sales organization during
1999 through 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, particularly in
Germany and in 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 increased 62.1% in 1999 over 1998 to
$26,798,000 from $16,531,000. As a percentage of sales, research and development
expenses increased to 12.6% during 1999 from 11.9% during 1998. The 1999
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 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., also known as AMI, a member of
The Marmon Group of Companies. Under the terms of the agreement we perform
research and development services on the development of electronics and
telemetry for future models of infusion pumps. Upon achievement of quarterly
performance milestones, we have received $12.0 million in funding, $6.0 million
received in each of 1999 and 1998, respectively. Subject to payment of royalties
to AMI, we have the right to sell products utilizing the technologies developed
pursuant to the agreement on a worldwide 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 January 2000 and concluding April 30, 2002. During each of 1999 and
1998, we recorded the $6.0 million we received under this research and
development contract as a reduction of operating expenses. Costs related to
completion of the obligations under this agreement are 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 alliances or cooperation agreements. No assurance can
be given as to when such 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. Other income for 1999 and 1998 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
tax rate for 1999 and 1998 has been computed giving consideration to the pretax
results applicable to our foreign and

                                       31
<PAGE>   32

domestic tax jurisdictions and a continual decrease in our valuation allowance
against net deferred tax assets due to improved operating results. We have not
incurred any material foreign income tax expense to date. Inflation has not
significantly impacted our results of operations for the past three years.

FISCAL 1998 AND FISCAL 1997

     Net Sales. Consolidated net sales increased 39.3% in 1998 over 1997 to
$138,577,000 from $99,492,000. This increase is the result of an increase of
51.7%, or $41,486,000, in sales of external pumps and related disposable
products, offset by slower overall growth in our other business activities.
Sales of external pumps grew 57.0%, with domestic external pump sales rising
56.2%, and international external pump sales climbing at an even higher rate of
66.0%. In both the domestic and international markets, sales growth was driven
by increased unit volumes combined with increased average selling prices.
Domestic external pump selling prices increased due in large part to our efforts
to process a more significant percentage of our sales internally, rather than
providing discounts to independent dealers, and a slight price increase related
to a new model pump introduced during 1998. The international price increase is
due to increased sales through our direct subsidiaries, primarily in Germany and
Sweden, compared to sales to independent distributors in these areas during
1997. Sales of the related disposable products grew at a rate of 44.4%, with the
domestic and international sales increasing at 42.5% and 66.5%, respectively.
Disposable products pricing remained relatively consistent for 1998 compared to
1997.

     Sales of other diabetes supplies increased 12.2%, or $713,000 in 1998 over
1997. This increase resulted from overall market growth, combined with
additional sales of these products as a result of our 1998 acquisitions of
distributor organizations. Average sales prices have decreased for these
products due to reimbursement trends. Pharmaceutical products sales decreased
24.8%, or $2,928,000 in 1998 over 1997. The pharmacy operation historically
distributed products to treat a number of medical conditions, including
diabetes, HIV/AIDS and renal failure. The 1998 sales decrease primarily resulted
from the our narrowing and restructuring of the pharmacy operations to better
support our core activities and to better position us for future opportunities.
Sales of implantable pumps decreased by 11.9% or $187,000 in 1998 over 1997,
primarily due to the continued lack of required regulatory approvals required
for commercialization of this product line.

     Cost of Sales and Operating Expenses. Cost of sales increased 33.1% in 1998
over 1997 to $51,518,000 from $38,704,000. As a percentage of net sales, cost of
sales decreased to 37.2% in 1998 from 38.9% in 1997. This improvement in gross
margins was directly attributable to the external pump and related disposable
product line. External pump gross profits increased due to an increase in
realized domestic and international sales prices, continued improvement in
product reliability and economies of scale related to increased volumes. Gross
margins on the related disposable products decreased in the domestic and
international markets. This decrease was primarily attributable to our addition
of a new disposable product line which was developed and manufactured for us by
an outside vendor. We realized a higher per unit cost on this product line than
on our historical disposable products.

     Gross profits were adversely impacted by the implantable pump product line
during 1998 due to continued limited sales prior to the product's full
commercial release. With our sale of certain assets and transfer of certain
technology and operating activities to MRG on September 1, 1998, we experienced
improved margins on this product line following such transaction. MRG was
founded by Alfred E. Mann, the Company's founder, Chairman, CEO and largest
stockholder. Mr. Mann is also the Chairman, a director and a significant
shareholder in MRG.

     Gross profits on other diabetes supplies decreased 4.1% to $2,316,000 in
1998, compared to $2,416,000 in 1997. This decrease in gross profit margin for
other diabetes supplies was primarily due to the lower domestic average sales
prices described above. Gross margins, as a percentage of sales, have decreased
for pharmaceutical products during 1998 compared to 1997 as a result of the
restructuring of the pharmacy operations and discontinuation of certain
pharmaceutical product lines which were more profitable but were not consistent
with our long-term plans.

     Selling, general and administrative expenses increased 38.4% in 1998 over
1997 to $57,059,000 from $41,237,000. As a percentage of net sales, these
expenses decreased slightly to 41.2% in 1998 from 41.4% in
                                       32
<PAGE>   33

1997. Selling and marketing expenses increased primarily due to increased sales
volumes, which led to increased sales commissions and other variable field sales
costs. Additionally, we expanded our direct sales organization during 1998
through the realignment of sales territories and the hiring of new sales
representatives. We also increased international selling and marketing
expenditures to expand our overall international presence, particularly in
Germany. General and administrative expenses increased as we have continued to
build our infrastructure to manage increasing domestic and international sales
activity, strengthen our collection function and expand information systems
capabilities.

     Research and development expenses increased 75.0% in 1998 over 1997 to
$16,531,000 from $9,447,000. As a percentage of sales, research and development
expenses increased to 11.9% during 1998 from 9.5% during 1997. The 1998 increase
in research and development costs resulted from greater resources directed
toward 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, data communication capabilities for external pumps and continuous
glucose monitoring systems and a joint development project with Roche
Diagnostics.

     Other. Other income for 1998 and 1997 consisted primarily of interest
income generated from our cash, cash equivalents, and short-term investment
balances. Interest expense in 1997 and 1998 relates primarily to debt incurred
by HMS prior to our acquisition to fund operations and to finance its operating
facility. Substantially all of the HMS debt was retired during 1998. In future
periods, we expect to incur interest expense related to the notes payable that
were issued in connection with the purchase of DSS (see discussion below in
"Liquidity and Capital Resources").

     Our effective tax rate for 1998 and 1997 has been computed giving
consideration to the pretax results applicable to our foreign and domestic tax
jurisdictions and a continual decrease in our valuation allowance against net
deferred tax assets due to improved operating results. We have not incurred any
material foreign income tax expense to date. Inflation has not significantly
impacted our results of operations for the past three years.

LIQUIDITY AND CAPITAL RESOURCES

     We generated cash from operations of $10,275,000 in 1999 compared to cash
used in operations of $2,921,000 during 1998. The increase in operating cash
flows was the result of increased overall profitability and our tax benefits
from the exercise of non-qualified stock options. These increases were offset by
continued growth in our accounts receivable driven by sales growth and our
continuing shift in business to direct sales and billing activities to third
party payors. This sales shift has led to a significant increase in accounts
receivable balances due from third party payors, which are generally realized
over a longer payment cycle. Our use of cash in 1998 included several factors.
We used cash in 1998 to retire approximately $6,333,000 in current liabilities
related to our acquisitions of HMS and DSS. These liabilities included
$1,772,000 in trade payables of the HMS pharmacy operations, $1,893,000 in trade
payables and accrued liabilities related to DSS operations, $1,910,000 in other
accrued liabilities and all of the accrued but unpaid amounts related to the
$1.0 million in merger related expenses recorded in fiscal 1997. If we had not
retired these liabilities, we would have generated cash flow from operating
activities of $3,412,000 rather than the $2,921,000 reported as cash used in
operations. We also experienced a significant increase in accounts receivable in
1998 due to our shift to selling direct to patients through our in-house sales
organization rather than through independent distributors. We also experienced
an increase in inventory balances during 1998 in support of higher levels of
business activity. During 1997, our cash flows from operating activities was
$2,311,000 generated primarily from our increased profits.

     Capital expenditures were $6,072,000 for 1997, $18,570,000 for 1998, and
$20,402,000 for 1999. Our 1997 capital expenditures included continued building
improvements, manufacturing expansion, the acquisition of additional research
and development engineering equipment and information systems upgrades. The 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

                                       33
<PAGE>   34

future capital expenditures will continue to increase at an even faster rate in
support of our new product activities and to build the infrastructure necessary
to accommodate continuing growth. We retired $2.8 million in bank debt related
to HMS operations and used $2.7 million of cash during the first quarter of 1998
to complete our acquisition of Dartec, a Scandinavian distributor.

     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 will be financed with a $65.0 million credit
transaction. We are in the process of attempting to increase this debt
arrangement 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 transaction, 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. These arrangements could
adversely affect our ability to obtain additional capital or 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. Additionally, we made payments of $400,000 during 1999 and 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.

     On October 31, 1998, we acquired DSS, a distributor of our products and
other diabetes supplies located in South Florida. We acquired substantially all
of the net assets of DSS with payment of $4.9 million consisting of $3.1 million
in cash and $1.8 million in notes payable, $800,000 of which was paid in 1999
and $1,000,000 of which is due in 2000. In connection with this acquisition, we
also assumed certain liabilities and retired approximately $2.0 million in
short-term and long-term debt of DSS during the 1998 fourth quarter.

     On November 5, 1998, we entered into an agreement with a wholly-owned
subsidiary of Medtronic, Inc. enabling Medtronic to purchase $30.0 million of
our common stock at $30.00 per share, the approximate market value of the stock
at that time. Medtronic purchased 1,000,000 shares of unregistered common shares
during the 1998 fourth quarter, and we granted Medtronic certain registration
rights associated with the shares. Other financing activities during 1998
included an unsecured line of credit which enabled us to borrow up to $10.0
million. This line of credit expired and had never been drawn and was replaced
with a new credit facility, described above.

     In the process of integrating certain HMS operations, we discovered certain
business practices relating to charges billed to the State of Florida which were
implemented by prior ownership and that may potentially result in liability.
These billing practices were related to business activities of an affiliated
pharmacy. We have corrected the practices, notified the State of Florida of our
findings and initiated legal action against the prior owners to seek
indemnification for any related liability that may be incurred by us. The amount
of potential liability, if any, cannot be determined at this time, although we
believe that indemnification for such liability would be available from the
prior owners. We also are involved in certain other litigation, the financial
impact of which is uncertain (see Notes to Consolidated Financial Statements).

     We received $6.0 million during each of 1998 and 1999 under terms of our
research and development contract with AMI. As indicated above, we 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 beginning January 2000 through April 30,
2002. Alternatively, we may elect to pay royalties on sales of products
utilizing the technology developed pursuant to the contract.

                                       34
<PAGE>   35

     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 full implant in a
clinical trial performed in accordance with applicable regulatory requirements.
In the event that we pursue either of these opportunities, 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>
<S>                                                       <C>
2000....................................................  $ 9,784,000
2001....................................................    8,935,000
                                                          -----------
          Total.........................................  $18,719,000
                                                          ===========
</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 $2,000,000
as of January 1, 1999 and $3,500,000 as of December 31, 1999 related to
implantable pump purchase commitment obligations in excess of expected usage.

     Management believes that our current level of our 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.

                                       35
<PAGE>   36

QUARTERLY RESULTS

     The following table sets forth some of our selected consolidated financial
information for our eight most recent quarters. In the opinion of management,
this unaudited financial information has been prepared on the same basis as the
audited financial information, and includes all adjustments, consisting only of
normal, recurring adjustments, necessary to present this information fairly when
read in conjunction with our consolidated financial statements and notes thereto
contained elsewhere in this annual report on this Form 10-K.

