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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NUMBER: 1-9741
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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
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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
--- -----
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On May 10, 2000 there were 20,523,257 Shares of the Registrant's
Common Stock Outstanding.
This document contains 17 pages.
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INAMED CORPORATION AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Unaudited Consolidated Income Statements 5
Unaudited Consolidated Statements of Comprehensive Income 6
Unaudited Consolidated Statements of Cash Flows 7
Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Market Risk 14
PART II - OTHER INFORMATION 14
</TABLE>
The financial statements included herein have been restated for 1.) additional
stock compensation expenses pursuant to APB #25 and 2.) reclassifying accrued
income tax liabilities. These items were identified subsequent to the filing of
the Company's 10-Q for the quarter ended March 31, 2000 on May 12, 2000 (File
No. 001-09741). See Note 5 of the financial statements for further explanation
of the restatement filed herein.
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PART I. FINANCIAL INFORMATION
ITEM 1.
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000'S)
================================================================================
<TABLE>
<CAPTION>
Unaudited (Restated) Audited
March 31, 2000 December 31, 1999
-------------- -----------------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,220 $ 17,519
Trade accounts receivable, net of allowance for
doubtful accounts and returns and allowances
of $6,068 and $6,425 45,573 44,379
Inventories 27,702 25,332
Prepaid interest 3,606 1,637
Prepaid expenses and other current assets 3,512 3,023
Income tax refund receivable 135 220
Deferred income taxes 28,212 32,794
-------------- ---------------
Total current assets 121,960 124,904
-------------- ---------------
Property and equipment, at cost:
Machinery and equipment 21,816 21,568
Furniture and fixtures 6,129 6,377
Leasehold improvements 17,758 14,570
-------------- ---------------
45,703 42,515
Less accumulated depreciation
and amortization (19,369) (18,405)
-------------- ---------------
Net property and equipment 26,334 24,110
-------------- ---------------
Notes receivable, net of allowance of $467 2,636 2,681
Intangible assets, net 165,469 142,335
Other assets 16,102 15,409
------------------ -----------------
Total assets $ 332,501 $ 309,439
================== =================
</TABLE>
(continued)
The Notes to Consolidated 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 (Restated) Audited
March 31, 2000 December 31, 1999
-------------- -----------------
Liabilities and Stockholders' Equity
-------------------------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 874 $ 54
Notes payable to bank 866 1,079
Accounts payable 18,743 16,716
Accrued liabilities:
Salaries, wages, and payroll taxes 4,879 8,369
Interest 899 1,211
Acquisition and integration costs 9,947 16,055
Other 12,493 12,232
Acquired liabilities 7,651 7,724
Income taxes payable 18,463 18,729
------------------ ----------------
Total current liabilities 74,815 82,169
------------------ ----------------
Long-term debt 81,627 77,196
Acquired liabilities 25,483 5,448
Other long term liabilities 8,635 9,027
Deferred income taxes 378 1,478
Stockholders' equity:
Common stock, $0.01 par value
Authorized 25,000,000 shares; issued
and outstanding 20,411,341 and 20,200,114 204 202
Additional paid-in capital 154,049 152,779
Accumulated other comprehensive loss (5,865) (4,005)
Accumulated deficit (6,825) (14,855)
------------------ ----------------
Stockholders' equity 141,563 134,121
------------------ ----------------
Total liabilities and stockholders' equity $ 332,501 $ 309,439
================== ================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN 000'S EXCEPT SHARE AND PER SHARE DATA)
================================================================================
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31,1999
-------------- -------------
(Restated)
<S> <C> <C>
Net sales $ 60,299 $ 37,588
Cost of goods sold 15,670 11,900
----------------- ------------------
Gross profit 44,629 25,688
----------------- ------------------
Operating expenses:
Marketing 13,262 7,834
General and administrative 12,262 7,482
Research and development 2,263 2,027
