SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1995 Commission File Number: 0-7101
INAMED CORPORATION
State of Incorporation: Florida I.R.S. Employer Identification No.: 59-0920629
3800 Howard Hughes Parkway, Suite #900, Las Vegas, Nevada 89109
Telephone Number: (702) 791-3388
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
----- -----
On June 30, 1995 there were 7,552,739 Shares of the Registrant's Common
Stock Outstanding.
This document contains 15 pages.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
Form 10-Q
Quarter Ended June 30, 1995
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets. . . . 3
Unaudited Consolidated Income Statements. . 5
Unaudited Consolidated Statements
of Cash Flows . . . . . 7
Notes to the Unaudited Consolidated
Financial Statements. . . . . 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . 12
PART II - OTHER INFORMATION . . . . 14
PART I. FINANCIAL INFORMATION
<PAGE>
ITEM 1.
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) December 31,
June 30, 1995 1994
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,080,069 $ 673,951
Trade accounts receivable, net
of allowance for doubtful accounts
and returns and allowances of
$6,071,430 at June 30, 1995 and
$6,025,827 at December 31, 1994 15,759,304 11,319,487
Notes receivable 886,638 1,400,503
Inventories (Note 3) 18,231,471 14,879,570
Prepaid expenses and other
current assets 1,657,119 2,548,748
Income tax refund receivable 453,160 462,304
Deferred income taxes 2,520,115 2,648,653
Total current assets 40,567,876 33,933,216
---------- ----------
Property and equipment, at cost:
Machinery and equipment 8,432,075 7,449,622
Furniture and fixtures 3,207,533 2,620,594
Leasehold improvements 7,142,825 5,469,234
---------- ----------
18,782,433 15,539,450
Less accumulated depreciation
and amortization (8,069,879) (6,819,866)
---------- ----------
Net property and equipment 10,712,554 8,719,584
---------- ----------
Notes receivable 2,417,798 2,215,058
Related party notes receivable 81,749 688,184
Intangible assets, net 1,801,455 1,956,648
Deferred income taxes -- 48,810
Other assets, at cost 256,806 248,901
---------- ----------
$ 56,628,238 $ 47,810,401
========== ==========
(continued)
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) December 31,
June 30, 1995 1994
------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-
term debt $ 71,721 $ 176,910
Notes payable to bank 1,880,835 1,795,721
Related party notes payable 966,752 970,610
Accounts payable 16,109,084 15,780,050
Accrued liabilities:
Salaries and wages 6,248,483 2,251,275
Interest 567,365 567,365
Self-insurance 1,287,632 1,291,605
Stock option compensation 68,714 68,714
Other 2,368,465 3,593,024
Royalties payable 1,320,046 1,053,888
Income taxes payable 5,291,186 4,960,352
Deferred income taxes -- 335,777
---------- ----------
Total current liabilities 36,180,283 32,845,291
---------- ----------
Long-term debt, excluding
current installments 56,702 50,801
Deferred grant income 994,182 931,367
Deferred income taxes 872,733 352,115
Litigation settlement 9,152,000 9,152,000
Net stockholders' equity:
Common stock, $0.01 par value.