<TABLE>
<CAPTION>
                                                                1998
                                              ----------------------------------------
                                                Q1         Q2         Q3         Q4
                                              -------    -------    -------    -------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>
Net sales...................................  $26,366    $31,715    $34,897    $45,599
Cost of sales...............................    9,784     13,656     13,071     15,007
                                              -------    -------    -------    -------
Gross profits...............................  $16,582    $18,059    $21,826    $30,592
                                              =======    =======    =======    =======
Net income..................................  $ 2,304    $ 2,747    $ 3,217    $ 4,775
                                              =======    =======    =======    =======
Basic earnings per share....................  $  0.09    $  0.10    $  0.12    $  0.18
                                              =======    =======    =======    =======
Diluted earnings per share..................  $  0.09    $  0.10    $  0.11    $  0.16
                                              =======    =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                1999
                                              ----------------------------------------
                                                Q1         Q2         Q3         Q4
                                              -------    -------    -------    -------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                           <C>        <C>        <C>        <C>
Net sales...................................  $40,911    $49,083    $51,400    $70,902
Cost of sales...............................   13,838     16,280     16,502     26,287
                                              -------    -------    -------    -------
Gross profits...............................  $27,073    $32,803    $34,898    $44,615
                                              =======    =======    =======    =======
Net income..................................  $ 3,782    $ 4,873    $ 5,816    $ 7,428
                                              =======    =======    =======    =======
Basic earnings per share....................  $  0.14    $  0.17    $  0.19    $  0.24
                                              =======    =======    =======    =======
Diluted earnings per share..................  $  0.13    $  0.16    $  0.18    $  0.23
                                              =======    =======    =======    =======
</TABLE>

     Our results of operations have historically fluctuated on a quarterly
basis. These seasonal trends have resulted in sales and earnings for each of the
first three quarters being significantly lower than sales in the fourth quarter.
Fluctuations of earnings from quarter to quarter have and will continue to
result from numerous factors, including:

     - response to practices of insurance companies and other third-party payors
       with respects to reimbursement for our products, which tend to result in
       increased sales of our external infusion pumps and disposables later in
       the calendar year, after patients' deductibles are satisfied;

     - market acceptance of our products;

     - timing of regulatory approvals;

     - new product introductions;

     - competition;

     - our ability to manufacture our products efficiently;

     - timing of research and development expenditures; and

     - the structure of our sales compensation program.

YEAR 2000 COMPLIANCE

     The Year 2000 problem, which we call Y2K, arose as a result of computer
programs and other electronic devices containing microprocessors having been
written using two digits (rather than four) to define the applicable year. Any
information technology system with time-sensitive software might recognize a
date using

                                       36
<PAGE>   37

"00" as the year 1900 rather than the year 2000. This improper calculation of
dates could result in disruptions of normal operations and systems failures.

     We implemented a Year 2000 Action Plan Program, which we call the Plan, in
the second quarter of 1998 so that our computer systems would function properly
in the year 2000 and thereafter. Our Plan involved the review of a number of
internal and third-party systems. We completed our system review and made
certain modifications to our existing software and systems and/or conversions to
new software. We estimate that, as of December 31, 1999, the cost of remediating
our internal systems and equipment was approximately $1.0 million. We funded
this effort through our normal working capital. As a result, the Year 2000
problem did not pose any operational problems. Because we experienced no major
year 2000-related issues internally or externally over the year 2000 transition,
we not currently believe that we will incur material costs or experience
material disruptions in our business associated with Y2K. However, there can be
no assurance that our or our vendors' current systems and product offerings do
not contain undetected errors or defects associated with year 2000 date
functions.

ITEM 7A. 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.

                                       37
<PAGE>   38

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

     The following independent auditors' report and the consolidated financial
statements of MiniMed Inc. and its subsidiaries are included in Item 8:

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   39
Consolidated Balance Sheets -- January 1, 1999 and December
  31, 1999..................................................   40
Consolidated Statements of Income -- Years Ended January 2,
  1998, January 1, 1999 and December 31, 1999...............   41
Consolidated Statements of Stockholders' Equity and
  Comprehensive Income -- Years ended January 2, 1998,
  January 1, 1999 and December 31, 1999.....................   42
Consolidated Statements of Cash Flows -- Years ended January
  2, 1998, January 1, 1999 and December 31, 1999............   43
Notes to Consolidated Financial Statements..................   45
</TABLE>

                                       38
<PAGE>   39

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of MiniMed Inc.:

     We have audited the accompanying consolidated balance sheets of MiniMed
Inc. and its subsidiaries (the "Company") as of January 1, 1999 and December 31,
1999 and the related consolidated statements of income, stockholders' equity and
comprehensive income, and of cash flows for each of the three years in the
period ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 1,
1999 and December 31, 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Los Angeles, California
February 9, 2000 (except for Note 15,
as to which the date is March 8, 2000)

                                       39
<PAGE>   40

                                  MINIMED INC.

                          CONSOLIDATED BALANCE SHEETS
                     JANUARY 1, 1999 AND DECEMBER 31, 1999

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  1998            1999
                                                              ------------    ------------
<S>                                                           <C>             <C>
CURRENT ASSETS:
Cash and cash equivalents...................................  $ 27,303,000    $ 92,718,000
Short-term investments......................................    13,476,000      77,716,000
Accounts receivable, net of allowance for doubtful accounts
  of $8,844,000 and $13,108,000 at January 1, 1999 and
  December 31, 1999, respectively...........................    38,788,000      65,938,000
Inventories:
  Raw materials.............................................     7,064,000       9,380,000
  Work-in-process...........................................     3,040,000       2,315,000
  Finished goods............................................     6,756,000       7,643,000
                                                              ------------    ------------
         Total inventories..................................    16,860,000      19,338,000
Deferred income taxes.......................................     6,404,000       9,973,000
Income taxes receivable.....................................            --       5,761,000
Prepaid expenses and other current assets...................     3,835,000       7,602,000
                                                              ------------    ------------
         Total current assets...............................   106,666,000     279,046,000
NOTE RECEIVABLE FROM AFFILIATE..............................     3,600,000       3,600,000
LONG-TERM INVESTMENTS.......................................     4,826,000       8,552,000
OTHER ASSETS................................................    11,522,000      17,969,000
LAND, BUILDINGS, PROPERTY AND EQUIPMENT -- Net..............    31,038,000      44,631,000
                                                              ------------    ------------
         TOTAL ASSETS.......................................  $157,652,000    $353,798,000
                                                              ============    ============

                           LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable and line of credit.........  $  1,101,000    $  1,000,000
Accounts payable............................................     5,447,000       3,573,000
Accrued salaries and related benefits.......................     5,231,000       7,749,000
Accrued sales commissions...................................     2,260,000       2,964,000
Accrued warranties..........................................     2,828,000       3,859,000
Income taxes payable........................................     1,155,000              --
Accrued software refurbishment costs........................            --       1,200,000
Accrued related party purchase commitment obligations.......     2,000,000       3,500,000
Other accrued expenses......................................     1,873,000       1,310,000
                                                              ------------    ------------
         Total current liabilities..........................    21,895,000      25,155,000
                                                              ------------    ------------
DEFERRED INCOME TAXES.......................................       865,000       1,545,000
NOTES PAYABLE...............................................     1,059,000              --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Common stock, par value $.01; 40,000,000 shares authorized
    as of January 1, 1999 and 100,000,000 shares authorized
    as of December 31, 1999; 28,098,393 and 31,150,297
    shares issued and outstanding as of January 1, 1999 and
    December 31, 1999, respectively.........................       286,000         317,000
  Additional capital........................................   111,683,000     280,825,000
  Accumulated other comprehensive income....................       738,000       2,931,000
  Retained Earnings.........................................    21,126,000      43,025,000
                                                              ------------    ------------
         Total stockholders' equity.........................   133,833,000     327,098,000
                                                              ------------    ------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........  $157,652,000    $353,798,000
                                                              ============    ============
</TABLE>

                See notes to consolidated financial statements.
                                       40
<PAGE>   41

                                  MINIMED INC.

                       CONSOLIDATED STATEMENTS OF INCOME
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                    FISCAL YEAR
                                                    -------------------------------------------
                                                       1997            1998            1999
                                                    -----------    ------------    ------------
<S>                                                 <C>            <C>             <C>
NET SALES.........................................  $99,492,000    $138,577,000    $212,296,000
COST OF SALES.....................................   38,704,000      51,518,000      72,907,000
                                                    -----------    ------------    ------------
GROSS PROFIT......................................   60,788,000      87,059,000     139,389,000
                                                    -----------    ------------    ------------
OPERATING EXPENSES:
  Selling, general and administrative.............   41,237,000      57,059,000      88,451,000
  Research and development........................    9,447,000      16,531,000      26,798,000
  Research and development contract...............           --      (6,000,000)     (6,000,000)
  Merger related expenses.........................    1,000,000              --              --
                                                    -----------    ------------    ------------
          Total operating expenses................   51,684,000      67,590,000     109,249,000
                                                    -----------    ------------    ------------
OPERATING INCOME..................................    9,104,000      19,469,000      30,140,000
INTEREST EXPENSE..................................     (237,000)        (47,000)       (118,000)
OTHER INCOME, Including interest income...........    1,851,000       1,503,000       5,143,000
                                                    -----------    ------------    ------------
INCOME BEFORE INCOME TAXES........................   10,718,000      20,925,000      35,165,000
PROVISION FOR INCOME TAXES........................    4,029,000       7,882,000      13,266,000
                                                    -----------    ------------    ------------
NET INCOME........................................  $ 6,689,000    $ 13,043,000    $ 21,899,000
                                                    ===========    ============    ============
Basic earnings per share..........................  $      0.26    $       0.49    $       0.74
                                                    ===========    ============    ============
Basic weighted average shares outstanding.........   25,810,000      26,880,000      29,647,000
                                                    ===========    ============    ============
Diluted earnings per share........................  $      0.25    $       0.46    $       0.70
                                                    ===========    ============    ============
Diluted weighted average shares outstanding.......   27,112,000      28,332,000      31,471,000
                                                    ===========    ============    ============
</TABLE>

                See notes to consolidated financial statements.
                                       41
<PAGE>   42

