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UNITED STATES
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 SEPTEMBER 30, 1999 COMMISSION FILE NUMBER: 1-9741
INAMED CORPORATION
State of Incorporation: Delaware I.R.S. Employer Identification No.: 59-0920629
5540 Ekwill Street, Suite D, Santa Barbara, California 93111-2919
Telephone Number: (805) 692-5400
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 October 19, 1999 there were 17,202,594 Shares of the
Registrant's Common Stock Outstanding.
This document contains 24 pages.
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INAMED CORPORATION AND SUBSIDIARIES
FORM 10-Q
Quarter Ended September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Unaudited Consolidated Income Statements 5
Unaudited Consolidated Statements of Comprehensive Income 7
Unaudited Consolidated Statements of Cash Flows 8
Notes to the Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Market Risk 27
PART II - OTHER INFORMATION 28
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1.
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
================================================================================
<TABLE>
<CAPTION>
Unaudited Audited
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 15,474 $ 11,873
Trade accounts receivable, net of allowance for
doubtful accounts and returns and allowances
of $6,513 and $6,158 38,337 23,169
Inventories 28,098 17,855
Prepaid expenses and other current assets 15,038 1,337
Income tax refund receivable 960 726
Deferred income taxes 19,103 8,000
--------- ---------
Total current assets 117,010 62,960
--------- ---------
Property and equipment, at cost:
Machinery and equipment 27,160 14,170
Furniture and fixtures 25,412 3,418
Leasehold improvements 17,033 11,986
--------- ---------
69,605 29,574
Less accumulated depreciation
and amortization (43,408) (16,751)
--------- ---------
Net property and equipment 26,197 12,823
--------- ---------
Notes receivable, net of allowance of $467 2,765 2,769
Intangible assets, net 147,912 1,015
Deferred income taxes 4,278 --
Other assets, at cost 20,698 1,140
--------- ---------
Total assets $ 318,860 $ 80,707
========= =========
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
================================================================================
<TABLE>
<CAPTION>
Unaudited Audited
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 14 $ 51
Notes payable to bank 1,372 1,186
Accounts payable 16,519 12,226
Accrued liabilities:
Salaries, wages, and payroll taxes 12,954 2,681
Interest 1,469 2,032
Self-insurance 4,123 3,649
Merger and integration costs 28,070 --
Provision for disposal of discontinued operations 4,431 --
Other 17,875 10,244
Royalties payable 3,455 5,061
Taxes payable 23,350 1,318
Note payable, escrow agent -- 25,500
--------- ---------
Total current liabilities 113,632 63,948
--------- ---------
Long-term debt 155,000 27,767
Provision for disposal of discontinued operations 5,495 --
Deferred grant income 1,025 1,235
Deferred income taxes 687 382
Commitments and contingencies -- --
Redeemable common stock, $.01 par value
426,323 shares issued and outstanding
stated at redemption value $7.04 per share -- 3,000
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized 1,000,000 shares; none issued -- --
Common stock, $0.01 par value
Authorized 25,000,000 shares; issued
and outstanding 17,187,594 and 11,010,290 172 110
Additional paid-in capital 74,778 37,605
Accumulated other comprehensive (loss) income (3,410) 269
Accumulated deficit (28,519) (53,609)
--------- ---------
Stockholders' equity (deficiency) 43,021 (15,625)
--------- ---------
Total liabilities and stockholders' equity $ 318,860 $ 80,707
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(IN 000'S EXCEPT SHARE AND PER SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net sales $ 123,722 $ 99,109
Cost of goods sold 36,597 35,219
------------ ------------
Gross profit 87,125 63,890
------------ ------------
Operating expenses:
Marketing 27,099 26,894
General and administrative 22,841 21,201
Research and development 6,871 7,053
------------ ------------
Total operating expenses 56,811 55,148
------------ ------------
Operating income 30,314 8,742
------------ ------------
Other income (expense):
Foreign currency transaction gains (losses) 3 (961)
Miscellaneous loss (41) (2,871)
------------ ------------
Net other expense (38) (3,832)
------------ ------------
Income before interest and taxes 30,276 4,910
Interest and other financing expense, net 5,186 2,746
------------ ------------
Income before income tax expense 25,090 2,164
Income tax expense -- 137
------------ ------------
Net income (Loss) $ 25,090 $ 2,027
============ ============
Net income per share of common stock
Basic $ 1.74 $ 0.20
============ ============
Diluted $ 1.39 $ 0.20
============ ============
Weighted average common shares outstanding basic 14,444,246 10,129,766
============ ============
Weighted average common shares outstanding diluted 18,063,118 10,129,766
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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<PAGE> 6
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(IN 000'S EXCEPT SHARE AND PER SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1999 September 30,1998
------------------ -----------------
<S> <C> <C>
Net sales $ 43,969 $ 32,130
Cost of goods sold 12,677 11,926
------------ ------------
Gross profit 31,292 20,204
------------ ------------
Operating expenses:
Marketing 10,685 8,598
General and administrative 7,906 5,549
Research and development 2,770 2,943
------------ ------------
Total operating expenses 21,361 17,090
------------ ------------
Operating income 9,931 3,114
------------ ------------
Other income (expense):
Foreign currency transaction gains (losses) (97) 106
Miscellaneous income (loss) 839 (2,757)
------------ ------------
Net other expense 742 (2,651)