Authorized 20,000,000 shares;
issued and outstanding 7,552,739 75,528 74,662
Additional paid-in capital 9,892,129 9,699,345
Cumulative translation
adjustment 1,252,600 437,683
Accumulated deficit (1,847,919) (5,732,863)
---------- ----------
Net stockholders' equity 9,372,338 4,478,827
Commitments and contingencies
(Note 4) ---------- ----------
$ 56,628,238 $ 47,810,401
========== ==========
The Notes to Financial Statements are an integral part of this statement
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Net sales $ 45,857,475 $ 38,874,160
Cost of goods sold 14,015,331 13,733,561
---------- ----------
Gross profit 31,842,144 25,140,599
---------- ----------
Operating expenses:
Marketing 11,539,256 9,241,021
General and administrative 13,427,630 11,773,345
Research and development 2,111,294 1,588,662
---------- ----------
Total operating expenses 27,078,180 22,603,028
---------- ----------
Operating income 4,763,964 2,537,571
---------- ----------
Other income (expense):
Interest income 323,076 178,827
Interest expense (140,499) (91,277)
Royalty income 27,978 237,597
Foreign currency transaction gains 166,078 797,303
Miscellaneous income 143,381 70,702
---------- ----------
Net other income 520,014 1,193,152
Income before income taxes 5,283,978 3,730,723
Income taxes 1,399,034 748,472
---------- ----------
Net income $ 3,884,944 $ 2,982,251
========== ==========
Net income per share of
common stock $ .52 $ .40
========== ==========
Weighted average common
shares outstanding 7,506,625 7,431,174
========== ==========
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
Net sales $ 24,112,600 $ 21,978,104
Cost of goods sold 7,681,019 7,313,917
---------- ----------
Gross profit 16,431,581 14,664,187
---------- ----------
Operating expenses:
Marketing 6,158,177 5,189,563
General and administrative 5,819,028 7,297,011
Research and development 1,044,919 735,551
---------- ----------
Total operating expenses 13,022,124 13,222,125
---------- ----------
Operating income 3,409,457 1,442,062
---------- ----------
Other income (expense):
Interest income (33,571) 89,205
Interest expense (11,756) (41,099)
Royalty income 27,978 237,597
Foreign currency transaction
gains (losses) (97,665) 396,461
Miscellaneous income 24,170 39,302
---------- ----------
Net other income (expense) (90,844) 721,466
---------- ----------
Income before income taxes 3,318,613 2,163,528
Income taxes 574,165 453,219
---------- ----------
Net income $ 2,744,448 $ 1,710,309
========== ==========
Net income per share of
common stock $ .36 $ .23
========== ==========
Weighted average common
shares outstanding 7,521,265 7,422,153
========== ==========
The Notes to Financial Statements are an integral part of this statement
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
1995 1994
---------- ----------
Cash flows from operating activities:
Net income $ 3,884,944 $ 2,982,251
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation of property
and equipment 1,370,741 933,999
Amortization of intangible assets 155,183 103,328
Deferred income taxes 342,629 1,528
Changes in assets and liabilities:
Increase in trade accounts
receivable (4,146,995) (3,602,417)
Decrease in notes receivable 311,125 32,257
(Increase) decrease in
inventories (2,661,130) 2,698,910
(Increase) decrease in
prepaid expenses and
other current assets 983,309 (145,557)
Decrease in income tax
refund receivable 19,322 --
(Increase) decrease in other
assets (7,321) 210
Increase (decrease) in accounts
payable 202,440 (2,295,247)
Increase in accrued salaries
and wages 3,933,283 126,451
Increase in accrued interest -- 9
Decrease in accrued self-
insurance (3,973) (336,236)
Decrease in other accrued
liabilities (1,078,689) (678,982)
Increase in royalties payable 266,158 38,239
Increase in income taxes payable 330,834 536,527
Foreign currency translation
adjustment 814,917 172,314
---------- ----------
Total adjustments 831,833 (2,414,667)
Net cash provided by
operating activities 4,716,777 567,584
---------- ----------
Cash flows from investing activities:
Purchases of property
and equipment (2,857,898) (877,320)
---------- ----------
Net cash used in
investing activities (2,857,898) (877,320)
---------- ----------
(continued)
The Notes to Financial Statements are an integral part of this statement
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended June 30, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
1995 1994
---------- ----------
Cash flows from financing activities:
Increases in notes payable
and long-term debt $ 203,767 $ 780,844
Principal repayment of notes
payable and long-term debt (351,457) (199,736)
(Increase) decrease in related
party receivables (183,565) 394,580
Decrease in related party payables (3,858) --
Net change in deferred grant income 4,069 47,667
Repurchases and retirements of
common stock (850) (240,336)
Proceeds from exercise of
stock options -- 17,400
Issuance of common stock 29,500 --
Cash overdraft -- 506,839
---------- ----------
Net cash provided by (used in)
financing activities (302,394) 1,307,258
---------- ----------
Effect of exchange rate
changes on cash (1,170,367) (997,522)
---------- ----------
Net increase (decrease) in
cash and cash equivalents 386,118 --
Cash and cash equivalents at
beginning of period 673,951 --
---------- ----------
Cash and cash equivalents at
end of period $ 1,060,069 $ --
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Interest $ 163,811 $ 136,032
Income taxes $ 790,651 $ 394,293
========== ==========
Supplemental schedule of noncash investing and financing activities:
During the six months ended June 30, 1995, the Company issued
75,000 shares of common stock and recorded a corresponding
$165,000 reduction of a liability which had been incurred in connection
with the acquisition of INAMED, S.A.
Disclosure of accounting policy:
For purposes of the consolidated statement of cash flows,
the Company considers all certificates of deposit to be
cash equivalents.