                                  MINIMED INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                   COMMON STOCK                                        ACCUMULATED      RETAINED
                               ---------------------    ADDITIONAL                        OTHER         EARNINGS
                               NUMBER OF                 PAID-IN      COMPREHENSIVE   COMPREHENSIVE   (ACCUMULATED
                                 SHARES      AMOUNT      CAPITAL         INCOME          INCOME         DEFICIT)        TOTAL
                               ----------   --------   ------------   -------------   -------------   ------------   ------------
<S>                            <C>          <C>        <C>            <C>             <C>             <C>            <C>
BALANCE, DECEMBER 27, 1996...  24,007,257   $246,000   $ 46,491,000                                   $ 1,394,000    $ 48,131,000
Issuance of common stock in
  public offering (net of
  expenses)..................   1,850,000     18,000     22,146,000                                                    22,164,000
Issuance of common stock for
  exercise of warrants.......     400,000      4,000      2,596,000                                                     2,600,000
Exercise of stock options....     221,234      2,000        515,000                                                       517,000
Tax benefit associated with
  stock option exercises.....                             1,276,000                                                     1,276,000
Issuance of stock under
  employee stock plan........      49,812                   547,000                                                       547,000
Stock awards to directors....       6,516                   100,000                                                       100,000
Comprehensive income:
  Net income.................                                          $ 6,689,000                      6,689,000       6,689,000
  Other comprehensive income:
    Unrealized holding gain
      on security, net of
      $747,000 in deferred
      income taxes...........                                            1,371,000                                      1,371,000
    Foreign currency
      translation
      adjustments............                                             (312,000)                                      (312,000)
                                                                       -----------
        Total other
          comprehensive
          income.............                                            1,059,000     $1,059,000
                                                                       -----------
        Total comprehensive
          income.............                                            7,748,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, JANUARY 2, 1998.....  26,534,819    270,000     73,671,000                     1,059,000       8,083,000      83,083,000
Issuance of common stock in
  private offering (net of
  expenses)..................   1,000,000     10,000     29,980,000                                                    29,990,000
Exercise of stock options....     502,794      6,000      1,820,000                                                     1,826,000
Tax benefit associated with
  stock option exercises.....                             4,972,000                                                     4,972,000
Issuance of stock under
  employee stock plan........      57,716                 1,164,000                                                     1,164,000
Stock awards to directors....       3,064                    76,000                                                        76,000
Comprehensive income:
  Net income.................                                           13,043,000                     13,043,000      13,043,000
  Other comprehensive income:
    Unrealized holding loss
      on security, net of
      $106,000 in deferred
      income taxes...........                                             (326,000)                                      (326,000)
    Foreign currency
      translation
      adjustments............                                                5,000                                          5,000
                                                                       -----------
        Total other
          comprehensive
          income.............                                             (321,000)      (321,000)
                                                                       -----------
        Total comprehensive
          income.............                                           12,722,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, JANUARY 1, 1999.....  28,098,393    286,000    111,683,000                       738,000      21,126,000     133,833,000
Issuance of common stock in
  public offering (net of
  expenses)..................   2,172,500     22,000    140,566,000                                                   140,588,000
Exercise of stock options....     826,439      8,000      5,516,000                                                     5,524,000
Tax benefit associated with
  stock option exercises.....                            21,034,000                                                    21,034,000
Issuance of stock under
  employee stock plan........      51,634      1,000      1,946,000                                                     1,947,000
Stock awards to directors....       1,331                    80,000                                                        80,000
Comprehensive income:
  Net income.................                                           21,899,000                     21,899,000      21,899,000
  Other comprehensive income:
    Unrealized holding gain
      on security, net of
      $1,416,000 in deferred
      income taxes...........                                            2,310,000                                      2,310,000
    Foreign currency
      translation
      adjustments............                                             (117,000)                                      (117,000)
                                                                       -----------
        Total other
          comprehensive
          income.............                                            2,193,000      2,193,000
                                                                       -----------
        Total comprehensive
          income.............                                          $24,092,000
                               ----------   --------   ------------    ===========     ----------     -----------    ------------
BALANCE, DECEMBER 31, 1999...  31,150,297   $317,000   $280,825,000                    $2,931,000     $43,025,000    $327,098,000
                               ==========   ========   ============                    ==========     ===========    ============
</TABLE>

                See notes to consolidated financial statements.
                                       42
<PAGE>   43

                                  MINIMED INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                 1997            1998            1999
                                                             ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................  $  6,689,000    $ 13,043,000    $ 21,899,000
Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
  Depreciation.............................................     2,971,000       4,134,000       7,318,000
  Directors' fees paid in common stock.....................       100,000          76,000          80,000
  Deferred income taxes....................................    (2,354,000)     (1,629,000)     (4,305,000)
  Tax benefit from exercise of non-qualified stock
    options................................................     1,276,000       4,972,000      21,034,000
  Changes in operating assets and liabilities:
    Accounts receivable, net...............................    (6,966,000)    (14,439,000)    (27,150,000)
    Inventories............................................    (2,989,000)     (8,908,000)     (2,478,000)
    Prepaid expenses and other current assets..............        73,000      (2,464,000)     (3,767,000)
    Other assets...........................................      (771,000)        940,000          44,000
    Accrued sales commissions..............................       375,000         317,000         704,000
    Accrued salaries and related benefits..................     1,484,000       1,512,000       2,518,000
    Accounts payable.......................................       833,000        (459,000)     (1,874,000)
    Accrued warranties.....................................      (415,000)        370,000       1,031,000
    Income taxes...........................................      (377,000)        880,000      (6,916,000)
    Accrued software refurbishment costs...................            --              --       1,200,000
    Accrued related party purchase commitment
      obligations..........................................            --       2,000,000       1,500,000
    Other accrued expenses.................................     2,382,000      (3,266,000)       (563,000)
                                                             ------------    ------------    ------------
    Net cash provided by (used in) operating activities....     2,311,000      (2,921,000)     10,275,000
                                                             ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Short-term investments...................................    (9,196,000)      5,237,000     (64,240,000)
  Acquisition of marketable securities.....................    (2,000,000)             --              --
  Acquisition of Dartec A.B................................            --      (2,670,000)             --
  Acquisition of Diabetes Support Systems, Inc. ("DSS")....            --      (3,052,000)             --
  Long-term investments....................................            --      (1,140,000)             --
  Purchase of technology license...........................            --              --      (7,000,000)
  Purchase of land, buildings, property and equipment......    (6,072,000)    (18,570,000)    (20,402,000)
                                                             ------------    ------------    ------------
  Net cash used in investing activities....................   (17,268,000)    (20,195,000)    (91,642,000)
                                                             ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of notes payable................................     1,068,000              --              --
  Repayment of notes payable...............................            --      (2,820,000)     (1,160,000)
  Repayment of notes payable in connection with DSS
    acquisition............................................            --      (2,028,000)             --
  Proceeds from public offering, net of expenses...........    22,164,000              --     140,588,000
  Proceeds from private offering, net of expenses..........            --      29,990,000              --
  Proceeds from exercises of warrants......................     2,600,000              --              --
  Proceeds from stock option exercises.....................       517,000       1,826,000       5,524,000
  Proceeds from issuance of common stock under employee
    stock plan.............................................       547,000       1,164,000       1,947,000
                                                             ------------    ------------    ------------
  Net cash provided by financing activities................    26,896,000      28,132,000     146,899,000
                                                             ------------    ------------    ------------
Effect of cumulative foreign currency translation
  adjustment on cash and cash equivalents..................       (62,000)          5,000        (117,000)
                                                             ------------    ------------    ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................    11,877,000       5,021,000      65,415,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............    10,405,000      22,282,000      27,303,000
                                                             ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................  $ 22,282,000    $ 27,303,000    $ 92,718,000
                                                             ============    ============    ============
SUPPLEMENTAL CASH FLOW INFORMATION --
  Cash paid during the period for:
    Interest...............................................  $    237,000    $     62,000    $    108,000
    Income taxes...........................................  $  6,110,000    $  3,854,000    $  1,106,000
</TABLE>

                See notes to consolidated financial statements.

                                       43
<PAGE>   44

                                  MINIMED INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES -- The Company issued 6,516, 3,064 and 1,331 shares of common stock
to certain Directors in lieu of fees during 1997, 1998 and 1999, respectively.
The Company recorded an unrealized holding gain of $1,371,000 during 1997, an
unrealized holding loss of $326,000 during 1998 and an unrealized holding gain
of $2,310,000 during 1999, net of deferred income taxes, on marketable
securities classified as long-term investments available for sale. During 1997,
the Company issued 749,768 shares of common stock to effect an acquisition of a
distributor accounted for as a pooling of interests. During 1998, the Company
accepted a $3.6 million note receivable from a related party in conjunction with
the sale of $3.0 million of net implantable pump inventory components and
$600,000 of net implantable pump fixed assets.

     On October 31, 1998, the Company acquired substantially all of the assets
and certain of the liabilities of Diabetes Support Systems, Inc. ("DSS"). In
connection with this acquisition, the Company paid cash as follows:

<TABLE>
<S>                                                           <C>
Assets acquired:
  Property and equipment....................................  $   188,000
  Accounts receivable.......................................    1,438,000
  Goodwill..................................................    8,500,000
  Inventories...............................................      304,000
  Other assets..............................................       93,000
Liabilities assumed:
  Accounts payable and accrued expenses.....................   (3,643,000)
  Notes payable.............................................   (2,028,000)
Long-term debt issued to seller.............................   (1,800,000)
                                                              -----------
Cash paid in acquisition....................................  $ 3,052,000
                                                              ===========
</TABLE>

                See notes to consolidated financial statements.
                                       44
<PAGE>   45

                                  MINIMED INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     The fiscal years referenced herein are as follows:

<TABLE>
<CAPTION>
                       FISCAL YEAR                            YEAR ENDED
                       -----------                            ----------
<S>                                                        <C>
  1999...................................................  December 31, 1999
  1998...................................................  January 1, 1999
  1997...................................................  January 2, 1998
</TABLE>

 1. GENERAL INFORMATION

     Operations -- MiniMed Inc. ("MiniMed" or the "Company") designs, develops,
manufactures, markets and sells advanced microinfusion systems and glucose
monitoring systems for the intensive management of diabetes. The drug delivery
systems include external and implantable microinfusion drug pumps and related
disposable products which provide long-term delivery of medication for treatment
of diabetes. The Company is also developing these systems to treat other medical
conditions. On June 15, 1999, the Company received FDA approval of the first
generation of glucose sensor systems which provides diabetic patients with
continuous monitoring of glucose levels and may ultimately be linked to the
microinfusion pumps to create an artificial pancreas. Other development efforts
focus on developing non-diabetes uses of the Company's technologies. The Company
generally markets its products through either a direct sales force or
independent distributors in the United States and a combination of direct sales
representatives and independent distributors in international markets. The main
markets for products are the United States and Western Europe. Through its
acquisitions of Home Medical Supply, Inc. and its affiliated companies ("HMS")
and Dartec AB ("Dartec") in fiscal 1997 and Diabetes Support Systems, Inc.
("DSS") in fiscal 1998, the Company also acts as a distributor of additional
diabetes supplies and operates a pharmacy.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Stock Split -- On March 15, 1999, 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 April 1, 1999 for holders of record at the close
of business on that date and was distributed on April 16, 1999. In accordance
with Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share," the Company has recorded the effects of this stock split on share and
per share amounts at the end of 1999 and all prior periods have been restated.

     Principles of Consolidation -- The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiaries, MiniMed
Distribution Corp., MiniMed S.A., MiniMed GmbH, and Dartec AB, and its indirect
subsidiaries. All intercompany accounts and transactions have been eliminated.
The financial statements of MiniMed S.A., MiniMed GmbH and Dartec AB have been
translated using the exchange rate at the end of each period for balance sheet
items and the weighted average exchange rate during each period for operating
results. Adjustments arising from the translation of assets located outside the
United States are recorded as a component of comprehensive income.

     Reclassifications -- Certain reclassifications have been made to various
balances in the 1997 and 1998 financial statements to conform with current year
presentation.

     Cash and Cash Equivalents -- The Company considers all highly liquid
instruments with an original maturity of three months or less to be cash
equivalents.

     Investments -- The Company classifies all of its marketable investments as
available-for-sale, with unrealized holding gains and losses recorded directly
to comprehensive income. Cost approximates fair value for all short-term
investments. Long-term investments represent a $2,000,000 investment in the
common stock of Trimeris, Inc. The fair value of this investment was $3,686,000
and $7,412,000 at January 1, 1999 and December 31, 1999, respectively. The
Company recorded an unrealized holding gain of $1,371,000 during

                                       45
<PAGE>   46
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

1997, unrealized holding loss of $326,000 during 1998 and an unrealized holding
gain of $2,310,000 during 1999 on this investment, net of $747,000, $106,000 and
$1,416,000, respectively in deferred income taxes. Included in long-term
investments at January 1, 1999 and December 31, 1999 was a $1,140,000 investment
in 7.0% of the common stock of Pharmaceutical Discovery Corporation ("PDC")
which is recorded using the cost method. Realized gains and losses and declines
in value judged to be other-than-temporary are included in investment income,
which is included in other income in the Company's consolidated statements of
income. Realized gains and losses on short-term investments for 1997, 1998 and
1999 were not material. The Company's investment policy is to invest idle and
excess funds in high grade, short-term, fixed income securities. The primary
objective of investment activities is to protect capital value.