------------ ------------
Income before interest and taxes 10,673 463
Interest and other financing expense, net 2,147 891
------------ ------------
Income (loss) before income tax expense 8,526 (428)
Income tax expense -- 33
------------ ------------
Net income (loss) $ 8,526 $ (461)
============ ============
Net income per share of common stock
Basic $ 0.50 $ (0.04)
============ ============
Diluted $ 0.44 $ (0.04)
============ ============
Weighted average common shares outstanding basic 17,138,961 10,924,108
============ ============
Weighted average common shares outstanding diluted 19,512,899 10,924,108
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN 000'S)
================================================================================
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1999 September 30,1998
------------------ -----------------
<S> <C> <C>
Net income (loss) $ 8,526 $ (461)
Other comprehensive (loss) income, net of tax:
Cumulative foreign currency translation gains (losses) (2,030) 392
------- -------
Comprehensive income (loss) $ 6,496 $ (69)
======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net income $ 25,090 $ 2,027
Other comprehensive income (loss), net of tax:
Cumulative foreign currency translation gains (losses) (3,679) 1,071
-------- --------
Comprehensive income $ 21,411 $ 3,098
======== ========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN 000'S)
================================================================================
Nine Months ended September 30, 1999 and 1998
Increase in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,090 $ 2,027
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,311 4,312
Deferred income taxes (2,507) --
Provision for doubtful accounts, notes & returns (140) --
Provision for obsolescence of inventory 1,395 --
Provision for asset impairment 600 --
Non-cash compensation 40 --
Non-cash financing cost 1,977 --
Changes in assets and liabilities:
Trade accounts receivable and notes receivable (1,030) (8,223)
Inventories (1,189) 4,320
Prepaid expenses and other current assets (1,251) (248)
Other assets (4,318) --
Accounts payable, accrued and other liabilities 4,224 1,919
--------- ---------
Total adjustments 2,112 2,080
--------- ---------
Net cash provided by operating activities 27,202 4,107
--------- ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (132,528) --
Investments in strategic alliances (9,100) --
Purchases of property and equipment, net (3,311) (935)
Disposal of property and equipment, net -- (670)
--------- ---------
Net cash used in investing activities $(144,939) $ (1,605)
========= =========
</TABLE>
(continued)
The Notes to Financial Statements are an integral part of this statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN 000'S)
================================================================================
Nine Months ended September 30, 1999 and 1998
Increase in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from financing activities:
Payment of note in escrow for litigation settlement $ (25,500) $ --
Increases in notes payable and long-term debt 155,000 410
Principal repayment of notes payable
and long-term debt (27,767) --
Payment of redeemable common stock in escrow
for litigation settlement (3,000)
Increase (decrease) in related party payables -- 1,038
(Increase) decrease in related party receivables -- 128
Proceeds from the exercise of warrants 26,495 --
Proceeds from issuance of common Stock -- 80
(Decrease) Increase in deferred grants (210) 298
--------- ---------
Net cash provided by financing activities 125,018 1,954
--------- ---------
Effect of exchange rate changes on cash (3,680) 141
--------- ---------
Net increase in cash and cash equivalents 3,601 4,597
Cash and cash equivalents at beginning of period 11,873 1,946
--------- ---------
Cash and cash equivalents at end of period $ 15,474 $ 6,543
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the nine months for:
Interest $ 9,166 $ 2,424
========= =========
Income taxes $ 11 $ 97
========= =========
</TABLE>
Disclosure of accounting policy:
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
<TABLE>
<CAPTION>
Non-cash transactions: 1999 1998
--------- ---------
<S> <C> <C>
Common stock exchanged for junior secured notes $ 10,700 --
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
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<PAGE> 10
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
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 the 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, 1998 as filed with the Securities and Exchange Commission on
Form 10-K.
2 - Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
Inamed Corporation and all of its wholly owned subsidiaries (the "Company").
Intercompany transactions are eliminated in consolidation.
The Company
Inamed Corporation is a global surgical and medical device company engaged in
the development, manufacturing and marketing of medical devices for the plastic,
reconstructive and aesthetic surgery markets. Inamed Corporation's subsidiaries
are organized into three business units: United States Plastic, Reconstructive
and Aesthetic Surgery (consisting primarily of McGhan Medical Corporation,
Collagen Aesthetics, Flowmatrix Corporation and CUI Corporation, which develop,
manufacture and sell medical devices and components); BioEnterics Corporation,
which develops, manufactures and sells medical devices and associated
instrumentation to the bariatric and general surgery fields; and International
(consisting of Inamed International Corp. and its subsidiaries which are engaged
in manufacturing and distribution through McGhan Limited (based in Ireland) and
sales subsidiaries in various countries, including Holland, Germany, Italy,
United Kingdom, France, and Spain, which sell products for the plastic,
aesthetic medicine and bariatric surgery fields).