Amortization of intangible assets 1,911 --
----------------- ------------------
Total operating expenses 29,698 17,343
----------------- ------------------
Operating income 14,931 8,345
----------------- ------------------
Other income (expense):
Foreign currency transaction gains (losses) 150 106
Royalty and other income (expense) 2,024 (313)
----------------- ------------------
Net other income (expense) 2,174 (207)
----------------- ------------------
Income before interest and taxes 17,105 8,138
Interest and other financing expense, net 4,493 640
----------------- ------------------
Income before income tax expense 12,612 7,498
Income tax expense 4,582 --
----------------- ------------------
Net income $ 8,030 $ 7,498
================= ==================
Net income per share of common stock
Basic $ 0.40 $ 0.66
================= ==================
Diluted $ 0.34 $ 0.47
================= ==================
Weighted average common shares outstanding basic 20,263,639 11,440,899
================= ==================
Weighted average common shares outstanding diluted 23,276,162 15,995,983
================= ==================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
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INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN 000'S)
================================================================================
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31,1999
-------------- -------------
(Restated)
<S> <C> <C>
Net income (loss) $ 8,030 $ 7,498
Other comprehensive (loss) income, net of tax:
Cumulative foreign currency translation gains (losses) (1,860) (1,006)
----------------- ------------------
Comprehensive income (loss) $ 6,170 $ 6,492
----------------- ------------------
</TABLE>
The Notes to Consolidated 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)
================================================================================
<TABLE>
<CAPTION>
Three Months ended March 31, 2000 and 1999
2000 1999
------------------ ---------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,030 $ 7,498
------------------ ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,271 686
Deferred income taxes 3,482 (153)
Provision for doubtful accounts, notes & returns (357) 1,165
Provision for obsolescence of inventory 216 559
Provision for asset impairment --- 400
Non-cash compensation 387 ---
Non-cash financing cost --- (204)
Changes in assets and liabilities:
Trade accounts receivable and notes receivable (792) (2,194)
Inventories (2,586) 1,039
Prepaid expenses and other current assets (2,373) (950)
Intangible and other assets (24,738) (21)
Accounts payable, accrued and other liabilities 11,809 (1,162)
Accrued litigation settlement --- (3,915)
------------------ ---------------
Total adjustments (11,681) (4,750)
------------------ ---------------
Net cash (used) provided by operating activities (3,651) 2,748
------------------ ---------------
Cash flows from investing activities:
Investments in strategic alliances (1,000) ---
Purchases of property and equipment, net (3,584) (608)
Disposal of property and equipment, net --- ---
------------------ ---------------
Net cash used in investing activities $ (4,584) $ (608)
------------------ ---------------
</TABLE>
(continued)
The Notes to Consolidated 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)
================================================================================
<TABLE>
<CAPTION>
Three Months ended March 31, 2000 and 1999
2000 1999
------------------ ---------------
(Restated)
<S> <C> <C>
Cash flows from financing activities:
Increases in notes payable and long-term debt 83,476 ---
Principal repayment of notes payable
and long-term debt (78,438) (286)
Increase (decrease) in related party payables --- (65)
Proceeds from the exercise of warrants and options 885 302
(Decrease) Increase in deferred grants (127) (103)
---------------- ----------------
Net cash provided (used) by financing activities 5,796 (152)
---------------- ----------------
Effect of exchange rate changes on cash (1,860) (1,006)
---------------- ----------------
Net (decrease) increase in cash and cash equivalents (4,299) 982
Cash and cash equivalents at beginning of period 17,519 11,873
---------------- ----------------
Cash and cash equivalents at end of period $ 13,220 $ 12,855
---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the three months for:
Interest $ 6,816 $ 784
=============== ============
Income taxes $ 1,451 $ 11
</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.
The Notes to Consolidated Financial Statements are an integral part of this
statement.