     Inventories -- Inventories are stated at the lower of cost or net
realizable value. Cost is determined using the first-in, first-out method.

     Land, Buildings, Property and Equipment, and Depreciation -- Land,
buildings, property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets.

     Research and Development -- Research and development costs are expensed as
incurred.

     Research and Development Contract -- On March 31, 1998, the Company signed
a research and development contract with American Medical Instruments, Inc.
("AMI"), a member of The Marmon Group of Companies. Under terms of this
agreement, the Company received $12.0 million in funding related to two research
projects. The Company completed these projects during fiscal 1999 and recorded
$6.0 million related to this contract during each of fiscal 1998 and fiscal
1999. These revenues have been recorded as a reduction of operating expenses.
Costs related to the completion of the contractual obligations are included in
research and development expense.

     Under terms of this contract, the Company may sell products developed under
the agreement on a world-wide basis, except for Japan, subject to the payment of
royalties to AMI. The Company may purchase the technology related to these
projects from AMI at prices ranging from $13.5 million to $19.0 million through
April 30, 2002. The Company has applied the principles of SFAS No. 68
"Accounting for Research and Development Contracts" to account for this
transaction.

     Income Taxes -- Income taxes are provided for taxes currently payable or
refundable, and deferred income taxes arising from future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The effects of income taxes are measured based on enacted tax laws and
rates. An allowance is provided for net deferred tax assets for which
realization is not likely.

     Revenues and Concentration of Credit Risk -- The Company recognizes revenue
from product sales when the goods are shipped to its customers. During 1997,
1998 and 1999, the Company derived approximately 93.4%, 92.4% and 93.6%,
respectively, of its revenues from domestic sales. A significant portion of
domestic revenues represent products sold by the Company directly to patients.
The Company bills these patients directly or processes billing to their health
care payors, which include indemnity insurers, HMOs, PPOs and various
governmental agencies. Levels of payments from third-party payors and patients
vary, depending upon the specific benefits provided under each patient's
coverage. On an overall basis, the Company's accounts receivable balances are
subject to credit risk similar to other entities dependent upon third-party
health care payors for reimbursement.

     Foreign revenues outside of France, Germany, Austria, Belgium, the
Netherlands and Sweden represent sales to independent dealers. Sales to the
European dealers may be shipped from the United States or through the Company's
European subsidiaries. Certain foreign sales are transacted directly with
patients by the

                                       46
<PAGE>   47
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

Company's European subsidiaries, with reimbursement provided by the appropriate
third party. No single customer represents more than 10% of the Company's sales
for any period presented.

     The Company has recorded an allowance for doubtful accounts to account for
the difference between recorded revenues and anticipated collections from
distributors, patients and third-party payors. The allowance and provision for
bad debts are adjusted periodically based upon the Company's evaluation of
historical collection experience, industry reimbursement trends and other
relevant factors. The Company determines the allowance amount based upon an
analysis of the collectibility of specific accounts and the aging of the
accounts receivable.

     Stock Based Compensation -- The Company has granted stock options for a
fixed number of shares to employees with an exercise price equal to the fair
market value of the shares at the date of grant. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which disclosures are presented in Note 11. The Company accounts
for stock option grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants.

     Pervasiveness of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the allowance for
uncollectible accounts, provisions for obsolete inventory, accrued warranty
obligations and accrued related party purchase commitment obligations.

     Recent Accounting Pronouncement -- In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. Management has not yet
assessed the effect on the Company's operations. Implementation of this standard
has recently been delayed by the FASB for a 12-month period. The Company will
adopt SFAS No. 133 as required for its first quarterly filing of fiscal year
2001.

 3. BUSINESS COMBINATION

     On January 2, 1998, the Company acquired Dartec, a distributor of diabetes
products, including the Company's products, located in Sweden. The Company
purchased substantially all of the net assets of Dartec for $2.7 million. In
connection with this purchase, the Company recorded $2.7 million of goodwill to
other long-term assets. This goodwill is being amortized over a period of 15
years on a straight-line basis.

     On October 31, 1998, the Company acquired DSS, a distributor of diabetes
products, including the Company's products, located in South Florida. The
Company purchased substantially all of the net assets of DSS, and certain
liabilities, for $3.1 million in cash and notes payable totaling $1.8 million.
The notes payable bear interest at 6.0% and are due and payable $800,000 on
October 31, 1999 and $1.0 million on October 31, 2000. The Company paid $800,000
plus $108,000 in accrued interest to the former owners of DSS on October 31,
1999 in satisfaction of the first note payable. In connection with the purchase
of DSS, the Company recorded $8.5 million of goodwill to other long-term assets.
This goodwill is being amortized over a period of 25 years on a straight-line
basis.

                                       47
<PAGE>   48
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     Dartec and DSS are included in the accompanying financial statements
subsequent to acquisition. Had the acquisitions occurred at the beginning of
fiscal 1997, pro forma combined (unaudited) operating results would have been as
follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED         YEAR ENDED
                                                          JANUARY 2, 1998    JANUARY 1, 1999
                                                          ---------------    ---------------
<S>                                                       <C>                <C>
Net sales...............................................   $108,422,000       $148,579,000
Net income..............................................   $  5,815,000       $ 12,420,000
Basic earnings per share................................   $       0.23       $       0.46
Basic weighted average shares outstanding...............     25,810,000         26,880,000
Diluted earnings per share..............................   $       0.21       $       0.44
Diluted weighted average shares outstanding.............     27,112,000         28,332,000
</TABLE>

 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosure of Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments for which it is
practical to estimate that value. For cash and cash equivalents the carrying
amount reported in the balance sheet represents fair value. For accounts
receivable, accounts payable and all notes payable, the carrying amount on the
balance sheet also approximates fair value. The fair value of the $3.6 million
note receivable from an affiliate cannot be determined due to the related party
nature of the note.

 5. NOTES PAYABLE AND LINE OF CREDIT

     Notes payable and line of credit consisted of the following at January 1,
1999 and December 31, 1999:

<TABLE>
<CAPTION>
                                              AVERAGE
                                           INTEREST RATE    JANUARY 1, 1999    DECEMBER 31, 1999
                                           -------------    ---------------    -----------------
<S>                                        <C>              <C>                <C>
CURRENT:
  Bank borrowings........................       9.75%         $  278,000          $       --
  Current portion of long-term debt......      9.125%             23,000                  --
  Note payable...........................        6.0%            800,000           1,000,000
                                               -----          ----------          ----------
          Total short-term debt..........                     $1,101,000          $1,000,000
                                               -----          ----------          ----------
LONG-TERM:
  Various notes -- due in 2000...........      7.563%         $1,059,000          $       --
</TABLE>

     Short-term borrowings consisted primarily of borrowings from U.S. banks.

 6. RELATED PARTY TRANSACTIONS

     Facilities Agreements -- During 1998, the Company leased certain warehouse
facilities from Advanced Bionics Corporation ("ABC"), a company with a
substantial ownership interest held by Alfred E. Mann, MiniMed's largest single
stockholder, Chairman and Chief Executive Officer. Rental expense related to
this lease with ABC was $37,000 during 1998 and $144,000 during 1999. The
Company has leased certain operating facilities to Mr. Mann under a five-year
lease commitment. Rents charged under this agreement were $144,000 during each
of the years ended January 2, 1998, January 1, 1999 and December 31, 1999,
respectively. Rental income related to this lease is recorded in other income.

     Sale of Implantable Insulin Pump Assets -- On September 1, 1998, the
Company sold assets and transferred technology related to its implantable pump
program to Medical Research Group, Inc. ("MRG")

                                       48
<PAGE>   49
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

and entered into a series of related transactions. MRG was founded by Mr. Mann
who continues to hold a substantial equity interest in MRG.

     MiniMed sold assets, consisting primarily of inventories and equipment to
MRG in exchange for a note receivable of approximately $3.6 million. No gain or
loss has been recognized on the sale of these assets. The note receivable is due
and payable in full on December 31, 2003, and accrued interest is payable on
December 31 of each year prior to maturity. The note bears interest at a rate of
7.0% annually. The note is secured by the assets sold to MRG and guaranteed by
Mr. Mann. The Company has also leased facilities and improvements to MRG at
which MRG carries out its activities. The Company has recorded $63,000 and
$191,000 as rental income under this lease during 1998 and 1999, respectively.
The obligations of MRG under such lease are guaranteed by Mr. Mann. Certain
employees of the Company involved in the manufacturing operations and research
and development activities related to the implantable pump product line have
become employees of MRG. The Company retained exclusive distribution rights to
the implantable pump product line for specific medical conditions, including
diabetes. MiniMed is required to purchase implantable pump units from MRG at
negotiated prices, and is obligated to purchase minimum quantities in 2000, 2001
and in future periods in order to preserve its exclusivity.

     The Company is responsible for pursuing regulatory approval of the
implantable pump for the treatment of diabetes and has provided MRG with a
working capital line of credit of $3.0 million, which bears interest at 7.0%
annually. Any amounts borrowed under the line of credit are due on or before
December 31, 2001 and will be secured by a pledge of MiniMed common stock owned
by Mr. Mann. To date, MRG has not borrowed any funds under this line of credit.
Future minimum purchase commitments for implantable pump units based upon
current prices are:

<TABLE>
<S>                                                       <C>
2000....................................................    9,784,000
2001....................................................    8,935,000
                                                          -----------
          Total.........................................  $18,719,000
                                                          ===========
</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. The Company has accrued
$2,000,000 and $3,500,000 at January 1, 1999 and December 31, 1999, respectively
related to implantable pump purchase commitment obligations in excess of
expected usage.

     MRG has also granted MiniMed an option to acquire exclusive worldwide
distribution rights to MRG's long-term glucose sensor, currently under
development, for $30.0 million. The option is exercisable upon MRG's achievement
of certain development milestones. MRG is attempting to integrate its long-term
glucose sensor technology with the implantable pump. MRG also agreed to pursue
the development of certain improvements to the electronic design of the
implantable pump.