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<PAGE> 11
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
2 - Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Earnings Per Share
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS No. 128")
which provides for the calculation of "basic" and "diluted" earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1998. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects, in periods in which they have a dilutive effect, the effect of
common shares issuable upon exercise of stock options and warrants. As required
by this Statement, all periods presented have been restated to comply with the
provisions of SFAS No. 128.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS No. 130") established standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Segment Reporting
In June 1998, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
No. 131") which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise. SFAS No. 131 establishes standards for the way public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.
Taxes
The Company reduced the valuation allowance on the deferred tax asset by $8.3
million and $2.8 million for the nine months and three months ended September
30, 1999, respectively, based on pre-tax income for the nine months ended
September 30, 1999. The Company has a $7.2 million allowance remaining as of
September 30, 1999. The Company's management is currently evaluating the
necessity for a continued allowance on the deferred tax assets. The majority of
taxes currently payable relate to the net assets acquired from Collagen
Aesthetics, Inc.
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
2 - Basis of Presentation and Summary of Significant Accounting Policies
(continued)
New Accounting Standards
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which requires entities to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. SFAS No. 133 is effective
for all fiscal years beginning after June 15, 2,000. The Company is currently
reviewing SFAS No. 133 and has of yet been unable to fully evaluate the impact,
if any, it may have on future operating results or financial statement
disclosures.
Reclassification
Certain reclassifications were made to the 1998 consolidated financial
statements to conform to the 1999 presentation.
3 - Acquisition
On September 1, 1999, the Company acquired all of the net assets of Collagen
Aesthetics, Inc. ("Collagen") for approximately $157 million (including the
cancellation of employee stock options and expenses). The Collagen acquisition
has been accounted for by the purchase method of accounting, and accordingly,
the results of operations of Collagen for the period from September 1, 1999 are
included in the accompanying consolidated financial statements. The unaudited
consolidated financial statements includes management's preliminary allocation
of the total consideration paid by the Company in connection with the Collagen
acquisition. The Company has hired an independent appraiser to value the net
assets. Upon completion of this valuation, the Company will reallocate the
purchase price to Collagen's assets and liabilities, both intangible and
tangible, with the excess of the cost over fair value of the net assets acquired
allocated to goodwill and amortized on a straight-line basis over 30 years.
Management expects that, based on this allocation, additional purchase
accounting adjustments will be made to Collagen's assets and liabilities.
In connection with the acquisition the Company has recorded merger and
acquisition costs of $39,427. These charges include severance and stock option
payouts of $21,300, restructuring costs of $10,771 and professional fees of
$7,356.
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<PAGE> 13
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
3 - Acquisition (continued)
The $140,000 excess of the purchase price over Collagen's net assets has been
allocated to goodwill subject to the completion of an appraisal discussed above.
The total acquisition consideration will be allocated to assets, liabilities and
the elimination of stockholders' equity of Collagen based on management's
estimated fair value as summarized below:
<TABLE>
<S> <C>
Cash and cash equivalent .......................................... $ 16,631
Short term investment ............................................. 5,890
Accounts receivable ............................................... 13,116
Inventories, net .................................................. 10,515
Prepaid and other current assets .................................. 7,891
Property and equipment, net ....................................... 12,862
Intangible assets, net ............................................ 8,221
Goodwill, net ..................................................... 140,000
Other investments and assets, net ................................. 5,995
Accounts payable .................................................. (5,292)
Accrued liabilities ............................................... (7,256)
Provision for disposal of discontinued operations ................. (8,771)
Income taxes payable .............................................. (15,775)
Other long-term liabilities ....................................... (1,198)
---------
Total acquisition consideration ................................... $ 182,829
=========
</TABLE>
The summarized unaudited pro forma results of operations set forth below for
1999 and 1998 assume the Collagen acquisition, which was accounted for under the
purchase method of accounting, occurred as of the beginning of each of these
periods.
<TABLE>
<CAPTION>
Pro Forma Consolidated
Nine Months Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Net Sales $ 181,112 158,555
Net Income (loss) from continuing operations 12,372 (9,505)
Net Income (loss) from continuing operations
per common share:
Basic $ 0.86 (0.94)
Diluted $ 0.68 (0.94)
</TABLE>
Pro forma adjusted net income per common share may not be indicative of actual
results, primarily because the pro forma earnings include historical results of
Collagen and do not reflect any cost savings or potential sales erosion that may
result from the Company's integration efforts.
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<PAGE> 14
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
4 - Provision for disposal of discontinued operations
The provision for disposal of discontinued operations of $9,926 at September 30,
1999 is the remaining provision for Collagen's discontinued operation of the
LipoMatrix breast implant business. The LipoMatrix operations have been
classified as discontinued since June 30, 1998.