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INAMED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
($ 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, 1999 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's subsidiaries are organized into three business units (for
financial reporting purposes all business units are considered to be one
segment): U.S. Plastic Surgery and Aesthetic Medicine (consisting primarily of
McGhan Medical Corporation, which develops, manufactures and sells medical
devices and components for breast implants and facial aesthetics); BioEnterics
Corporation, which develops, manufactures and sells medical devices and
associated instrumentation to the bariatric and general surgery fields; and
International (consisting primarily of a manufacturing company based in Ireland
- McGhan Limited - and sales subsidiaries in various countries, including The
Netherlands, Germany, Italy, United Kingdom, France, Spain, Australia and Japan,
which sell products for both the plastic, aesthetics and bariatric surgery
fields).
3 - Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Raw materials $ 7,760 $ 7,409
Work in process 7,044 7,179
Finished goods 15,915 13,545
----------- --------
30,719 28,133
Less allowance for
obsolescence (3,017) (2,801)
------------ -------
$ 27,702 $ 25,332
============ =======
</TABLE>
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INMAED CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 (CONTINUED)
(IN 000'S)
================================================================================
4 - Long Term Debt
The following is a summary of the Company's significant long-term debt:
On February 1, 2000, the Company refinanced the remaining $77 million bridge
loan that was obtained to finance the Collagen acquisition, with a new credit
facility comprised of a five-year term loan of $82.5 million and a revolving
credit line of $25 million.
The term loan and advances under the revolving facility will bear interest at
the rate of either (i) the one, two, three or six-month London Interbank Offered
Rate (LIBOR) plus an applicable margin ranging from 3.00% to 3.75% or (ii) prime
rate plus an applicable margin ranging from 2.00% to 2.75%. The applicable
margin is subject to change based on the Company's consolidated leverage ratio.
The term of the loan agreement is five years and the term loans, revolving loans
and other loans are guaranteed on a senior basis by all of the Company's
material U.S. subsidiaries and secured by a lien on substantially all of the
assets of the Company and its material U.S. subsidiaries.
Net interest and other financing expenses for the three months ended March 31,
2000 include $2.2 million incurred in connection with the early retirement of
debt in connection with the bridge loan for the Collagen acquisition.
5 - Restatement
The restatement of the March 31, 2000 financial statements includes the impact
of 1.) Additional stock compensation expenses pursuant to APB #25 and 2.)
Reclassifying accrued income tax liabilities. These items were identified
subsequent to the filing of the Company's 10-Q for the quarter ended March 31,
2000 on May 12, 2000.
The inclusion of additional stock compensation expense resulted in a charge of
$0.3 million to general and administrative expenses and a reduction in tax
expense of $0.1 million. Consequently net income was overstated by $0.2 million
($0.01 per basic share and $0.01 per diluted share) for the period ended March
31, 2000.
The reclassifying of accrued income tax liabilities reduced both deferred income
taxes and income taxes payable by $4.6 million, with no impact on net income or
earnings per share. This reclassification was done to reflect the utilization
of a net operating loss (NOL) asset.
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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 included
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.
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------ ------------
2000 1999
------- -------
<S> <C> <C>
Net sales............................................ 100% 100%
Gross profit.......................................... 74 68
Marketing expenses........................ 22 21
General and administrative expenses 20 20
Research and development expenses 4 5
Amortization of intangible expenses 3 --
Total operating expenses.................... 49 46
Other income (expense)..................... 4 (1)
Income before interest & taxes 28 22
Net interest and
other financing expense 7 2
Income (loss) before income taxes
and extraordinary charges................... 21 20
Net income........................................... 13% 20%
==== ====
</TABLE>
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COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net Sales. Net sales for the three months ended March 31, 2000 were
$60.3 million, reflecting an increase of $22.7 million or 60% over net sales for
the same period in 1999. Approximately 55 percentage points of this increase
were derived from the facial and other products arising from the acquisition of
Collagen Aesthetics, Inc., which was completed in September 1999.