Certain reclassifications were made to the 1994 Consolidated
Statement of Cash Flows to conform to the 1995 presentation.
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
Note 1 - Interim Financial Statements
The accompanying unaudited consolidated financial statements
include all adjustments (consisting only of normal recurring accruals)
which are, in the opinion of management, necessary for fair presentation
of the results of operations for the periods presented. Interim results
are not necessarily indicative of the results to be expected for a full
year.
Certain information and footnote disclosures normally included in
financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted as allowed by Form
10-Q. The accompanying unaudited consolidated financial statements should
be read in conjunction with the Company's consolidated financial statements
for the year ended December 31, 1994 as filed with the Securities and
Exchange Commission on Form 10-K.
Note 2 - Basis of Presentation and Summary of Significant Accounting
Policies
The Company
INAMED Corporation's subsidiaries are McGhan Medical Corporation
and CUI Corporation, which develop, manufacture and sell medical devices
principally for the plastic and general surgery fields; BioEnterics
Corporation which develops, manufactures and sells medical devices and
associated instrumentation to the bariatric and general surgery fields;
Biodermis Corporation which develops, produces and distributes premium
products for dermatology, wound care and burn treatment; Bioplexus
Corporation which is a development company that develops, produces and
distributes specialty medical products for use by the general surgery
profession; Flowmatrix Corporation which manufactures high quality
silicone components and devices for INAMED's wholly-owned subsidiaries
and distributes an international line of proprietary silicone products;
Medisyn Technologies Corporation which focuses on the development and
promotion of the merits of the use of silicone chemistry in the fields
of medical devices, pharmaceuticals and biotechnology; INAMED Development
Company, which is engaged in the research and development of new medical
devices using silicone-based technology; McGhan Limited, an Irish
corporation which manufactures medical devices principally for the
plastic and general surgery fields; Medisyn Technologies, Ltd. and
Chamfield Ltd., Irish corporations which specialize in the development
of silicone materials for use by INAMED's wholly-owned subsidiaries;
and INAMED B.V., a Netherlands corporation, INAMED B.V.B.A., a Belgium
corporation, INAMED GmbH, a German corporation, INAMED S.R.L., an Italian
corporation, INAMED Ltd., a United Kingdom corporation, INAMED S.A.R.L.,
a French corporation, and INAMED, S.A., a Spanish corporation, which all
sell medical devices on a direct sales basis in the various countries in
which they are located.
Basis of Presentation
The consolidated financial statements include the accounts of
INAMED Corporation and its wholly-owned subsidiaries (collectively
referred to as the Company). All significant intercompany balances
and transactions have been eliminated in consolidation.
Net Income Per Share
Net income per share is based upon the weighted average number
of shares outstanding during each of the respective periods. Common
stock equivalents are excluded since their inclusion would immaterially
affect the calculation or would be antidilutive.
Note 3 - Inventories
Inventories are summarized as follows:
December 31,
June 30, 1995 1994
------------- ------------
Raw materials $ 2,499,668 $ 2,187,689
Work in process 3,955,810 3,268,947
Finished goods 11,775,993 9,422,934
---------- ----------
$ 18,231,471 $ 14,879,570
========== ==========
Note 4 - Commitments and Contingencies
INAMED and/or its subsidiaries are defendants in numerous State
court actions and a Federal class action in the United States District
Court, Northern District of Alabama, Southern Division, under Chief
Judge Sam C. Pointer, Jr., U.S. District Court, regarding Master File
No. C892-P-10000-S (Silicone Gel Breast Implants Product Liability
Litigation MDL 926). The claims are for general and punitive damages
substantially exceeding provisions made in the Company's consolidated
financial statements. The accompanying consolidated financial statements
have been prepared assuming that the Company will withstand the financial
results of said litigation.
Several U.S. based manufacturers negotiated a settlement with the
Plaintiffs' Negotiating Committee ("PNC"), and on March 29, 1994 filed a
Proposed Non-Mandatory Class Action Settlement in the Silicone Breast
Implant Products Liability (the "Settlement Agreement") providing for
settlement of the claims as to the class (the "Settlement") as described
in the Settlement Agreement. The Settlement Agreement provides for
resolution of any existing or future claims, including claims for injuries
not yet known, under any Federal or State law, from any claimant who
received a silicone breast implant prior to June 1, 1993. A fairness
hearing for the non-mandatory class was held before Judge Pointer on
August 18, 1994. On September 1, 1994, Judge Pointer gave final
approval to the non-mandatory class action settlement.