5 - Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Accounts receivable $ 44,850 $ 29,327
Allowance for doubtful accounts (1,034) (1,402)
Allowance for returns and credits (5,479) (4,756)
-------- --------
Net accounts receivable $ 38,337 $ 23,169
======== ========
Notes receivable $ 3,232 $ 3,236
Allowance for doubtful notes (467) (467)
-------- --------
Net notes receivable $ 2,765 $ 2,769
======== ========
</TABLE>
6 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 6,968 $ 3,764
Work in process 5,997 3,931
Finished goods 17,697 11,329
-------- --------
30,662 19,024
Less allowance for
obsolescence (2,564) (1,169)
-------- --------
$ 28,098 $ 17,855
======== ========
</TABLE>
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<PAGE> 15
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
7 - Long Term Debt
The following is a summary of the Company's significant long-term debt:
$155 million senior secured bridge loan facility secured by perfected first
priority liens on, and security interests in, substantially all of the assets of
Inamed, substantially all of the stock and assets of Inamed's subsidiaries,
including the stock and assets of Collagen and its subsidiaries, and 65% of the
outstanding capital stock of certain of Inamed's foreign subsidiaries. The loans
made under the secured bridge loan facility bear interest at variable rates
based on a margin that increases by 100 basis points every three months over
30-day LIBOR. At September 27, 1999, the weighted average interest rate on the
loans was 11.5% per annum. Interest is payable under the facility on a monthly
basis. The bridge loan facility matures on May 31, 2000 and, unless repaid or
refinanced, will be rolled over into longer term senior notes maturing on June
1, 2007.
8 - Equity financing and finance charge:
During the second quarter of 1999, the Company completed a $31.1 million equity
financing, in which 5.4 million new shares of common stock were issued to
various holders of $5.50 and $7.50 warrants in exchange for the payment of $20.4
million of cash and the surrender of $10.7 million of 11% junior secured notes.
Virtually all of the holders of warrants who were eligible to exercise at this
time participated in the transaction. The Company also received $3 million of
cash from its noteholders, which was used to purchase on their behalf the
426,323 shares of common stock held by the court-appointed escrow agent. All of
those 5.8 million shares of common stock contain a legend that restricts
transferability absent compliance with or an exemption under Rule 144 (after the
one-year holding period) or an effective registration statement. In addition,
the Company incurred a one-time $2.0 million finance charge against earnings in
connection with the exercise of warrants to fund the litigation settlement.
9 - Commitments and Contingencies
Final payment to plaintiffs in the mandatory class action settlement of the
breast implant litigation:
In May of 1999, the Company completed the final payment of all of the monies
owed to the court-appointed escrow agent on behalf of the plaintiffs in the
mandatory class action settlement of the breast implant litigation. The payment
was $29.9 million in cash, and included $25.5 million as full payment of the 6%
promissory note which was issued in June 1998 at the time the settlement
received preliminary approval, $1.4 million of accrued interest on that note,
and $3 million to repurchase the 426,323 shares of common stock which were also
issued in June 1998 to the escrow agent. As a result of this payment,
approximately $30 million of liabilities relating to the breast implant
litigation that was recorded on the Company's balance sheet as of the end of the
first quarter of 1999 has now have been eliminated.
10 - Non Cash Compensation
During the nine months ended September 30, 1999, we authorized the issuance and
allocation to certain of our senior executives, subject to final ratification by
our compensation committee, warrants to purchase 900,000 shares of our common
stock. We expect that this will result in an annual compensation charge of
between $0.5 to $1.0 million over the next three years.
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<PAGE> 16
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (CONTINUED)
(IN 000'S)
================================================================================
11 - Subsequent Events
In October 1999, the Company filed a registration statement offering 2,500,000
shares of its common stock (plus an additional 450,000 shares for the
underwriters' over-allotment option). The Company anticipates using the net
proceeds of the offering to repay a portion of the borrowings under its
outstanding bridge loan facility.
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<PAGE> 17
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
This Quarterly Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to continue its expansion strategy,
changes in costs of raw materials, labor, and employee benefits, as well as
general market conditions, competition and pricing. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements including
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
In the third quarter of 1999, we announced and completed the acquisition of
Collagen Aesthetics, Inc. for an aggregate purchase price of approximately
$148.7 million, plus expenses of approximately $9.2 million. We accounted for
the Collagen acquisition using the purchase method of accounting. Under the
purchase method, Collagen's financial data is consolidated with our financial
results from the effective date of the acquisition, September 1, 1999. We have
commenced our plan to integrate Collagen's business and operations into ours and
expect that our integration plan will be completed by January 2000. We believe
this acquisition makes us a global leader in plastic surgery and aesthetic
medicine. See "Our Company - Recent Developments - The Collagen Acquisition."