The following table sets forth Inamed's proforma product sales (in millions) by
key category (both years include Collagen sales):
<TABLE>
<CAPTION>
First Quarter Ending March 31, Percent
2000 1999 Increase
<S> <C> <C> <C>
Breast implant products 36.2 33.8 7%
Facial products 18.2 16.8 8%
Obesity products 4.4 3.8 16%
</TABLE>
Sales of breast implant products was approximately $4 million below
expectations, due primarily to a competitor's aggressive effort to increase its
market share through discounting.
Cost of Goods Sold; Gross Profit. Cost of goods sold for the three months
ended March 31, 2000 was $15.7 million, reflecting an increase of $3.8 million
or 32%, over the same period in 1999. Cost of goods sold, as a percentage of net
sales, decreased to 26% in the three months ended March 31, 2000 as compared to
32% in the same period in 1999. This decrease reflects improved capacity
utilization due to increased sales, the addition of higher-margin facial and
other products arising from the Collagen acquisition and improved manufacturing
yields in plastic surgery products. The Company is now in the second year of a
three-year program to improve its manufacturing efficiencies, and some of the
improvements reflected in the first quarter of 2000 reflect the progress being
made in implementing this program. Gross profit for the three months ended March
31, 2000 was $44.6 million, reflecting an increase of $18.9 million or 74% over
the same period in 1999. For the three months ended March 31, 2000, gross profit
as a percentage of net sales increased 6% up to 74% from 68% for the same period
in 1999.
Marketing Expenses. Marketing expenses for the three months ended March
31, 2000 were $13.3 million, an increase of $5.4 million over the same period in
1999. Approximately $4.4 million of this increase was the result of the higher
level of sales, and the concurrent expansion of sales and marketing personnel
and programs, due to the Collagen acquisition. As a percentage of sales,
marketing expenses were 22% in the three months ended March 31, 2000 and 21% in
the three months ended March 31, 1999.
General and Administrative Expenses. General and administrative expenses
for the three months ended March 31, 2000 were $12.3 million, an increase of
$4.8 million from the same period of 1999, due primarily to the increase in
personnel and expenses arising from the Collagen acquisition. As a percentage of
sales, general and administrative expenses were 20% in the three months ended
March 31, 2000 and 20% in the three months ended March 31, 1999.
Research and Development Expenses. Research and development expenses of
$2.3 million for the three months ended March 31, 2000, reflecting a slight
increase from the same period in 1999. As a percentage of sales, research and
development costs were 4%, a decrease of 1% for the three months ended March 31,
2000 as compared to 5% for the same period in 1999.
Amortization of Intangible Assets. Amortization of intangible assets of
$1.9 million primarily reflects the $1.3 million amortization of goodwill
arising from the Collagen acquisition, which was completed in September 1999.
The $1.3 million non-cash expense for Collagen goodwill has a five cent per
share adverse impact on earnings per share. In accordance with generally
accepted accounting principles, the Company is in the process of determining the
fair market value of assets, liabilities and contingencies related to the
Collagen acquisition, which will be completed by the Third Quarter of 2000.
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Other Income and Expenses. Other income of $2.2 million for the three
months ended March 31, 2000, reflected a significant increase from $0.2 million
expense for the same period in 1999. The largest contributor to the improvement
was royalties of $1.7 million from the sale of urinary incontinence product by
a licensor. As a percentage of sales, other income and expense was 4%, an
increase of 5% for the three months ended March 31, 2000 as compared to -1% for
the same period in 1999.
Income before interest and taxes. Based on the foregoing factors, income
before interest and taxes for the three months ended March 31, 2000 totaled
$17.1 million, an increase of $9.0 million or 110% over income before interest
and taxes for the same period in 1999. As a percentage of sales, income before
interest and taxes was 28%, an increase of 6 percentage points for the three
months ended March 31, 2000 as compared to 22% for the same period in 1999. This
increase reflects the higher gross margin and successful integration of the
Collagen acquisition.
