UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|(Mark One)                                  |                                                                                     
|------------------------------------------- | ------------------------------------------------------------------------------------
|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the fiscal year ended December 31, 2003

Commission file number 1-9741

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INAMED CORPORATION(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)               |  | 59-0920629(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------ |  | ----------------------------------------------
|5540 Ekwill Street
Santa Barbara, California(Address of principal executive offices) |  | 93111-2936(Zip Code)                          
|Registrant's telephone number, including area code: (805) 683-6761                  

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Securities
registered pursuant to Section 12(b) of the Act:
None

Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). Yes ý    No o

The aggregate market value of voting stock held by non-affiliates as of June 30, 2003 was $1,097.1 million, based on the closing sales price on the
NASDAQ National Market on that date.

On
March 10, 2004, there were 35,439,777 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

The information required by Part III of this Form 10-K is incorporated by reference to the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission not later than 120 days after the conclusion of the registrant's fiscal year ending December 31, 2003 (April 29, 2004) pursuant
to Regulation 14A.



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INAMED CORPORATION
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2003

TABLE OF CONTENTS

|                     |  |                                                                                       |  | Page
|-------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|
|Item 1.              |  | Business                                                                              |  | 2   
|Item 2.              |  | Properties                                                                            |  | 24  
|Item 3.              |  | Legal Proceedings                                                                     |  | 24  
|Item 4.              |  | Submission of Matters to a Vote of Security Holders                                   |  | 31  
|PART II             
|Item 5.              |  | Market for Inamed's Common Stock and Related Stockholder Matters                      |  | 32  
|Item 6.              |  | Selected Financial Data                                                               |  | 33  
|Item 7.              |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 34  
|Item 7A.             |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 44  
|Item 8.              |  | Financial Statements and Supplementary Data                                           |  | 44  
|Item 9.              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 44  
|Item 9A.             |  | Controls and Procedures                                                               |  | 45  
|PART III            
|Item 10.             |  | Directors and Officers of Inamed                                                      |  | 45  
|Item 11.             |  | Executive Compensation                                                                |  | 45  
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 46  
|Item 13.             |  | Certain Relationships and Related Transactions                                        |  | 46  
|Item 14.             |  | Principal Accounting Fees and Services                                                |  | 46  
|PART IV             
|Item 15.             |  | Exhibits, Financial Statement Schedules, and Current Reports on Form 8-K              |  | 47  
|Signatures           |  | 52                                                                                   
|Financial Statements |  | F-1                                                                                  

This
report contains trademarks and trade names that are the property of Inamed Corporation and its subsidiaries, and of other companies, as indicated.

In
this document, the words "we," "our," "ours," "us" and "Inamed" refer only to Inamed Corporation and its subsidiaries, not any other person or entity.

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PART I

This Annual Report on Form 10-K (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of
Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking
statements in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.

Although
forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts
and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and
outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed
under the heading "Risks and Uncertainties" below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various
disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

We
file reports with the Securities and Exchange Commission ("Commission"). We make available on our website (www.inamed.com) free of charge our Annual Reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after
we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the Commission at its' Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In
addition, the Commission maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
Commission, including us.

ITEM 1. BUSINESS

Inamed is a global health care company that develops, manufactures, and markets a diverse line of products that enhance the quality of people's lives. These
products include breast implants for aesthetic augmentation and reconstructive surgery following a mastectomy, a range of dermal products to correct facial wrinkles, and the BioEnterics®
LAP-BAND®System and BIB® systems used to treat severe and morbid obesity.

COMPANY HISTORY

McGhan Medical Corporation, was incorporated in 1974 and was a manufacturer of silicone products for plastic and reconstructive surgery. In 1977, that business
was sold to Minnesota Mining and Manufacturing Company, or 3M. In 1984, a newly formed McGhan Medical Corporation acquired the assets of 3M's silicone implant product line. In 1985, that corporation
became a subsidiary of a publicly-held company through a merger with First American Corporation, a Florida corporation. In 1986, First American changed its name to Inamed Corporation.
Inamed formed its BioEnterics Corporation subsidiary in 1991, primarily to pursue opportunities in the field of stomach constriction technology. In December 1998, Inamed changed its state of
incorporation to Delaware through a reincorporation merger. In September 1999, Inamed completed its acquisition of Collagen

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Aesthetics, Inc.,
which was then a publicly-held corporation which manufactured and marketed primarily collagen-based dermal fillers and other aesthetics products. In 2001, Inamed
renamed its McGhan Medical Corporation subsidiary to Inamed Medical Products Corporation, or IMPC, and simplified its structure by consolidating its U.S. operations into IMPC. BioEnterics Corporation
continues to exist as a holder of the rights to the BioEnterics products, and it has agreed with other Inamed subsidiaries such as IMPC for the manufacture, distribution, and other support of the
BioEnterics product line.