RESULTS OF OPERATIONS
Set forth below is a table which shows the individual components of our
actual results of operations as a percent of net sales for each of the periods
indicated, including the results of Collagen for the month of September 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------
1999 1998
---- ----
<S> <C> <C>
Net sales ........................... 100% 100%
Gross profit ........................ 70 64
Marketing expenses .................. 22 27
General and administrative expenses . 18 21
Research and development expenses ... 6 7
Total operating expenses ............ 46 56
Operating income (loss) ............. 25 9
Net interest and
other financing expense ............. 4 3
Income (loss) before income taxes
and extraordinary charges ........... 20 2
Net income .......................... 20% 2%
=== ===
</TABLE>
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<PAGE> 18
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales. Net sales for the nine months ended September 30, 1999 were
$123.7 million, reflecting an increase of $24.6 million or 25% over net sales
for the same period in 1998. This increase is attributable to increased sales
from all business units and the inclusion of one month of Collagen's net sales,
which were $8.3 million or approximately 19% of our net sales in the third
quarter of 1999. During the second and third quarters there was a slowdown in
net sales growth due to the development of backorders in selected product lines
in the U.S. plastic surgery business. The backorders were due to production
capacity issues for a limited number of our products. We largely remedied these
issues in the third quarter of 1999. We expect to report substantially larger
period-over-period sales over the next four quarters because we have expanded
our range of products and services due to the Collagen acquisition.
Net sales in the U.S. accounted for 62% of total net sales for the three
months ended September 30, 1999 and 64% of total net sales for the nine months
ended September 30, 1999, as compared to 65% for both the three months and nine
months ended September 30, 1998. International net sales accounted for 38% of
total net sales for the three months ended September 30, 1999 and 36% of total
net sales for the nine months ended September 30, 1999. International net sales
for the three months and nine months ended September 30, 1998 were 35% of total
net sales.
Cost of Goods Sold. Cost of goods sold for the nine months ended September
30, 1999 was $36.6 million, reflecting an increase of $1.4 million or 4%, over
the same period in 1998. Cost of goods sold, as a percentage of net sales,
decreased to 30% in the nine months ended September 30, 1999 as compared to 36%
in the same period in 1998. This decrease reflects improved capacity utilization
due to increased sales, the addition of higher-margin Collagen products to the
overall sales mix, strong cost reduction measures at all production facilities,
including material cost reductions and strategic alliances with key company
suppliers, reduction in headcount, discontinuance or sale of smaller
unprofitable product lines and improved asset management, especially receivables
and inventory.
Gross Profit. Gross profit for the nine months ended September 30, 1999 was
$87.1 million, reflecting an increase of $23.2 million or 36% over the same
period in 1998. For the nine months ended September 30, 1999, gross profit as a
percentage of net sales increased 6% up to 70% from 64% for the same period in
1998. Margins increased primarily due to increased production efficiencies,
resulting in higher yields and increased output in all business units along with
increased sales volumes of higher margin gel products for reconstructive surgery
markets and Collagen products, and an overall reduction in cost of goods sold as
a percentage of sales. An offsetting factor to the higher gross margins was the
cost of validations at one U.S. plastic surgery plant for new reconstructive
surgery products which will be introduced in the near future.
In addition, gross margins in 1998 were negatively impacted by pending FDA
audits and manufacturing inefficiencies caused by idle time at both U.S. and
international plastic and reconstructive surgery operations.
Marketing Expenses. Marketing expenses for the nine months ended September
30, 1999 were $27.0 million. As a percentage of sales, marketing expenses were
22% in the nine months ended September 30, 1999 and 27% in the nine months ended
September 30, 1998. Without Collagen sales and marketing expenses, Inamed's
sales and marketing expenses decreased $1.3 million down to 21% as a percentage
of net sales. New management's goals of growing the sales and reducing costs,
which included the restructuring of the entire company during 1998 and strong
cost containment procedures, have helped to dramatically reduce our marketing
expenses in 1999 from 1998 levels. We currently anticipate that marketing
expenses will increase in future quarters. The actual amount spent will depend
on a variety of factors, including our level of operations, advertising spending
and the number of new markets we attempt to enter, either geographically or
through acquisitions, joint ventures or strategic alliances for new products.
In May 1999, the Company entered into a strategic alliance with Advanced
Tissue Sciences, Inc. under which we license for development, marketing and
sales five of Advanced Tissue's human-based, tissue-engineered products for
surgical applications. As of October 22, 1999, our total investment in the
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<PAGE> 19
Advanced Tissue strategic alliance was $9.0 million. Of this amount, $6.5
million was paid for licensing rights and the remainder was paid for common
stock, and warrants to purchase common stock, of Advanced Tissue at a premium to
market. In November 1999, we expect to pay Advanced Tissue an additional $1.0
million of which approximately $725,000 will be allocated to licensing rights
and approximately $275,000 will be allocated to additional common stock, and
warrants to purchase common stock, of Advanced Tissue. We also are obligated to
pay Advanced Tissue an additional $2.0 million milestone payment for each of the
marketed products that receives FDA approval, up to $10.0 million in total for
all of the products. Finally, Advanced Tissue Sciences is entitled to royalties
from us on a sliding scale based on overall product sales. We have agreed to
hold any investment in Advanced Tissue common stock until at least October 2002.