Interest Expense. Net interest and other financing expense was $4.5 million
for the three months ended March 31, 2000, reflecting an increase of $3.9
million from $0.6 million for the three months ended March 31, 1999, due
primarily to the increased borrowings which were incurred to finance the
Collagen acquisition. Net interest and other financing expenses for the three
months ended March 31, 2000 include $2.2 million incurred in connection with the
early retirement of debt in connection with the bridge loan for the Collagen
acquisition. Without these charges, net interest and other financing expenses
would have been $2.3 million for the three months ended March 31, 2000.
Income Taxes and Earnings Per Share. Income tax expense for the three
months ended March 31, 2000 was $4.6 million using a 33% effective tax rate and
adding back non-deductible goodwill amortization to income before tax. For the
three months ended March 31, 1999 there was no income tax expense, because at
the time the Company had not fully recognized a tax asset associated with the
losses of 1997 and earlier. In order to provide investors with a perspective on
its earnings per share on a normalized basis, excluding the $2.2 million of
interest expense in the first quarter of 2000 arising from the early retirement
of debt, our earnings for the three months ended March 31, 2000 would have been
$9.5 million ($0.47 per basic share and $0.41 per diluted share), as compared to
tax-effected net income of $5.0 million for the first quarter of 1999 ($0.44 per
basic share and $0.31 per diluted share). On a proforma basis, net income in the
first quarter increased 89% from 1999 to 2000, while earnings per diluted share
increased 33%.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, net cash used by operations
was $3.7 million compared to $2.7 million provided by operations for the same
period in 1999. In the first quarter of 2000, cash from operations was primarily
impacted by severance and other payment obligations related to the Collagen
acquisition. Cash used in investing activities of $4.6 million in the first
quarter included an additional investment in our strategic partner, Arthrocare
Corporation, under the terms of a license agreement, as well as fixed asset
expenditures for new manufacturing facilities, computer equipment and building
renovations. During this period, cash provided by financing activities of $5.8
million primarily related to our $82.5 million term debt refinancing, which
replaced the $77.0 million bridge loan used to finance the Collagen acquisition.
Capital Resources. On February 1, 2000, the Company obtained a new
credit facility comprised of a five-year term loan of $82.5 million and a
revolving credit line of $25 million. The term loans, advances under the
revolving facility and the other loans will bear interest at the rate of either
(i) the one, two, three or six-month London Interbank Offered Rate (LIBOR) plus
an applicable margin ranging from 3.00% to 3.75% or (ii) prime rate plus an
applicable margin ranging from 2.00% to 2.75%. The applicable margin is subject
to change based on the Company's consolidated leverage ratio. The term of the
loan agreement is five years and the term loans, revolving loans and other loans
are guaranteed on a senior basis by all of the Company's material U.S.
subsidiaries and secured by a lien on substantially all of the assets of the
Company and its material U.S. subsidiaries.
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<PAGE> 14
Capital Expenditures. Expenditures on property and equipment approximated
$3.6 million in the first quarter of 2000, compared to $0.6 million in 1999, due
primarily to the cost of building new manufacturing facilities which are
necessary to increase capacity and improve efficiency. The Company anticipates
spending approximately $12 million on these activities in 2000, which is
significantly more than capital expenditures in previous years.
IMPACT OF INFLATION
Management believes that inflation has had a negligible effect on
operations. The Company believes that it can offset inflationary increases in
the cost of materials and labor by increasing sales prices and improving
operating efficiencies.
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, as amended by SFAS 136, 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Trilucent(R) Implant Matters. On November 6, 1998, Collagen announced
the sale of its LipoMatrix, Inc. subsidiary, manufacturer of the Trilucent(R)
soybean oil filled breast implant, to Sierra Medical Technologies. Collagen
accounted for LipoMatrix as a discontinued operation in its 1998 fiscal year. On
March 8, 1999, the United Kingdom Medical Devices Agency (MDA) announced the
voluntary suspension of marketing and voluntary withdrawal of the Trilucent(R)
implant in the United Kingdom. The MDA stated that its actions were taken as a
precautionary measure and did not identify any immediate hazard associated with
the use of the product. The MDA further stated that it sought the withdrawal
because it had received "reports of local complications in a small number of
women" who have received those implants, involving localized swelling. The same
notice stated that there "has been no evidence of permanent injury or harm to
general health" as a result of these implants. Subsequently, Lipomatrix's
notified body in Europe suspended the product's CE Mark pending further
assessment of the long-term safety of the product. Sierra Medical has since
stopped sales of the product.