 7. LONG-TERM INVESTMENTS AND OTHER ASSETS

     Other assets consist of the following:

<TABLE>
<CAPTION>
                                                JANUARY 1, 1999    DECEMBER 31, 1999
                                                ---------------    -----------------
<S>                                             <C>                <C>
Technology license............................    $   145,000         $ 7,094,000
Goodwill in connection with Dartec
  acquisition.................................      2,670,000           2,502,000
Goodwill in connection with DSS acquisition...      8,444,000           8,104,000
Other.........................................        263,000             269,000
                                                  -----------         -----------
                                                  $11,522,000         $17,969,000
                                                  ===========         ===========
</TABLE>

                                       49
<PAGE>   50
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     Long-term investments consist of the following:

<TABLE>
<S>                                                   <C>           <C>
Investment in Trimeris common stock -- at fair
  value.............................................  $3,686,000    $7,412,000
Investment in PDC common stock -- at cost...........   1,140,000     1,140,000
                                                      ----------    ----------
                                                      $4,826,000    $8,552,000
                                                      ==========    ==========
</TABLE>

 8. LAND, BUILDINGS, PROPERTY AND EQUIPMENT -- NET

     Land, buildings, property and equipment, net consist of the following:

<TABLE>
<CAPTION>
                                                                                ESTIMATED
                                                 JANUARY 1,     DECEMBER 31,    USE LIVES
                                                    1999            1999         (YEARS)
                                                 -----------    ------------    ---------
<S>                                              <C>            <C>             <C>
Land, buildings and improvements...............  $13,244,000    $15,817,000     20 to 40
Machinery and equipment........................   17,332,000     25,963,000      3 to 5
Tooling and molds..............................    2,352,000      3,355,000        3
Computer software..............................    1,989,000      7,423,000        3
Furniture and fixtures.........................    5,301,000      8,062,000        7
                                                 -----------    -----------
                                                  40,218,000     60,620,000
Less accumulated depreciation..................   (9,180,000)   (15,989,000)
                                                 -----------    -----------
          Total................................  $31,038,000    $44,631,000
                                                 ===========    ===========
</TABLE>

                                       50
<PAGE>   51
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

 9. EARNINGS PER SHARE

     Earnings per share ("EPS") are calculated in the following table. The
reconciliation between the numerator and denominator for basic and diluted EPS
is as follows:

<TABLE>
<CAPTION>
                                                  INCOME          SHARES        PER-SHARE
                                                (NUMERATOR)    (DENOMINATOR)     AMOUNT
                                                -----------    -------------    ---------
<S>                                             <C>            <C>              <C>
JANUARY 2, 1998:
  Basic EPS:
     Net income applicable to common stock....  $ 6,689,000     25,810,000        $.26
                                                ===========     ==========        ====
  Effect of dilutive securities:
     Warrants.................................                      60,000
     Stock options............................                   1,242,000
                                                -----------     ----------        ----
  Diluted EPS:
     Net income applicable to common stock....  $ 6,689,000     27,112,000        $.25
                                                ===========     ==========        ====
JANUARY 1, 1999:
  Basic EPS:
     Net income applicable to common stock....  $13,043,000     26,880,000        $.49
                                                ===========     ==========        ====
  Effect of dilutive securities:
     Stock options............................                   1,452,000
                                                -----------     ----------        ----
  Diluted EPS:
     Net income applicable to common stock....  $13,043,000     28,332,000        $.46
                                                ===========     ==========        ====
DECEMBER 31, 1999:
  Basic EPS:
     Net income applicable to common stock....  $21,899,000     29,647,000        $.74
                                                ===========     ==========        ====
  Effect of dilutive securities:
     Stock options............................                   1,824,000
                                                -----------     ----------        ----
  Diluted EPS:
     Net income applicable to common stock....  $21,899,000     31,471,000        $.70
                                                ===========     ==========        ====
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

     Leases -- In May 1999, the Company entered into an agreement to lease up to
28 acres of land located on the campus of California State University,
Northridge, where it will construct 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 to be 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 further
expand 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 synthetic 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. These lease payments will

                                       51
<PAGE>   52
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

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. These arrangements could
adversely affect the Company's ability to obtain additional capital or acquire
additional capital resources or engage in certain strategic transactions.

     Legal Proceedings -- During 1998, the Company integrated the operations of
HMS, which the Company acquired in fiscal 1997. In connection with these
activities, the Company discovered certain business practices relating to
charges billed to the State of Florida for health care services provided through
an affiliated pharmacy. These practices were implemented by HMS' prior owners
and may potentially result in liability to the Company. The Company has received
no notice of any action which is pending or threatened against it in connection
therewith. The Company has corrected such practices, notified the State of
Florida authorities of its findings, initiated legal action against the prior
owners to seek indemnification for any such liability and is pursuing other
legal remedies. The amount of liability to the Company, if any, cannot be
determined at this time, although the Company believes that indemnification for
such liability would be available from HMS' prior owners.

     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 has been
set for September 25, 2000. 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.

                                       52
<PAGE>   53
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

11. STOCKHOLDERS' EQUITY

     Stock Options and Purchase Plan -- The Company has granted stock options
under its incentive stock plan ("stock option plan"), which provides that
options may have a term of up to 10 years and become exercisable and vest in
annual increments of up to six years. Options to purchase an additional
3,330,036 shares are available for grant at December 31, 1999. Stock option plan
activity is as follows:

<TABLE>
<CAPTION>
                                                                        WEIGHTED AVERAGE
                                                            SHARES      PRICE PER SHARE
                                                           ---------    ----------------
<S>                                                        <C>          <C>
Outstanding options at December 27, 1996.................  2,856,594         $ 3.93
Options granted..........................................  1,006,464         $17.09
Options exercised........................................   (221,234)        $ 2.66
Options canceled.........................................   (143,512)        $ 3.76
                                                           ---------
Outstanding options at January 2, 1998...................  3,498,312         $ 7.80
Options granted..........................................    816,000         $22.85
Options exercised........................................   (502,794)        $ 3.83
Options canceled.........................................    (75,900)        $13.71
                                                           ---------
Outstanding options at January 1, 1999...................  3,735,618         $11.50
Options granted..........................................  1,044,500         $46.43
Options exercised........................................   (826,439)        $ 6.67
Options canceled.........................................   (108,000)        $26.15
                                                           ---------
Outstanding options at December 31, 1999.................  3,845,679         $21.62
                                                           =========
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                                                                               SHARES
                       NUMBER             WEIGHTED           WEIGHTED        EXERCISABLE        WEIGHTED
   RANGE OF        OUTSTANDING AT     AVERAGE REMAINING      AVERAGE       AT DECEMBER 31,      AVERAGE
EXERCISE PRICES   DECEMBER 31, 1999   CONTRACTUAL LIFE    EXERCISE PRICE        1999         EXERCISE PRICE
---------------   -----------------   -----------------   --------------   ---------------   --------------
<S>               <C>                 <C>                 <C>              <C>               <C>
$ 2.25 -  3.83          887,814             2.50              $ 3.41            763,814          $ 3.34
$ 4.38 - 14.75          779,439             4.59               10.53            440,423           10.20
$16.78 - 20.00          769,976             6.09               19.02            223,043           19.18
$20.63 - 40.75          402,200             6.56               25.81             55,800           25.73
$42.63 - 87.00        1,006,250             7.22               46.57             14,250           50.19
                      ---------             ----              ------          ---------          ------
                      3,845,679             5.30              $21.62          1,497,330          $ 9.00
                      =========             ====              ======          =========          ======
</TABLE>

     During 1996, the Company's stockholders approved an employee stock purchase
plan ("stock purchase plan"). Substantially all of the Company's employees are
eligible to participate in the stock purchase plan through regular payroll
deductions. Options under the stock purchase plan are granted for an
indeterminable number of shares on semi-annual offering dates and are
automatically exercised six months from the offering date, subject to the right
of participating employees to withdraw from the stock purchase plan prior to the
expiration of the relevant six-month period. Options are exercised at the lesser
of: (1) 85% of the fair market value of the common stock on the offering date;
or (2) 85% of the fair market value of the common stock on

                                       53
<PAGE>   54
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

the exercise date. Sale of shares issued under the stock purchase plan is
prohibited for one year from the exercise date. Transactions related to the
employee stock purchase plan are summarized as follows:

<TABLE>
<CAPTION>
                                                                        WEIGHTED AVERAGE
                                                            SHARES       EXERCISE PRICE
                                                           ---------    ----------------
<S>                                                        <C>          <C>
Shares available at December 27, 1996....................  1,970,356
Exercised................................................     49,812         $10.99
                                                           ---------         ------
Shares available at January 2, 1998......................  1,920,544
Exercised................................................     57,716         $20.17
                                                           ---------         ------
Shares available at January 1, 1999......................  1,862,828
Exercised................................................     51,634         $37.78
                                                           ---------         ------
Shares available at December 31, 1999....................  1,811,194
                                                           =========
</TABLE>

     All stock options are granted at the fair market value of the Company's
common stock at the grant date. The weighted average estimated fair value of
options granted in 1997, 1998 and 1999 was $6,269,000, $14,230,000 and
$29,740,000, respectively. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plan and stock purchase plan.
Accordingly, no compensation cost for the Company's stock option plan and stock
purchase plan has been recognized in 1997, 1998 or 1999. Had compensation cost
for the Company's stock option plan and stock purchase plan been determined
based on the fair value at the grant dates for awards under those plans
consistent with SFAS No. 123, "Accounting for Stock Based Compensation," the
Company's net income and earnings per share for the years ended January 2, 1998,
January 1, 1999 and December 31, 1999 would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                               -----------------------------------------
                                               JANUARY 2,    JANUARY 1,     DECEMBER 31,
                                                  1998          1999            1999
                                               ----------    -----------    ------------
<S>                                            <C>           <C>            <C>
Net income to common stockholders:
  As reported................................  $6,689,000    $13,043,000    $21,899,000
  Pro forma..................................  $5,723,000    $10,420,000    $15,354,000
Net income per common and common equivalent
  share:
  As reported -- basic.......................  $     0.26    $      0.49    $      0.74
  Pro forma..................................        0.22           0.39           0.52
  As reported -- diluted.....................        0.25           0.46           0.70
  Pro forma..................................        0.21           0.37           0.49
</TABLE>

     The fair value of options granted under the stock option plan during 1997,
1998 and 1999 was determined using the Black-Scholes option pricing model
utilizing the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                    ----------------------------------------
                                                    JANUARY 2,    JANUARY 1,    DECEMBER 31,
                                                       1998          1999           1999
                                                    ----------    ----------    ------------
<S>                                                 <C>           <C>           <C>
Dividend yield....................................         0%            0%             0%
Volatility........................................        48%           51%            57%
Risk-free interest rate...........................      5.68%         5.45%          5.22%
Expected lives....................................   7 years       7 years        6 years
</TABLE>

     Pro forma compensation cost of options granted under the employee stock
purchase plan is measured based upon the discount from market value.

                                       54
<PAGE>   55
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     Stockholders' Rights Plan -- In May 1995, the Company's Board of Directors
approved a plan to protect stockholders' rights in the event of a proposed
takeover of the Company, which plan was amended by the Board of Directors in
February 1999. Under the plan, the Board of Directors declared a dividend
distribution of a Series B Preferred Stock purchase right (a "Right") on each
share of the Company's common stock (a "Common Share") outstanding on July 24,
1995, and each Common Share issued thereafter. Upon becoming exercisable, each
Right will entitle its holder to purchase 1/1000 of a share of Series B
Preferred Stock at an exercise price of $250.00. The Rights are not exercisable
or transferable apart from the Common Shares unless certain events occur,
including a public announcement that a person has acquired or announced a tender
or exchange offer to acquire 15% or more of the outstanding Common Shares.
Unless the Rights are redeemed, in the event that an Acquiring Person acquires
15% or more of the outstanding Common Shares (other than pursuant to a tender
offer deemed fair by the Company's Board of Directors), each Right not held by
the Acquiring Person will entitle the holder to purchase for the exercise price
that number of Common Shares (or other shares or assets) having market value
equal to two times the exercise price of the Right. In the event that (i) the
Company is acquired in a merger or business combination in which the Company is
not the surviving corporation or in which the Common Shares are exchanged for
stock or assets of another entity, or (ii) 50% or more of the Company's
consolidated assets or earning power is sold, each Right not held by an
Acquiring Person will entitle the holder to purchase for the exercise price that
number of shares of common stock of the acquiring company having a market value
equal to two times the exercise price. The Rights are redeemable, in whole but
not in part, at the Company's option, at $0.01 per Right at any time prior to
becoming exercisable and in certain other circumstances. The Rights expire in
2005 unless they have been earlier redeemed or exchanged.

12. EMPLOYEE BENEFIT PLAN

     The Company has a defined contribution plan which is available to
substantially all full-time employees of the Company. During 1995 and future
periods, the Company is obligated to contribute a certain percentage of all
employee contributions with limits specified by the Plan. Contributions to the
Plan in the years ended January 2, 1998, January 1, 1999 and December 31, 1999
were $307,000, $387,000 and $625,000, respectively.