General and Administrative Expenses. General and administrative expenses
for the nine months ended September 30, 1999 were $22.8 million, an increase of
$1.6 million or 8% from the same period of 1998. General and administrative
expense decreased as a percentage of sales from 21% down to 18% for the nine
months ended September 30, 1999 as compared to the same period in 1998. The
decrease in expenses is attributable to our strong commitment to reduce costs
through elimination of unprofitable business areas, reduction in headcount as
necessary, streamlining the organizational structure from multiple domestic and
international business subsidiaries into three business units, elimination of
underutilized corporate offices, and budgeting and review of all expenses.
During the nine months ended September 30, 1999, we authorized the issuance
and allocation to certain of our senior executives, subject to final
ratification by our compensation committee, warrants to purchase 900,000 shares
of our common stock. We expect that this will result in an annual compensation
charge of between $0.5 million to $1.0 million over the next three years.
Research and Development Expenses. Research and development expenses of
$6.9 million for the nine months ended September 30, 1999, reflecting a slight
decrease from the same period in 1998. As a percentage of sales, research and
development costs were 6%, a decrease of 1% for the nine months ended September
30, 1999 as compared to 7% for the same period in 1998. The actual amount spent
will depend on a variety of factors, including our level of operations, and the
number of product development projects we embark upon, including through
acquisitions, strategic alliances and joint ventures for new products. Research
and development expenses consist of ongoing research and development expenses
for new product development in all business units, as well as necessary
regulatory and clinical costs associated with testing and approving new product
introductions in the U.S. and throughout the world.
Operating Income. Based on the foregoing factors, our operating income for
the nine months ended September 30, 1999 totaled $30.3 million, an increase of
$21.5 million or 247% over operating income for the same period in 1998. This
increase reflects the successful implementation of the restructuring program
initiated by our new senior management in 1998 and the continuing strength of
our core product lines.
Interest Expense. Net interest and other financing expense was $5.2 million
for the nine months ended September 30, 1999, reflecting an increase of $2.4
million from $2.7 million for the nine months ended September 30, 1998, due
primarily to the increased borrowings which were incurred to finance the
Collagen acquisition. Net interest and other financing expenses for the nine
months ended September 30, 1999 include a one-time financing charge of $2.0
million incurred in connection with the exercise of warrants to fund the
litigation settlement and $2.0 to amortize the fees and interest paid in
connection with the bridge loan for the Collagen acquisition. Without these
charges, net interest and other financing expenses would have been $1.2 million
for the nine months ended September 30, 1999. This decrease resulted from the
$31.1 million equity financing used to fund the litigation settlement, which
resulted in a $10.7 million reduction in our 11% junior secured notes. All of
the remaining $16.9 million of senior and junior secured notes were paid at the
same time as the Collagen acquisition.
Foreign Currency Translation Gains and Losses. During the second quarter of
1999, we converted the non-U.S. intercompany debts among our subsidiaries to the
capital of the respective subsidiaries. This step substantially eliminated the
significant translation adjustments which occurred in prior years. For
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<PAGE> 20
the nine months ended September 30, 1999, our foreign currency translation
resulted in a marginal gain of $3,000 as compared to a $961,000 loss for the
same period in 1998.
Income Taxes and Earnings Per Share. We reduced the valuation allowance on
the deferred tax asset based on pre-tax earnings for the nine months ended
September 30, 1999. We are currently the beneficiary of a substantial net
operating loss carryforward for financial reporting purposes. Management is
currently evaluating the necessity for a continued allowance on the deferred tax
asset. In order to provide investors with a perspective on its earnings per
share on a normalized basis, assuming we accrued taxes at a 33% effective rate,
our earnings for the three months ended September 30, 1999 would have been $0.33
per basic share and for the nine months ended September 30, 1999 would have been
$1.16 per basic share. If we assumed accrued taxes at a 33% effective tax rate,
our earnings per diluted share for the three months ended September 30, 1999
would have been $0.29 per diluted share and for the nine months ended September
30, 1999 would have been $0.93 per diluted share. Excluding $0.04 per share of
non-cash charges for amortization of goodwill and financing costs arising from
the Collagen acquisition, our earnings for the third quarter and first nine
months of 1999, on a normalized tax basis, would have been $0.37 and $1.20 per
basic share and $0.33 and $0.97 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, net cash provided by
operations was $27.2 million compared to $4.1 million provided by operations for
the same period in 1998. Positive cash from operations was offset by $145.0
million used in investing activities of which $133.0 million, net of cash
received, was used for the purchase of Collagen, $3.3 million was used for fixed
asset purchases and $9.1 million was used to fund strategic alliances during the
nine months ended September 30, 1999. During this period, cash provided by
financing activities of $125.0 million primarily related to our $155.0 million
debt financing which was partially offset by the breast implant litigation
settlement and debt payments which worked to offset positive operating cash. The
positive cash from operations resulted from our high operating profit margin and
our continued emphasis on the efficient management of working capital.