Collagen retained certain liabilities for Trilucent(R) implants sold
prior to November 6, 1998. Collagen also agreed with the United Kingdom National
Health Service that, for a period of time, it would perform certain product
surveillance with respect to United Kingdom patients implanted with the
Trilucent(R) implant and pay for explants for any United Kingdom women with
confirmed Trilucent(R) implant ruptures. Subsequent to acquiring Collagen, the
Company elected to continue this voluntary program, and based on recent
discussions with the MDA it is currently considering an expansion of this
program to include paying for MRI detection of silent ruptures in women who were
implanted more that four years ago, and explants for women without any symptoms
of swelling or rupture who do not wish to keep the implants. Any swelling or
inflammation relating to the Trilucent(R) implants appears to resolve upon
explantation. From time to time Collagen subsidiaries have been named as a party
to lawsuits filed
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<PAGE> 15
outside the United States brought by patients claiming damages from the
Trilucent(R) breast implant product; to date all of these cases have been
resolved in the ordinary course of business for relatively small settlements.
In the U.S., a total of 165 women received Trilucent(R) breast implants in two
clinical studies; enrollment in both studies ended by June 1997. No lawsuit has
been filed and the Company has not received any notice of legal claim as a
result of the implantation of any Trilucent(R) breast implants in the U.S.
As of March 31, 2000, Inamed had $35 million of reserves to cover
potential expenses and liabilities arising from Trilucent(R), and in excess of
$65 million of insurance coverage for product liability claims or medical
expenses incurred by women with Trilucent(R) breast implants. Based on these
reserves and insurance policies, the Company does not believe that Trilucent(R)
will have a material adverse effect on its business, results of operations,
financial position, or future prospects.
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ITEMS 2 THROUGH 4
Not applicable.
ITEM 5. OTHER INFORMATION
On May 10, 2000 the U.S. FDA announced that it had approved McGhan
Medical's PMA application to market four styles of saline-filled silicone breast
implants for augmentation and reconstruction surgery. The products were
previously available in the U.S. marketplace as 510(k) devices.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K dated January 6, 2000 - The Company offered for sale
2,500,000 shares of its common stock and certain selling
stockholders offered for sale 500,000 shares of the Company's
common stock pursuant to a Prospectus dated November 17, 1999.
Form 8-K dated February 4, 2000 - The Company announced results
for the fourth quarter of fiscal year 1999.
Form 8-K dated February 9, 2000 - The Company entered into
$107.5 million senior secured credit facilities with Bear,
Stearns & Co. Inc. and other lenders.
Form 8-K dated February 14, 2000 - The Company entered into a
Letter Agreement with several affiliates of Appaloosa
Management L.P. to register the shares of common stock
beneficially owned by the Appaloosa Affiliates.
Form 8-K dated March 27, 2000 - The Company announced that the
Food and Drug Administration has completed an initial review,
and has accepted for filing, the pre-market approval (PMA)
application for the Lap-Band(R) Adjustable Gastric Banding
Systems, an obesity treatment device which is manufactured by
Inamed's BioEnterics Corp. subsidiary.
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<PAGE> 17
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
July 28, 2000 By: /s/ Michael J. Doty
-------------------------------------------
Michael J. Doty, Senior Vice President
and Chief Financial Officer
July 28, 2000 By: /s/ Ilan K. Reich
-------------------------------------------
Ilan K. Reich, President
and Co-Chief Executive Officer
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