13. INCOME TAXES

     Pretax income from continuing operations for the three years in the period
ended December 31, 1999 was subject to income tax in the following
jurisdictions:

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                              ------------------------------------------
                                              JANUARY 2,     JANUARY 1,     DECEMBER 31,
                                                 1998           1999            1999
                                              -----------    -----------    ------------
<S>                                           <C>            <C>            <C>
Domestic....................................  $11,474,000    $21,270,000    $36,370,000
Foreign.....................................     (756,000)      (345,000)    (1,205,000)
                                              -----------    -----------    -----------
Pretax income (loss)........................  $10,718,000    $20,925,000    $35,165,000
                                              ===========    ===========    ===========
</TABLE>

                                       55
<PAGE>   56
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                              ------------------------------------------
                                              JANUARY 2,     JANUARY 1,     DECEMBER 31,
                                                 1998           1999            1999
                                              -----------    -----------    ------------
<S>                                           <C>            <C>            <C>
Current:
  Federal...................................  $ 4,577,000    $ 4,142,000    $(4,275,000)
  Foreign...................................       20,000         30,000         52,000
  State.....................................      510,000        367,000       (656,000)
                                              -----------    -----------    -----------
                                                5,107,000      4,539,000     (4,879,000)
Effect of nonqualified stock option
  exercises upon income taxes currently
  payable...................................    1,276,000      4,972,000     21,034,000
Deferred:
  Federal...................................   (1,970,000)    (1,545,000)    (1,520,000)
  State.....................................     (384,000)       (84,000)    (1,369,000)
                                              -----------    -----------    -----------
                                               (2,354,000)    (1,629,000)    (2,889,000)
                                              -----------    -----------    -----------
                                              $ 4,029,000    $ 7,882,000    $13,266,000
                                              ===========    ===========    ===========
</TABLE>

     The components of deferred tax assets (liabilities) at January 1, 1999 and
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                       JANUARY 1, 1999            DECEMBER 31, 1999
                                    ----------------------    -------------------------
                                     FEDERAL       STATE        FEDERAL        STATE
                                    ----------    --------    -----------    ----------
<S>                                 <C>           <C>         <C>            <C>
Current deferred tax assets:
  Accrued warranties..............  $  990,000    $159,000    $ 1,312,000    $  112,000
  NOL carryforwards...............     502,000      21,000      2,365,000       340,000
  Accrued vacation................     350,000      57,000        485,000        58,000
  Allowance for doubtful
     accounts.....................   3,095,000     498,000      3,664,000       684,000
  Other accrued liabilities.......          --          --             --            --
  Reserve for obsolete
     inventory....................     524,000      86,000        536,000        46,000
  Other...........................     409,000          --        371,000            --
  Current deferred state income
     taxes........................    (287,000)         --             --            --
                                    ----------    --------    -----------    ----------
                                     5,583,000     821,000      8,733,000     1,240,000
Long-term deferred tax liabilities
  and tax credits:
  Depreciation....................    (232,000)    (39,000)    (1,521,000)     (189,000)
  Unrealized gain on securities...    (546,000)    (95,000)    (1,840,000)     (157,000)
  Tax credits.....................                              1,000,000     1,162,000
  Deferred state income taxes.....      47,000          --             --            --
                                    ----------    --------    -----------    ----------
                                      (731,000)   (134,000)    (2,361,000)      816,000
Net deferred tax assets...........   4,852,000     687,000      6,372,000     2,056,000
                                    ==========    ========    ===========    ==========
</TABLE>

                                       56
<PAGE>   57
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     A reconciliation of the Company's provision for income taxes for 1997, 1998
and 1999 to the U.S. Federal Statutory rates is as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                ----------------------------------------
                                                JANUARY 2,    JANUARY 1,    DECEMBER 31,
                                                   1998          1999           1999
                                                ----------    ----------    ------------
<S>                                             <C>           <C>           <C>
Provision for income taxes at U.S. statutory
  rates.......................................  $3,751,000    $7,324,000    $12,308,000
State taxes, net of Federal benefit...........     209,000       655,000      1,811,000
Non-deductible expenses.......................     136,000        99,000        273,000
Foreign loss not usable.......................     257,000       121,000        422,000
Reduction of valuation allowance..............    (645,000)     (270,000)       (36,000)
Research and development income tax credits...          --            --     (1,000,000)
California manufacturer's investment income
  tax credit..................................          --            --       (500,000)
Other.........................................     321,000       (47,000)       (12,000)
                                                ----------    ----------    -----------
                                                $4,029,000    $7,882,000    $13,266,000
                                                ==========    ==========    ===========
</TABLE>

14. OPERATING SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA

     During 1999, the Company reorganized its diabetes products operating
segment to illustrate the differences in revenues and gross profit generation
from external infusion pumps, related disposable products, implantable pumps and
other diabetes supplies. Additionally, during 1999 the Company began conducting
business in a new operating segment, glucose monitoring systems.

     The Company has organized its operating segments around differences in
products offered. The Company conducts business in six operating segments;
external infusion pumps, related disposable products, implantable pumps, other
diabetes supplies, glucose monitoring systems and pharmaceutical products. The
external infusion pumps and related disposable products operating segments
derive their revenues from the manufacture and distribution of drug delivery
systems primarily for the treatment of diabetes. The implantable pumps operating
segment derives its revenues from the distribution of internal drug delivery
systems primarily for the treatment of diabetes. The other diabetes supplies
operating segment generates revenues from the distribution of a broad range of
diabetes treatment products, including blood glucose testing strips and meters.
The pharmaceutical products operating segment derives its revenues from the
distribution of prescription drugs to treat certain medical conditions,
including diabetes and, previously, HIV/AIDS and renal failure.

     The Company manages its operating segments through analysis of segment net
sales and gross profit. The external infusion pumps, related disposable
products, implantable pumps, glucose monitoring systems and other diabetes
supplies operating segments are aggregated into the diabetes products operating
segment for purposes of tracking selling, general and administrative expenses,
interest expense, other income, capital expenditures, depreciation expense and
assets and liabilities as the type of customers, the distribution channels and
the nature of the regulatory environment are similar.

                                       57
<PAGE>   58
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     In the following tables, net sales by operating segment and geographic area
include sales to customers, as reported in the Consolidated Statements of Income
at sales prices which approximate market.

<TABLE>
<CAPTION>
           OPERATING SEGMENTS                  1997            1998            1999
           ------------------              ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Net sales:
  Pharmaceutical products................  $ 11,810,000    $  8,882,000    $  4,137,000
  External infusion pumps................    46,174,000      72,505,000     117,034,000
  Related disposable products............    34,096,000      49,251,000      80,422,000
  Implantable pumps......................     1,577,000       1,391,000       1,811,000
  Glucose monitoring systems.............            --              --         163,000
  Other diabetes supplies................     5,835,000       6,548,000       8,729,000
                                           ------------    ------------    ------------
          Total net sales................  $ 99,492,000    $138,577,000    $212,296,000
                                           ------------    ------------    ------------
Gross profit:
  Pharmaceutical products................  $  1,365,000    $  1,155,000    $    826,000
  External infusion pumps................    35,039,000      56,821,000      89,702,000
  Related disposable products............    23,457,000      28,451,000      45,904,000
  Implantable pumps......................    (1,489,000)     (1,684,000)       (633,000)
  Glucose monitoring systems.............            --              --         122,000
  Other diabetes supplies................     2,416,000       2,316,000       3,468,000
                                           ------------    ------------    ------------
          Total gross profit.............  $ 60,788,000    $ 87,059,000    $139,389,000
                                           ------------    ------------    ------------
Operating profit (loss):
  Pharmaceutical products................  $ (2,145,000)   $ (1,378,000)   $ (2,805,000)
  Diabetes products......................    11,249,000      20,847,000      32,945,000
                                           ------------    ------------    ------------
          Total operating profit.........  $  9,104,000    $ 19,469,000    $ 30,140,000
                                           ------------    ------------    ------------
Interest expense.........................      (237,000)        (47,000)       (118,000)
Other income.............................     1,851,000       1,503,000       5,143,000
                                           ------------    ------------    ------------
Income before income taxes...............  $ 10,718,000    $ 20,925,000    $ 35,165,000
                                           ============    ============    ============
Identifiable assets:
  Pharmaceutical products................  $  3,890,000    $  4,458,000    $  6,012,000
  Diabetes products......................   101,929,000     153,194,000     347,786,000
                                           ------------    ------------    ------------
          Total..........................  $105,819,000    $157,652,000    $353,798,000
                                           ============    ============    ============
</TABLE>

                                       58
<PAGE>   59
                                  MINIMED INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
       YEARS ENDED JANUARY 2, 1998, JANUARY 1, 1999 AND DECEMBER 31, 1999

     Capital expenditures and depreciation expense related to the Company's
pharmaceutical products operations are not material compared to its diabetes
products operations for the three years presented.

<TABLE>
<CAPTION>
            GEOGRAPHIC AREAS                   1997            1998            1999
            ----------------               ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
NET SALES:
  North America..........................  $ 92,946,000    $127,981,000    $198,641,000
  Europe.................................     6,546,000      10,596,000      13,655,000
                                           ------------    ------------    ------------
  Consolidated...........................  $ 99,492,000    $138,577,000    $212,296,000
                                           ============    ============    ============
OPERATING INCOME (LOSS):
  North America..........................  $  9,773,000    $ 20,099,000    $ 31,236,000
  Europe.................................      (669,000)       (630,000)     (1,096,000)
                                           ------------    ------------    ------------
  Consolidated...........................  $  9,104,000    $ 19,469,000    $ 30,140,000
                                           ============    ============    ============
IDENTIFIABLE ASSETS AT END OF PERIOD:
  North America..........................  $100,981,000    $149,768,000    $344,446,000
  Europe.................................     4,838,000       7,884,000       9,352,000
                                           ------------    ------------    ------------
  Consolidated...........................  $105,819,000    $157,652,000    $353,798,000
                                           ============    ============    ============
</TABLE>

15. SUBSEQUENT EVENTS

     On March 8, 2000, the court granted an order allowing one of the former
owners of HMS to add a counterclaim against the Company and its wholly-owned
subsidiary alleging the publication of false written and oral statements. The
Company believes it has meritorious defenses to the counterclaim.

                                       59
<PAGE>   60

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not Applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

     Information regarding our Directors and Executive Officers is incorporated
by reference to our definitive Proxy Statement for our annual meeting of
stockholders which is to be held on June 22, 2000. The Proxy Statement will be
filed with the Securities Exchange Commission no later than 120 days after
December 31, 1999. We refer to the Proxy Statement be filed as the "2000 Proxy."

ITEM 11. EXECUTIVE COMPENSATION

     Information with respect to this item is incorporated by reference to our
2000 Proxy.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information with respect to this item is incorporated by reference to our
2000 Proxy.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     Information with respect to this item is incorporated by reference to our
2000 Proxy.

                                       60
<PAGE>   61

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

     See index to financial statements under Item 8 for a list of all financial
statements filed as part of this report.

     2. FINANCIAL STATEMENT SCHEDULES

     The following financial statement schedules are filed as a part of this
Annual Report on Form 10-K:

        Schedule II -- Valuation and Qualifying Accounts

     All other schedules are omitted because they are not applicable, not
required, or because the required information is included in the consolidated
financial statements or notes thereto.