Capital Resources. On September 1, 1999, we borrowed $155.0 million under a
secured bridge loan facility and used $23.8 million of cash on hand at the
closing of the merger to finance the Collagen acquisition and to repay $16.9
million of Inamed debt. The loans made under our secured bridge loan facility
bear interest at variable rates based on a margin that increases by 100 basis
points every three months over 30-day LIBOR. At October 22, 1999, the weighted
average interest rate on these loans was 11.5% per annum. Interest is payable
under the facility on a monthly basis. Our bridge loans mature on June 2, 2000
and, unless repaid or refinanced, will be rolled over into longer term senior
notes maturing on June 2, 2007. Once obtained, we expect to use our net proceeds
from this offering to repay a portion of our bridge loans. See "Description of
Certain Indebtedness."
We intend to refinance the balance of our bridge loan borrowings with a
credit facility that will provide for term loans and a revolving credit line. We
anticipate that cash generated from our internal operations and borrowings under
the revolving credit portion of this credit facility will enable us to meet our
liquidity, working capital and capital expenditure requirements during the next
24 months. We cannot assure you that we will be able to obtain this credit
facility on satisfactory terms or at all.
In May 1999, we completed a $31.1 million equity financing, in which 5.4
million new shares of common stock were issued to various holders of $5.50 and
$7.50 warrants in exchange for the payment of $20.4 million of cash and the
surrender of $10.7 million of 11% junior secured notes. The 11% junior secured
notes, the $5.50 warrants and the $7.50 warrants were issued in November 1998 in
exchange for outstanding 11% secured convertible notes due January 1999.
Virtually all of the holders of warrants who were eligible to exercise at this
time participated in the transaction. We also received $3.0 million of cash from
our noteholders, which was used to purchase on their behalf the 426,323 shares
of common stock held by the court-appointed escrow agent in connection with the
breast implant litigation.
On May 10, 1999, we announced that we made our final payment of all monies
owed to the court-appointed escrow agent on behalf of the plaintiff class in the
mandatory class action settlement of the
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<PAGE> 21
breast implant litigation. The payment was $29.9 million in cash, and consisted
of $25.5 million as full payment of the 6% promissory note we issued in June
1998, $1.4 million in accrued interest on the note, and $3.0 million to
repurchase 426,323 shares of common stock which were also issued in June 1998 to
the escrow agent. As a result of this payment, approximately $30.0 million of
liabilities relating to the breast implant litigation that was recorded on our
balance sheet as of the end of 1998 and the first quarter of 1999 has now been
eliminated.
In September 1998, we received $8.0 million of proceeds from the issuance
of our 10% senior secured notes, due September 30, 2000 and warrants expiring on
September 1, 2002 to acquire up to 590,000 shares of our common stock at an
exercise price of $6.50 per share. Under the terms of that loan, $3.0 million
was placed in a court-supervised escrow account to satisfy our deposit
obligation under the settlement agreement for the breast implant litigation, and
the balance was reserved for allocation to specific working capital and capital
expenditure projects. We repaid all of our outstanding obligations under these
notes in September 1999 in connection with our acquisition of Collagen.
Capital Expenditures. Expenditures on property and equipment approximated
$3.7 million in 1998, compared to $5.1 million in 1997 and $4.0 million in 1996.
For the nine months ended September 30, 1999, our capital expenditures were $3.3
million. The majority of the expenditures in each period were for building
improvements, computer equipment and production equipment to increase capacity
and efficiency. During 2000 to 2001, we expect to spend an aggregate of
approximately $10.0 million above our normal annual capital expenditure of
approximately $5 million. This new incremental spending will be used primarily
to build new manufacturing facilities.
IMPACT OF INFLATION
We believe that inflation has had a negligible effect on operations. We
believe that we can offset inflationary increases in the cost of materials and
labor by increasing sales prices and improving operating efficiencies.
IMPACT OF YEAR 2000
We have conducted a review to identify which of our computer and other
business operating systems will be affected by the "Year 2000" problem and have
developed a project plan and schedule to solve this issue. Among the functions
and systems impacted could be inventory and accounting systems, electronic data
interchange, and mechanical systems operating everything from office building
environmental controls to telephone switches and fax machines. We believe that
our business systems, including Collagen's, are currently Year 2000 compliant in
all material respects. We believe that the costs of modifications, upgrades, or
replacements of software, hardware, or capital equipment which would not be
incurred but for Year 2000 compatibility requirements have not and will not have
a material impact on our financial position or results of operations.
We are also engaged in communications with our significant business
partners, suppliers and customers to determine the extent to which we are
vulnerable to these third parties' failure to address their own Year 2000
issues. Our assessment of the impact of our Year 2000 issues includes an
assessment of our vulnerability to these third parties. We are seeking
assurances from our significant business partners, suppliers and customers that
their computer applications will not fail due to Year 2000 problems.
Nevertheless, we do not control, and we cannot give you assurances as to the
substance or success of the Year 2000 compliance efforts of these independent
third parties and we believe that there is a risk that some of these third
parties on whom our finances and operations depend will experience Year 2000
problems that could affect our financial position or results of operations.