The Company was not originally a party to the Settlement Agreement.
However, on April 8, 1994 the Company and the PNC reached an agreement
which would join the Company into the Settlement. The agreement reached
between the Company and the PNC added great value to the Settlement by
enabling all plaintiffs and U.S. based manufacturers to participate in
the Settlement, and facilitating the negotiation of individual contri-
butions by the Company, Minnesota Mining and Manufacturing Company
("3M"), and Union Carbide Corporation which total more than $440 million.
Under the terms of the Settlement Agreement, the parties stipulate
and agree that all claims of the Settlement Class against the Company
regarding breast implants and breast implant materials shall be fully
and finally settled and resolved on the terms and conditions set forth
in the Settlement Agreement.
Under the terms of the Settlement Agreement, the Company will
pay $1 million to the Settlement fund for each of 25 years starting
three years after Settlement approval by the Court. The Company recorded
a pre-tax charge of $9.1 million in the fourth quarter of 1993. The
charge represents the present value (discounted at 8%) of the Company's
settlement of $25 million over a payment period of 25 years.
Management believes that the Company could not make the financial
contributions as agreed pursuant to the Settlement absent the establish-
ment of a mandatory ("non-opt-out") settlement class (the "Mandatory
Class"). Therefore, the Company has petitioned the United States
District Court, Northern District of Alabama, Southern Division, for
certification of a Mandatory Class under the provisions of Federal Rule
of Civil Procedure. Upon Judge Pointer's preliminary approval, a notice
of a date for the required fairness hearing for the Mandatory Class will
be issued.
Under the Settlement, $1.2 billion had been provided for "current
claims" (disease compensation claims). In May, 1995, Judge Pointer
completed a preliminary review of current claims which had been filed as
of September, 1994, in compliance with deadlines set by the court. Judge
Pointer determined that based on the preliminary review, it appears that
projected amounts of eligible current claims exceed the $1.2 billion
provided in the Settlement. The Settlement provided that in the event of
such over subscription, the amounts to be paid to eligible current
claimants would be reduced and claimants would have a right to "opt-out"
of the Settlement at that time.
In an effort to reduce potential opt-outs, silicone breast implant
manufacturers and the Plaintiffs' Negotiating Committee have begun talks
which may increase the $4.2 billion fund. The parties have been conducting
negotiations in good faith in accordance with their obligations under the
Settlement. On July 31, 1995, Judge Pointer announced that he had set a
deadline of August 30, 1995, for the negotiating parties to have developed
at least an outline of a settlement "Reworked Plan." As negotiations are
ongoing at this time it would be premature to predict their outcome or
discuss the contents of the negotiations.
The Company has opposed the plaintiffs' claims in these complaints
and other similar actions,
and continues to deny any wrongdoing or liability to the plaintiffs of any
kind. However, the extensive burdens and expensive litigation the Company
would continue to incur related to these matters prompted the Company to
work toward and enter into the Settlement which insures a more satisfactory
method of resolving claims of women who have received the Company's breast
implants.
The Company was a defendant with 3M in a case involving three
plaintiffs in Houston, Texas, in March 1994, in which the jury awarded
the plaintiffs $15 million in punitive damages and $12.9 million in damages
plus fees and costs. However, the decision was reversed in March 1995
resulting in no financial responsibility on the part of the Company.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
During the first six months of 1995 INAMED Corporation has main-
tained its position as one of the largest medical device companies
serving the plastic, reconstructive and general surgical markets world-
wide. In order to meet increased international product needs, the
Company has increased production of its products in Europe through
expansion at its manufacturing plant in Ireland which supplies the
majority of the products for the Company's international market. The
Irish facility works closely with the Company's subsidiaries in Europe
to develop new products for that market. Internationally, the Company
has significantly increased its market share due to the use of direct
sales methods rather than distributors wherever financially advantageous
to do so. The Company currently has direct marketing subsidiaries in
seven European countries.
The cash balance has increased since December 31, 1994, while the
current ratio at June 30, 1995, of 1.1 to 1 is consistent with the ratio
at December 31, 1994 of 1.0 to 1. The majority of the Company's cash
flows in the first six months of 1995 were generated by product sales
which is consistent with prior periods. Growth, regulatory activities
and legal expenses continue to use a significant amount of available
cash resources.