     3. EXHIBITS REQUIRED TO BE FILED BY ITEM 601 OF REGULATION S-K

     The following exhibits are filed as part of this Annual Report on Form 10-K
or are incorporated herein by reference:

<TABLE>
    <C>         <S>
        2.1     Reorganization Agreement among Robert A. Kusher, Craig Lowy,
                MiniMed Inc. and MiniMed Distribution Corp. dated as of
                October 19, 1997 (included as Exhibit 2.1 to the Company's
                Current Report on Form 8-K filed October 20, 1997, which is
                incorporated herein by reference).
        2.2     Amendment to Reorganization Agreement among Robert A.
                Kusher, Craig Lowy, MiniMed Inc. and MiniMed Distribution
                Corp. dated as of January 2, 1998 (included as Exhibit 2.1
                to the Company's Current Report on Form 8-K filed January
                16, 1998, which is incorporated herein by reference).
        2.3     Asset Purchase Agreement dated as of October 8, 1998, by and
                among Diabetes Support Systems, Inc., MiniMed Distribution
                Corp. and MiniMed Inc. (included as Exhibit 2.3 to the
                Company's Annual Report on the Form 10-K for the fiscal year
                ended January 1, 1999 which is incorporated herein by
                reference).
     3(i).1     Amended and Restated Articles of Incorporation (included as
                Exhibit 3(i).1 to the Company's Quarterly Report on Form
                10-Q for the period ended July 2, 1999 which is incorporated
                herein by reference).
    3(ii).1     Bylaws of MiniMed Inc. (included as Exhibit 3.2 to the
                Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
    3(ii).2     Amendment to Bylaws of MiniMed Inc. (included as Exhibit 3.3
                to the Company's 1996 Annual Report on Form 10-K which is
                incorporated herein by reference).
    3(ii).3     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended October 2, 1998 which is incorporated
                herein by reference).
    3(ii).4     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended July 2, 1999 which is incorporated herein
                by reference).
    3(ii).5     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended October 1, 1999 which is incorporated
                herein by reference).
    3(ii).6     Amendment to Bylaws of MiniMed Inc. adopted October 13,
                1999.
        4.1     Form of Stockholder Rights Agreement (included as Exhibit
                3.4 to the Company's Registration Statement on Form S-1
                (file no. 33-92710) which is incorporated herein by
                reference).
</TABLE>

                                       61
<PAGE>   62
<TABLE>
    <C>         <S>
        4.2     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 herein by
                reference).
       10.1     First Amendment to Stock Pledge Agreement made by MiniMed in
                favor of ING (U.S.) Capital LLC dated as of June 24, 1999
                (included as Exhibit 10.1 to the Company's Quarterly Report
                for the period ended October 1, 1999 which is incorporated
                herein by reference).
       10.2     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 (included as Exhibit
                10.1 to the Company's Quarterly Report on Form 10-Q for the
                period ended July 2, 1999 which is incorporated herein by
                reference).
       10.3     Parent Guaranty dated as of May 18, 1999 from MiniMed Inc.
                to First Security Bank, N.A. as Trustee (included as Exhibit
                10.3 to the Company's Quarterly Report on Form 10-Q for the
                period ended July 2, 1999 which is incorporated herein by
                reference).
       10.4     Master Lease between First Security Bank, N.A. as Trustee
                and MiniMed Development Corp. dated May 18, 1999 (included
                as Exhibit 10.4 to the Company's Quarterly Report on Form
                10-Q for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.5     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
                (included as Exhibit 10.2 to the Company's Quarterly Report
                on Form 10-Q for the period ended July 2, 1999 which is
                incorporated herein by reference).
       10.6     Revolving Credit Agreement dated as of May 18, 1999, among
                MiniMed Inc., the Revolving Credit Lenders and ING (U.S.)
                Capital LLC (included as Exhibit 10.5 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.7     Security Agreement dated as of May 18, 1999, among MiniMed
                Inc., certain subsidiaries of MiniMed Inc. and ING (U.S.)
                Capital LLC (included as Exhibit 10.6 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.8     Change of Control Agreement dated August 12, 1999 between
                MiniMed Inc. and Stephen Bowman (included as Exhibit 10.2 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended October 1, 1999 which is incorporated herein by
                reference).
       10.9     Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Alfred E. Mann (included as Exhibit 10.1 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.10    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Terrance H. Gregg (included as Exhibit 10.2
                to the Company's Quarterly Report on Form 10-Q for the
                period ended April 2, 1999 which is incorporated herein by
                reference).
       10.11    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Eric S. Kentor (included as Exhibit 10.3 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.12    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and David Morley (included as Exhibit 10.4 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
</TABLE>

                                       62
<PAGE>   63
<TABLE>
    <C>         <S>
       10.13    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Kevin R. Sayer (included as Exhibit 10.5 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.14    Third Amended and Restated 1994 Stock Incentive Plan
                (Incorporated by reference from Exhibit 4.1 to Post
                Effective Amendment No. 2 to the Company's Registration
                Statement on Form S-8 filed by the Company on September 16,
                1999, registration no. 33-95630).
       10.15    MiniMed Inc. 1994 Stock Incentive Plan -- Form of Option.
       10.16    MiniMed Inc. 1992 Stock Incentive Plan -- Form of Option
                (included as Exhibit 4.4 to the Company's Registration
                Statement on Form S-1 (file no. 33-92710) which is
                incorporated herein by reference).
       10.17    MiniMed Inc. 1992 Stock Incentive Plan -- Amendment to Form
                of Option
       10.18    MiniMed Technologies Limited Amended and Restated 1992
                Option Plan (included as Exhibit 10.17 to the Company's
                Registration Statement on Form S-1 (file no. 33-92710) which
                is incorporated herein by reference).
       10.19    MiniMed Inc. Option Agreement -- Assumption of MiniMed
                Technologies Limited Options (included as Exhibit 10.18 to
                the Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
       10.20    License Supply and Distribution Agreement between Eli Lilly
                and Company and MiniMed Inc. dated February 1, 1999
                (included as Exhibit 10.7 to the Company's Quarterly Report
                on Form 10-Q for the period ended July 2, 1999 which is
                incorporated herein by reference).
       10.21    Amendment to License Supply and Distribution Agreement
                between Eli Lilly and Company and MiniMed Inc. dated as June
                28, 1999 (included as Exhibit 10.8 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.22    License Agreement dated February 13, 1980, as amended
                December 10, 1990, by and between Applied Physics Laboratory
                of the Johns Hopkins University, Pacesetter Infusion, Ltd.
                And MiniMed Technologies Limited (included as Exhibit 10.24
                to the Company's Registration Statement on Form S-1 (file
                no. 33-92710) which is incorporated herein by reference).
       10.23    Development, License and Supply Agreement between Elan
                Pharmaceutical Technologies, Elan Pharma International
                Limited and MiniMed Inc. dated June 11, 1999 (included as
                Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
                for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.24    License and Manufacturing Agreement between Elan
                Pharmaceutical Technologies, Elan Pharma International
                Limited and MiniMed Inc. dated June 11, 1999 (included as
                Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
                for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.25    License Agreement dated as of October 1, 1993 by and between
                MiniMed Inc. and Wilson Greatbatch Ltd. (included as Exhibit
                10.25 to the Company's Registration Statement on Form S-1
                (file no. 33-92710) which is incorporated herein by
                reference).
       10.26    Form of Indemnity Agreement between MiniMed Inc. and each of
                its officers and directors (included as Exhibit 10.27 to the
                Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
       10.27    MiniMed Inc. Non-Employee Director Deferred Stock Units Plan
                (included as Exhibit 10.14 to the Company's 1995 Annual
                Report on Form 10-K which is incorporated herein by
                reference).
</TABLE>

                                       63
<PAGE>   64
<TABLE>
    <C>         <S>
       10.28    MiniMed Inc. Employee Stock Purchase Plan (included as
                Exhibit 10.15 to the Company's 1995 Annual Report on Form
                10-K which is incorporated herein by reference).
       10.29    Lease dated as of August 1, 1995, as amended by Amendment
                thereto dated as of July 1, 1996, by and between MiniMed
                Inc. and Alfred E. Mann (included as Exhibit 10.17 to the
                Company's 1996 Annual Report on Form 10-K which is
                incorporated herein by reference).
       10.30    Agreement Regarding Implantable Pump Business dated
                September 1, 1998, by and between Medical Research Group,
                LLC, a California limited liability company and MiniMed
                Inc., a Delaware corporation (included as Exhibit 10.1 to
                the Company's Quarterly Report on Form 10-Q which is
                incorporated by reference herein).
       10.31    Implantable Pump License and Distribution Agreement dated
                September 1, 1998, by and between Medical Research Group,
                LLC, a California limited liability company and MiniMed
                Inc., a Delaware corporation (included as Exhibit 10.2 to
                the Company's Quarterly Report on Form 10-Q which is
                incorporated by reference herein).
       10.32    Glucose Sensor Option Agreement dated September 1, 1998, by
                and between Medical Research Group, LLC, a California
                limited liability company and MiniMed Inc., a Delaware
                corporation (included as Exhibit 10.3 to the Company's
                Quarterly Report on Form 10-Q which is incorporated by
                reference herein).
       10.33    Guarantee of Alfred E. Mann dated September 1, 1998
                (included as Exhibit 10.4 to the Company's Quarterly Report
                on Form 10-Q which is incorporated by reference herein).
       21.1     Subsidiaries of the Company.
       23.1     Consent of Deloitte & Touche LLP.
       27.1     Financial Data Schedule.
</TABLE>

(b) 1. REPORTS ON FORM 8-K

          (i) Current Report on Form 8-K filed November 19, 1999, which
     announced a patient notification relating to our model 508 insulin infusion
     pump.

          (ii) Current Report on Form 8-K filed December 28, 1999, which
     announced that we have changed the date of our 2000 Annual Meeting of the
     Stockholders (the "2000 Annual Meeting") from May 18, 2000, to June 22,
     2000. The 2000 Annual Meeting will be held at 10:00 A.M. on June 22, 2000
     at a location to be determined.

                                       64
<PAGE>   65

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Action of 1934, as amended, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                            <C>
                                               MINIMED INC.

Date: March 30, 2000                                            By: /s/ ALFRED E. MANN
                                                -----------------------------------------------------
                                                                    Alfred E. Mann
                                                      Chairman of the Board and Chief Executive
                                                        Officer (Principal Executive Officer)

Date: March 30, 2000                                            By: /s/ KEVIN R. SAYER
                                                -----------------------------------------------------
                                                                    Kevin R. Sayer
                                                            Senior Vice President, Finance
                                                             and Chief Financial Officer
                                                     (Principal Financial and Accounting Officer)
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                      <S>                            <C>

                 /s/ ALFRED E. MANN                      Director, Chairman of the      March 30, 2000
-----------------------------------------------------    Board and Chief Executive
                   Alfred E. Mann                        Officer (Principal
                                                         Executive Officer)

                /s/ TERRANCE H. GREGG                    Director, President, and       March 30, 2000
-----------------------------------------------------    Chief Operating Officer
                  Terrance H. Gregg

                 /s/ KEVIN R. SAYER                      Senior Vice President,         March 30, 2000
-----------------------------------------------------    Finance and Chief Financial
                   Kevin R. Sayer                        Officer (Principal
                                                         Financial and Accounting
                                                         Officer)

               /s/ DAVID CHERNOF, M.D.                   Director                       March 30, 2000
-----------------------------------------------------
                 David Chernof, M.D.

              /s/ CAROLYNE KAHLE DAVIS                   Director                       March 30, 2000
-----------------------------------------------------
                Carolyne Kahle Davis

                /s/ WILLIAM R. GRANT                     Director                       March 30, 2000
-----------------------------------------------------
                  William R. Grant

                 /s/ DAVID MACCALLUM                     Director                       March 30, 2000
-----------------------------------------------------
                   David MacCallum

                /s/ THOMAS R. TESTMAN                    Director                       March 30, 2000
-----------------------------------------------------
                  Thomas R. Testman

                /s/ JOHN C. VILLFORTH                    Director                       March 30, 2000
-----------------------------------------------------
                  John C. Villforth
</TABLE>

                                       65
<PAGE>   66

                                  MINIMED INC.