These risks include, but are not limited to, the potential inability of
suppliers to correctly or timely provide necessary services, materials and
components for our operations and the inability of lenders, lessors or other
sources of our necessary capital and liquidity to make funds available to us
when required.
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<PAGE> 22
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires entities to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
these instruments at fair value. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on our results of operations, financial position or cash
flows.
ITEM 3. MARKET RISK
The Company conducts operations and/or business in various foreign
countries throughout the world. Global and regional economic factors and
potential changes in laws and regulations affecting the Company's business,
including without limitation, currency fluctuations, changes in monetary policy
and tariffs, and federal, state and international laws, could impact the
Company's financial condition or future results of operations. The Company does
not currently conduct any hedging activities.
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<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, prior to August 1999 the Company was
subject to a formal investigation by the Securities and Exchange
Commission of the matters disclosed in March 1998 relating to the
resignation of Coopers & Lybrand as the Company's independent
accountants. The Company cooperated fully in the investigation and, on
August 17, 1999, announced that it had settled an administrative
proceeding brought by the Commission as a result of its investigation.
As part of the settlement, the Company neither admitted nor denied the
Commission's findings and consented to the entry of a cease and desist
order. The Commission did not impose any monetary penalty against the
Company. According to the Commission's order, the events that gave
rise to the alleged violations occurred before the Company replaced
its senior management in the first quarter of 1998. New management
moved expeditiously to resolve these matters, including restating the
affected financial statements, instituting an independent audit
committee and converting into equity $10.8 million of indebtedness
(including accrued interest) owed to an entity associated with the
Company's former chairman at a significant discount. Shortly after the
SEC matter was settled, the Company's common stock was listed for
trading on the Nasdaq National Market System. Such trading commenced
September 30, 1999.
In February 1999 the Company and certain of its subsidiaries were
named as respondents (collectively "the Inamed Parties") in an
arbitration commenced by Dr. Lubomyr I. Kuzmak ("Kuzmak") at the
American Arbitration Association. Kuzmak alleges that he is owed
approximately $400,000 in unpaid royalties with respect to various
United States patents in the field of gastric banding. Inamed has
moved to be dismissed from the arbitration. The other Inamed Parties
have denied Kuzmak's material allegations and asserted affirmative
defenses and counterclaims. The evidentiary portion of the arbitration
hearing is scheduled to begin in December 1999. In addition, in
February 1999 the Inamed Parties filed an action in the United States
District Court for the Central District of California against Kuzmak,
No. CV 99-02160 MMM, seeking a declaratory judgment of invalidity,
unenforceability, and non-infringement of various Kuzmak patents.
Kuzmak has moved to dismiss the action for lack of personal
jurisdiction. That motion has not yet been decided.
In January 1999 Medical Products Development Inc. ("MPDI")
instituted an action against the Company's subsidiary, McGhan Medical
Corporation ("McGhan") in the United States District Court for the
Central District of California, No. 99-VC-00053 JSL. MPDI alleges that
McGhan has infringed on certain of its U.S. patents and has breached
an agreement between McGhan and MPDI that exclusively licensed those
patents to McGhan. The patents pertain to textured silicone elastomer
mammary prostheses and methods of making such prostheses. MPDI is
seeking unpaid royalties, unspecified damages, including enhanced
damages for alleged willful infringement, and an injunction. McGhan
answered MPDI's complaint, denying all of its material allegations,
and raising affirmative defenses and counterclaims of
non-infringement, invalidity, unenforceability of the patents and
breach of contract. In August 1999, the Court granted MPDI's motion to
dismiss certain of the counterclaims and, on its own motion, dismissed
the remaining counterclaims. Discovery is currently ongoing, and a
January, 2000 trial date has been set.
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<PAGE> 24
ITEMS 2. THROUGH 5.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27- Financial Data Schedule.
Form 8-K dated September 15, 1999.
INAMED CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INAMED CORPORATION
October 27, 1999 By: /s/ Richard G. Babbitt
-----------------------------------------
Richard G. Babbitt, Chairman of the Board
and Chief Executive Officer
October 27, 1999 By: /s/ Michael J. Doty
-----------------------------------------
Michael J. Doty, Senior Vice President
and Chief Financial Officer
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Inamed Corporation as of September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,474
<SECURITIES> 0
<RECEIVABLES> 38,337
<ALLOWANCES> 6,513
<INVENTORY> 28,098
<CURRENT-ASSETS> 117,010
<PP&E> 69,605
<DEPRECIATION> 43,408
<TOTAL-ASSETS> 318,860
<CURRENT-LIABILITIES> 113,632
<BONDS> 155,000
0
0
<COMMON> 172
<OTHER-SE> 42,849
<TOTAL-LIABILITY-AND-EQUITY> 318,860
<SALES> 123,722
<TOTAL-REVENUES> 123,722
<CGS> 36,597
<TOTAL-COSTS> 56,811
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,186
<INCOME-PRETAX> 25,090
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,090
<EPS-BASIC> 1.74
<EPS-DILUTED> 1.39
</TABLE>