In June of 1990, the Company established a $4.5 million compre-
hensive financing package for working capital with a major bank that
utilizes the domestic accounts receivable, inventories and certain
other assets as collateral. In December of 1990, the line of credit
was increased to $5.3 million. As of June 30, 1995, approximately
$478,000 had been drawn on the line of credit. The weighted average
interest rate during the period was 11.4%.
The Company's line of credit was due for renewal in August,
1993. The present bank line was not renewable under acceptable terms
and conditions, and was extended until September 15, 1995. The balance
due on the credit line as of September 15, 1995 is projected to be
approximately $378,000. At that time, the Company intends to retire
the balance of the credit line. The Company believes that it can
start reasonable discussions with lenders for a new credit facility
now that the Company has entered into global settlement agreements.
Although there are no assurances that the Company will be successful
in the engagement of a lender, the Company has made progress in
addressing lender concern surrounding the breast implant litigation
through settlement agreements which include mandatory class certification.
In April 1994, the Company increased its international line of
credit with a major Dutch bank. The current line is $1,540,000 and is
collateralized by the accounts receivable, inventories and certain other
assets of INAMED B.V. The line of credit expires on December 31, 1995.
As of June 30, 1995, approximately $1,395,000 had been drawn on the line
of credit. The interest rate on the line of credit is European prime
discount rate plus 2.5% per annum, at a minimum of 7% per annum.
McGhan Limited continues to receive grants from the Irish
Industrial Development Authority ("IDA") which include reimbursement
for qualified training expenses, leasehold improvements and capital
improvement costs at the Company's operation in Ireland. Additionally,
McGhan Limited has obtained approval for additional grants from the
European Economic Community "Industry R & D Initiative" for approved
research and development programs for up to $1 million. The Company
believes that additional approvals will be achieved in future years.
Results of Operations
Net sales as an aggregate were $45.9 million during the first
six months of 1995 which represents a 18% increase over the first six
months of 1994. This increase can be attributed to reduced competition
and increases in foreign sales. Management expects this trend of sales
growth to continue throughout 1995.
Gross profit was 69% of net sales for the first six months and
68% for the second quarter of 1995 compared to 65% and 67% for the
corresponding periods in 1994. Management expects gross profit to
remain consistent or improve somewhat throughout the remaining quarters
of 1995.
Marketing expense as a percentage of net sales was 25% in the
first six months of 1995 which is consistent with 24% in the first six
months of 1994.
General and administrative expenses as a percentage of net
sales were 29% in the first six months of 1995 which is consistent with
30% in the first six months of 1994. Management expects future general
and administrative expenses to grow proportionally with sales, and to
be reactive to litigation expense.
Research and development expenses increased from $1,588,662 in
the first six months of 1994 to $2,111,294 in the first six months of
1995, reflecting the Company's continuing commitment to developing new
and improved medical products for use by the medical profession and the
public. As a percentage of net sales, this expense has increased from
4.1% in the first six months of 1994 to 4.6% in the first six months of
1995. Diversification into other facets of medical devices through use
of new technology remains a goal of the Company. R & D expenses are
expected to increase throughout 1995 as the Company is also increasing
research and development overseas due to the FDA backlog on approval of
new devices in the United States.
Interest expense increased for the first six months of 1995 in
comparison with interest expense for the same period of 1994. This was
primarily due to the increase in the outstanding balance of the Company's
international line of credit.
The Company continues to incur increased costs related to ob-
taining FDA and European Economic Community approvals for the Company's
products. The Company is continuing to address FDA regulations related
to pre-market approval of silicone mammary implants, and anticipates
ongoing investment of employee hours and Company funds to facilitate
compliance with all FDA regulations as determined by PMA studies and
any new regulations which may be adopted. The FDA is expected to issue
a call for PMA applications for saline-filled breast implants in 1998.
The Company has agreed to conduct clinical trials and is collecting data
in anticipation of FDA action.
The Company has maintained steady growth in sales in both its
domestic and international market areas. Management anticipates strong
market growth, continued increases in production capacity domestically
and internationally, and expansion of the international sales force
will contribute to a trend of sales growth to continue throughout 1995.
<PAGE>
PART II. OTHER INFORMATION
Items 1. through 5.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
INAMED CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INAMED CORPORATION
By /s/Michael D. Farney
--------------------------
Michael D. Farney
Chief Executive Officer and
Chief Financial Officer
Dated: August 10, 1995
-----------------