On
October 30, 2003 the Board approved a three for two stock split of the Company's Common Stock in the form of a 50 percent stock dividend. The stock split was effected on
December 15, 2003 for shareholders of record at the close of business on December 1, 2003. A total of 11,727,612 shares of common stock were issued in connection with the stock split.
The par value of the shares was not changed from $0.01. All references in the Annual Report on Form 10-K to numbers of shares, per share amounts, stock option data and market prices
of the Company's stock have been restated to reflect the stock split.

PRODUCTS AND PRODUCT CANDIDATES

Inamed has three main product linesbreast aesthetics products and facial aesthetics products marketed under Inamed Aesthetics, and obesity
intervention products marketed under Inamed Health. These three lines are considered one segment for financial reporting purposes. See Note 1 of the notes to the consolidated financial
statements.

Breast Aesthetics

We develop, manufacture, and market a diverse line of breast implants, consisting of a variety of shapes, sizes, and textures. Our breast implants consist of a
silicone elastomer shell filled with either a saline solution or silicone gel with varying degrees of cohesivity. This shell can consist of either a smooth or textured surface. We market our breast
implants under the trade names McGhan® and CUI® and the trademarks BioCell®, MicroCell®, BioDimensional, Inamed® and
Biocurve. Our breast implants are available in more than 600 variations to meet customers' preferences and needs.

Saline-Filled Breast Implants.We sell saline-filled breast implants in the U.S. and internationally for use in breast
augmentation for cosmetic reasons and for reconstructive surgery. The U.S. market is the primary consumer of saline-filled breast implants.

Silicone Gel-Filled Breast Implants.We sell silicone gel-filled breast implants primarily in Europe,
the Middle East, Latin America, Australia, New Zealand and Asia. More than 90% of our breast implant sales outside the U.S. are silicone-gel filled. There are a variety of silicone filled
breast implants available in these markets based upon the varying degrees of cohesivity of the silicone gel filler material. Certain of our silicone gel-filled implants are available in
the United States under an adjunct study protocol for use in breast reconstruction.

In
the U.S in June 2000, we completed the implantation phase of a core clinical study designed to gain U.S. Food and Drug Administration, or FDA, approval for these silicone
gel-filled breast implants. In January 2002 we began submitting the first of several modules to the FDA for the pre-market approval, or PMA, seeking approval of our
silicone gel-filled breast implants. The final module and application for the pre-market approval process of our silicone gel filled breast implants, which included the
completed two years follow up data requested, was submitted December 30, 2002. In October 2003 the General and Plastic Surgery Advisory Panel of the U.S. Food and Drug Administration
(FDA) recommended, with conditions, approval of the Company's pre-market approval (PMA) application to market gel-filled breast implants in the United States. The Panel
approval, with conditions, was for all indicationsbreast augmentation, reconstruction and revision. In January, 2004, we received a "Not Approvable" letter from the U.S. Food and Drug
Administration (FDA). The letter

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outlines
the additional information that we must provide prior to the FDA's further review of our pre-market approval application (PMA) for silicone gel-filled breast implants.
According to the letter, submissions of the requested information and data will place the PMA in approvable form and allow the FDA to conduct further review of Inamed's PMA. Also, in
January 2004, the FDA issued draft guidance for saline, silicone gel, and alternative breast implants. The guidance provides non-binding recommendations regarding device
description, preclinical, clinical, and labeling information that the FDA recommends be presented in a PMA application for saline, silicone gel, and alternative breast implants.

Additionally,
in September 2000, the FDA approved a feasibility study for our style 410 cohesive silicone gel-filled breast implants. In March 2001, we
announced that the FDA had approved the expansion of the study to a full-scale clinical study. Patient enrollment for this study was completed in the first quarter of 2002 and is now in
the two year clinical follow up period. After the two year follow up is completed we will compile the data and complete our clinical filing to support the submission of a PMA for the 410 cohesive
silicone gel breast implants in the U.S. The cohesive silicone gel filled implants are currently the leading selling breast implants in Europe.