                VALUATION AND QUALIFYING ACCOUNTS -- SCHEDULE II

<TABLE>
<CAPTION>
          COLUMN A             COLUMN B       COLUMN C -- ADDITIONS       COLUMN D       COLUMN E
          --------            ----------    -------------------------    -----------    -----------
                              BALANCE AT    CHARGED TO     CHARGED TO                   BALANCE AT
                              BEGINNING      COSTS AND       OTHER                        END OF
        DESCRIPTION           OF PERIOD     EXPENSES(1)     ACCOUNTS     DEDUCTIONS       PERIOD
        -----------           ----------    -----------    ----------    -----------    -----------
<S>                           <C>           <C>            <C>           <C>            <C>
Allowance for doubtful
  accounts:
  1997......................  $5,393,000    $1,218,000                   $  (361,000)   $ 6,250,000
  1998......................  $6,250,000    $4,505,000                   $(1,911,000)   $ 8,844,000
  1999......................  $8,844,000    $7,292,000                   $(3,028,000)   $13,108,000

Accrued warranties:
  1997......................  $2,873,000    $1,573,000                   $(1,988,000)   $ 2,458,000
  1998......................  $2,458,000    $1,537,000                   $(1,167,000)   $ 2,828,000
  1999......................  $2,828,000    $1,597,000                   $  (566,000)   $ 3,859,000

Accrued related party
  purchase commitment
  obligations:
  1997......................  $       --    $       --                   $        --    $        --
  1998......................  $       --    $2,000,000                   $        --    $ 2,000,000
  1999......................  $2,000,000    $1,500,000                   $        --    $ 3,500,000
</TABLE>

---------------
(1) The allowance for doubtful accounts represents charges to bad debt expense
    for the year.

                                       66
<PAGE>   67

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                             DESCRIPTION
    --------                            -----------
    <C>         <S>
        2.1     Reorganization Agreement among Robert A. Kusher, Craig Lowy,
                MiniMed Inc. and MiniMed Distribution Corp. dated as of
                October 19, 1997 (included as Exhibit 2.1 to the Company's
                Current Report on Form 8-K filed October 20, 1997, which is
                incorporated herein by reference).
        2.2     Amendment to Reorganization Agreement among Robert A.
                Kusher, Craig Lowy, MiniMed Inc. and MiniMed Distribution
                Corp. dated as of January 2, 1998 (included as Exhibit 2.1
                to the Company's Current Report on Form 8-K filed January
                16, 1998, which is incorporated herein by reference).
        2.3     Asset Purchase Agreement dated as of October 8, 1998, by and
                among Diabetes Support Systems, Inc., MiniMed Distribution
                Corp. and MiniMed Inc. (included as Exhibit 2.3 to the
                Company's Annual Report on Form 10-K for the fiscal year
                ended January 1, 1999, which is incorporated herein by
                reference).
     3(i).1     Amended and Restated Articles of Incorporation (included as
                Exhibit 3(i).1 to the Company's Quarterly Report on Form
                10-Q for the period ended July 2, 1999 which is incorporated
                herein by reference).
    3(ii).1     Bylaws of MiniMed Inc. (included as Exhibit 3.2 to the
                Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
    3(ii).2     Amendment to Bylaws of MiniMed Inc. (included as Exhibit 3.3
                to the Company's 1996 Annual Report on Form 10-K which is
                incorporated herein by reference).
    3(ii).3     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended October 2, 1998 which is incorporated
                herein by reference).
    3(ii).4     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended July 2, 1999 which is incorporated herein
                by reference).
    3(ii).5     Amendment to Bylaws of MiniMed Inc. (included as Exhibit
                3(ii).1 to the Company's Quarterly Report on Form 10-Q for
                the period ended October 1, 1999 which is incorporated
                herein by reference).
    3(ii).6     Amendment to Bylaws of MiniMed Inc. adopted October 13,
                1999.
        4.1     Form of Stockholder Rights Agreement (included as Exhibit
                3.4 to the Company's Registration Statement on Form S-1
                (file no. 33-92710) which is incorporated herein by
                reference).
        4.2     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 herein by
                reference).
       10.1     First Amendment to Stock Pledge Agreement made by MiniMed in
                favor of ING (U.S.) Capital LLC dated as of June 24, 1999
                (included as Exhibit 10.1 to the Company's Quarterly Report
                for the period ended October 1, 1999 which is incorporated
                herein by reference).
       10.2     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 (included as Exhibit
                10.1 to the Company's Quarterly Report on Form 10-Q for the
                period ended July 2, 1999 which is incorporated herein by
                reference).
</TABLE>

                                       67
<PAGE>   68

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                             DESCRIPTION
    --------                            -----------
    <C>         <S>
       10.3     Parent Guaranty dated as of May 18, 1999 from MiniMed Inc.
                to First Security Bank, N.A. as Trustee (included as Exhibit
                10.3 to the Company's Quarterly Report on Form 10-Q for the
                period ended July 2, 1999 which is incorporated herein by
                reference).
       10.4     Master Lease between First Security Bank, N.A. as Trustee
                and MiniMed Development Corp. dated May 18, 1999 (included
                as Exhibit 10.4 to the Company's Quarterly Report on Form
                10-Q for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.5     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
                (included as Exhibit 10.2 to the Company's Quarterly Report
                on Form 10-Q for the period ended July 2, 1999 which is
                incorporated herein by reference).
       10.6     Revolving Credit Agreement dated as of May 18, 1999, among
                MiniMed Inc., the Revolving Credit Lenders and ING (U.S.)
                Capital LLC (included as Exhibit 10.5 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.7     Security Agreement dated as of May 18, 1999, among MiniMed
                Inc., certain subsidiaries of MiniMed Inc. and ING (U.S.)
                Capital LLC (included as Exhibit 10.6 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.8     Change of Control Agreement dated August 12, 1999 between
                MiniMed Inc. and Stephen Bowman (included as Exhibit 10.2 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended October 1, 1999 which is incorporated herein by
                reference).
       10.9     Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Alfred E. Mann (included as Exhibit 10.1 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.10    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Terrance H. Gregg (included as Exhibit 10.2
                to the Company's Quarterly Report on Form 10-Q for the
                period ended April 2, 1999 which is incorporated herein by
                reference).
       10.11    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Eric S. Kentor (included as Exhibit 10.3 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.12    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and David Morley (included as Exhibit 10.4 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.13    Change of Control Agreement dated March 1, 1999 between
                MiniMed Inc. and Kevin R. Sayer (included as Exhibit 10.5 to
                the Company's Quarterly Report on Form 10-Q for the period
                ended April 2, 1999 which is incorporated herein by
                reference).
       10.14    Third Amended and Restated 1994 Stock Incentive Plan
                (Incorporated by reference from Exhibit 4.1 to Post
                Effective Amendment No. 2 to the Company's Registration
                Statement on Form S-8 filed by the Company on September 16,
                1999, registration no. 33-95630).
       10.15    MiniMed Inc. 1994 Stock Incentive Plan -- Form of Option.
       10.16    MiniMed Inc. 1992 Stock Incentive Plan -- Form of Option
                (included as Exhibit 4.4 to the Company's Registration
                Statement on Form S-1 (file no. 33-92710) which is
                incorporated herein by reference).
       10.17    MiniMed Inc. 1992 Stock Incentive Plan -- Amendment to Form
                of Option.
</TABLE>

                                       68
<PAGE>   69

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                             DESCRIPTION
    --------                            -----------
    <C>         <S>
       10.18    MiniMed Technologies Limited Amended and Restated 1992
                Option Plan (included as Exhibit 10.17 to the Company's
                Registration Statement on Form S-1 (file no. 33-92710) which
                is incorporated herein by reference).
       10.19    MiniMed Inc. Option Agreement -- Assumption of MiniMed
                Technologies Limited Options (included as Exhibit 10.18 to
                the Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
       10.20    License Supply and Distribution Agreement between Eli Lilly
                and Company and MiniMed Inc. dated February 1, 1999
                (included as Exhibit 10.7 to the Company's Quarterly Report
                on Form 10-Q for the period ended July 2, 1999 which is
                incorporated herein by reference).
       10.21    Amendment to License Supply and Distribution Agreement
                between Eli Lilly and Company and MiniMed Inc. dated as June
                28, 1999 (included as Exhibit 10.8 to the Company's
                Quarterly Report on Form 10-Q for the period ended July 2,
                1999 which is incorporated herein by reference).
       10.22    License Agreement dated February 13, 1980, as amended
                December 10, 1990, by and between Applied Physics Laboratory
                of the Johns Hopkins University, Pacesetter Infusion, Ltd.
                And MiniMed Technologies Limited (included as Exhibit 10.24
                to the Company's Registration Statement on Form S-1 (file
                no. 33-92710) which is incorporated herein by reference).
       10.23    Development, License and Supply Agreement between Elan
                Pharmaceutical Technologies, Elan Pharma International
                Limited and MiniMed Inc. dated June 11, 1999 (included as
                Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q
                for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.24    License and Manufacturing Agreement between Elan
                Pharmaceutical Technologies, Elan Pharma International
                Limited and MiniMed Inc. dated June 11, 1999 (included as
                Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
                for the period ended July 2, 1999 which is incorporated
                herein by reference).
       10.25    License Agreement dated as of October 1, 1993 by and between
                MiniMed Inc. and Wilson Greatbatch Ltd. (included as Exhibit
                10.25 to the Company's Registration Statement on Form S-1
                (file no. 33-92710) which is incorporated herein by
                reference).
       10.26    Form of Indemnity Agreement between MiniMed Inc. and each of
                its officers and directors (included as Exhibit 10.27 to the
                Company's Registration Statement on Form S-1 (file no.
                33-92710) which is incorporated herein by reference).
       10.27    MiniMed Inc. Non-Employee Director Deferred Stock Units Plan
                (included as Exhibit 10.14 to the Company's 1995 Annual
                Report on Form 10-K which is incorporated herein by
                reference).
       10.28    MiniMed Inc. Employee Stock Purchase Plan (included as
                Exhibit 10.15 to the Company's 1995 Annual Report on Form
                10-K which is incorporated herein by reference).
       10.29    Lease dated as of August 1, 1995, as amended by Amendment
                thereto dated as of July 1, 1996, by and between MiniMed
                Inc. and Alfred E. Mann (included as Exhibit 10.17 to the
                Company's 1996 Annual Report on Form 10-K which is
                incorporated herein by reference).
       10.30    Agreement Regarding Implantable Pump Business dated
                September 1, 1998, by and between Medical Research Group,
                LLC, a California limited liability company and MiniMed
                Inc., a Delaware corporation (included as Exhibit 10.1 to
                the Company's Quarterly Report on Form 10-Q which is
                incorporated by reference herein).
</TABLE>

                                       69
<PAGE>   70

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                             DESCRIPTION
    --------                            -----------
    <C>         <S>
       10.31    Implantable Pump License and Distribution Agreement dated
                September 1, 1998, by and between Medical Research Group,
                LLC, a California limited liability company and MiniMed
                Inc., a Delaware corporation (included as Exhibit 10.2 to
                the Company's Quarterly Report on Form 10-Q which is
                incorporated by reference herein).
       10.32    Glucose Sensor Option Agreement dated September 1, 1998, by
                and between Medical Research Group, LLC, a California
                limited liability company and MiniMed Inc., a Delaware
                corporation (included as Exhibit 10.3 to the Company's
                Quarterly Report on Form 10-Q which is incorporated by
                reference herein).
       10.33    Guarantee of Alfred E. Mann dated September 1, 1998
                (included as Exhibit 10.4 to the Company's Quarterly Report
                on Form 10-Q which is incorporated by reference herein).
       21.1     Subsidiaries of the Company.
       23.1     Consent of Deloitte & Touche LLP.
       27.1     Financial Data Schedule.
</TABLE>

                                       70