Tissue Expanders.We sell a line of tissue expanders for breast reconstruction and as an alternative to skin grafting to
cover burn scars and correct birth defects.

Facial Aesthetics

We develop, manufacture, and market dermal filler products designed to improve facial appearance by smoothing wrinkles and scars and enhancing the definition of
facial structure. Our primary facial aesthetics products are Zyderm and Zyplast, Cosmoderm®and
Cosmoplast®, and the Hylaform® range of hyaluronic acid-based dermal fillers. In July 2002, we acquired the
exclusive rights in the U.S., Canada and Japan to sell Ipsen Ltd.'s botulinum toxin Type A product for all cosmetic
indications. In January 2004, we acquired the exclusive rights to sell Juvederm® in the United States, Canada, and Australia, and the non-exclusive rights to sell the
product under a different name in various other countries. Juvederm is a non-animal based hyaluronic acid dermal filler that is currently marketed in various European countries, Canada,
Latin America, and other countries, but is not currently approved for sale in the United States. We also sell solid silicone facial implants in the U.S. and internationally.

Zyderm and Zyplast.Zyderm and Zyplast implants are injectable
formulations of bovine collagen. Zyderm implants are formulated especially for people with fine line wrinkles or superficial facial contour defects. These implants are particularly
effective in smoothing delicate frown and smile lines and fine creases that develop at the corners of the eyes and above and below the lips and can also help correct certain shallow scars.
Zyplast implants are designed to treat deeper depressions and can be used for more pronounced contour problems, such as deeper scars, lines and furrows, and for areas upon which more
force is exerted, such as the corners of the mouth. The implants take on the texture and appearance of human tissue and are subject to similar stresses and aging processes. Consequently, supplemental
treatments are necessary to maintain the desired result. Zyderm and Zyplast implants require a skin test, with a requisite 30-day period to observe the
possibility of allergic reaction in the recipient. Both of these products are formulated with Lidocaine, an anesthetic, to alleviate pain during injection. In the U.S., the FDA approved the PMA for
Zyderm in 1981 and for Zyplast in 1985. Zyderm and Zyplast were approved for marketing in Europe in 1995.

Hylaform® Gel.Hylaform® gel implants are an avian based hyaluronic acid injectable product for the
treatment of facial wrinkles and scars. The product, licensed from Genzyme Corporation and sold in Europe since 1996 and in Canada since 1998, does not require a skin test, so patients can be treated
immediately.

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In
2001, two new formulations of Hylaform® gel were developed. The new formulations are Hylaform® FineLine, designed especially for people with fine line wrinkles
or superficial facial contour defects, and Hylaform® Plus, formulated for treating deeper depressions and more pronounced contour problems such as deeper scars, lines, and furrows. We
launched these new Hylaform® gel products in Europe in September 2001 and we are the only company that sells a range of both hyaluronic acid-based and collagen-based
dermal fillers in Europe and certain other countries. In December 2001, Health Canada's Therapeutic Products Programme, or HCTPP, granted Genzyme Corporation a Medical Device License for
Hylaform® gel. In January 2002, the HCTPP approved both Hylaform® Plus and Hylaform® FineLine. These approvals allow us to market the entire line of
Hylaform® products for cosmetic indications in Canada.

In
January 2001, the FDA granted conditional approval to Genzyme Corporation to begin a limited clinical trial with Hylaform® gel in the U.S. In October 2001,
Inamed and Genzyme Corporation jointly announced plans to develop the complete Hylaform® line of products in the U.S. We began clinical studies in the first half of 2002 and completed
enrollment of patients at the end of 2002. We completed the submission of the PMA to the Food and Drug Administration on August 1, 2003, and the application was considered by a FDA Advisory
Panel on November 21, 2003. The Panel recommended Hylaform® for approval with conditions. Final approval is currently pending FDA's completion of its review.

CosmoDerm® and CosmoPlast® Implants.CosmoDerm® and CosmoPlast®implants are a line of
injectable human skin-cell derived collagen products that Inamed licenses from Smith & Nephew, Inc. We received FDA approval for
CosmoDerm®and CosmoPlast®in March 2003 and received approval from
Health Canada in December 2002. Cosmoderm® implants are formulated especially for people with fine line wrinkles or superficial facial contour defects. These implants are
particularly effective in smoothing delicate frown and smile lines and fine creases that develop at the corners of the eyes and above and below the lips and can also help correct certain shallow
scars. Cosmoplast ® implants are designed to treat deeper depressions and can be used for more pronounced contour problems, such as deeper scars, lines and furrows, and for areas upon
which more force is exerted, such as the corners of the mouth. The implants take on the texture and appearance of human tissue and are subject to similar stresses and aging processes. Consequently,
supplemental treatments are necessary to maintain the desired result. CosmoDerm® and CosmoPlast®implants do not require a skin
test pre-treatment. Both of these products are formulated with Lidocaine, an anesthetic, to alleviate pain during injection.

Botulinum Toxin Type A.In July 2002, Inamed and Ipsen Limited signed a definitive agreement which provides that
Inamed will develop, distribute and market Ipsen Limited's botulinum toxin Type A for all cosmetic indications, including wrinkles, in the United States, Canada, and Japan. The product is a sterile,
freeze-dried, purified form of botulinum toxin A and we will be the exclusive distributor of all current and future formulations in the countries noted above. The product is currently marketed under
the trade name Dysport® in Europe and elsewhere where it competes with other botulinum toxin products such as Allergan's Botox®. We completed the phase II dosing trial in 2003,
during which an optimal dose was selected. Data was presented to, and accepted by, the FDA to initiate the phase III pivotal study using this dose. We anticipate initiating the phase III trial in
early to mid 2004 in the United States.

Juvederm®.In January 2004, we signed a development and distribution agreement with Corneal Group for the
rights to develop, distribute and market the Juvederm® dermal fillers which utilize a non-animal, cross-linked hyaluronic acid technology. These rights also include product
line extensions and improvements. This technology is based on the delivery of a homogeneous gel-based hyaluronic acid, as opposed to a particle-gel based hyaluronic acid
technology, which is used in other products. Under this agreement, we will have the exclusive rights to develop, market and distribute the Juvederm

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products
in the United States, Canada and Australia, and non-exclusive rights in France, Spain, the United Kingdom, Italy, Germany and Switzerland. In the non-exclusive
European countries, Inamed will establish a new brand name to promote and market Juvederm. Currently, Juvederm is available in three formulations, JUVEDERM 30, JUVEDERM 24 and JUVEDERM 18, to treat
varying severities of wrinkles and soft tissue augmentation. Juvederm products are currently approved or registered in over 36 countries, including all major European markets. In these markets
Juvederm does not require a skin test pre-treatment. We expect to file for regulatory approval of Juvederm in Australia shortly and to begin our clinical program in the U.S. in the first
half of 2004.

Discontinued Products.As part of a strategic refocusing on core products in 2001, we discontinued selling the
Refinity skin care line and sold our rights and remaining inventory to Cosmederm Technologies. We also relinquished exclusive marketing rights and ceased active marketing of
SoftForm® facial implants and the Refinity Coblation® skin resurfacing system.

Obesity Intervention

We develop, manufacture, and market several devices for the treatment of obesity. Our principal product in this market area, the BioEnterics®
LAP-BAND® System, is designed to provide minimally invasive long-term treatment of severe obesity and is used as an alternative to gastric bypass surgery or stomach
stapling. The BioEnterics® LAP-BAND® System is an adjustable silicone elastomer band which is laparoscopically placed around the upper part of the stomach through a
small incision, creating a small pouch at the top of the stomach. This slows down the passage of food and makes the patient feel fuller sooner. The BioEnterics®
LAP-BAND® System procedure is adjustable and reversible.

The
BioEnterics® LAP-BAND® System has achieved widespread acceptance in the United States, Europe, Australia, Latin America, the Middle East, and
other countries and regions. In June 2001, the BioEnterics® LAP-BAND® System was approved by the FDA for treatment of severe obesity in adults who have
failed more conservative weight reduction alternatives. Commercial
distribution of the BioEnterics® LAP-BAND® System was initiated in the U.S. in July 2001. Approximately 120,000 units have been sold worldwide since 1993.

We
also market the BioEnterics® Intragastric Balloon, or BIB®, System, which is a short-term therapy designed for patients who must reduce weight in
preparation for surgery or for moderately obese patients in conjunction with a long-term comprehensive diet and exercise program. Currently distributed only outside the U.S., the
BIB® is a silicone elastomer balloon that is filled with saline after insertion into the patient's stomach.

We
also sell the BioEnterics® Gastric Balloon Suction Catheter, which was introduced in the U.S. in June 2001. It contains a durable silicone balloon used by surgeons
to facilitate pouch sizing and provide gastric suction during laparoscopic gastric bypass procedures.

Other Products

Contigen® is our collagen product used for treatment of urinary incontinence due to intrinsic sphincter deficiency. We obtained approval from the FDA
to market Contigen® in September 1993. C. R. Bard, Inc. licensed from us exclusive worldwide marketing and distribution rights to Contigen®. We also
provide other collagen products for use by other medical manufacturers.

SALES AND MARKETING

We sell our products directly and through independent distributors in approximately 70 countries worldwide. We supplement our marketing efforts with appearances
at trade shows, advertisements in trade journals, sales brochures, and national media. In addition, we sponsor symposiums and

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educational
programs to familiarize surgeons with the leading techniques and methods of using our products.

Breast Aesthetics.In the U.S. and Canada, breast aesthetics products are marketed under Inamed Aesthetics primarily to
plastic and reconstructive surgeons, out-patient surgery centers,
and hospitals through our staff of sales representatives. In Europe, our breast aesthetics products are sold by our European subsidiaries through their staff of sales representatives in the largest
European markets. In other European markets, in the Middle East, Latin America, Africa, and the Asia-Pacific region, our breast aesthetics products are sold through a network of
distributors.

Facial Aesthetics.Our facial aesthetics products are marketed under Inamed Aesthetics to plastic and reconstructive
surgeons, hospitals and clinics, as well as to facial and oral surgeons, and dermatologists. The facial aesthetics products are sold in most of the same countries and by the same sales organizations
that sell the breast aesthetics products. We have a direct sales force for facial products in Japan and Australia.

Obesity Intervention.Our obesity intervention products are marketed under Inamed Health to general, laparoscopic, and
bariatric surgeons, and sold to hospitals. In the U.S. and Canada, obesity intervention products are sold by a sales force of company-employed representatives and managers. In Europe and Australia,
our Health products are sold by our subsidiaries through their staff of sales representatives. In other European markets, in the Middle East, Latin America, Africa, and the Asia-Pacific
region, our Health products are sold through a network of distributors.

COMPETITION

Breast Aesthetics

We compete in the U.S. breast implant market with Mentor Corporation. We are aware of several companies conducting clinical studies of breast implant products in
the U.S. Internationally, we compete with several manufacturers, including Mentor Corporation, Silimed, Eurosilicone, Poly Implant Prostheses, Nagor, Laboratories Sebbin, and LPI.

We
believe that the principal factors permitting our products to compete effectively are high-quality product consistency, product design, management's knowledge of and
sensitivity to market demands, an experienced sales force, plastic surgeons' familiarity with our products and brand names, regional warranty programs, and our ability to identify and develop or
license patented products embodying new technologies.

Facial Aesthetics

Our facial products compete in the dermatology and plastic surgery markets with other hyaluronic acid products, substantially different treatments, such as laser
treatments, chemical peels, fat injections, and gelatin- or cadaver-based collagen products. In addition, several companies are engaged in research and development activities examining the use of
collagen and other biomaterials for the correction of soft tissue defects. Internationally, we compete with products such as Restylane®, Restylane® Fine Lines, and
Perlane (all manufactured by Q-Med A.B.). Starting in the first quarter of 2004 we now compete in the U.S. dermal filler market with Restylane® which is
distributed by Medicis Corporation.

Obesity Intervention

No gastric bands other than Inamed's are commercially available in the U.S. and we are currently aware of only one other company conducting U.S.clinical studies
of gastric bands at this time. Outside the United States, the LAP-BAND® System competes primarily with the Swedish Adjustable Gastric Band (manufactured by Ethicon Endo
Surgery,) and the Heliogast Band (manufactured by Helioscopie, S.A., France). There are at least two other gastric bands on the market internationally. The

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BioEnterics®
LAP-BAND® System also competes with surgical obesity procedures, including gastric bypass, vertical banded gastroplasty, and biliopancreatic diversion.

RESEARCH AND DEVELOPMENT

We have a qualified staff of scientists, engineers, and technicians working on material technology and product design as part of our research and development
efforts. Our research and development expense is primarily directed toward supporting the clinical trials of our products. In addition, we are directing our research and development toward new and
improved products based on scientific advances in technology and medical knowledge, together with qualified input from the medical profession. We have incurred research and development expenses of
$21.5 million, $13.6 million, and $12.2 million for the years ended, December 31, 2003, 2002 and 2001, respectively.

PATENTS, LICENSES, AND RELATED AGREEMENTS

We currently own or have exclusive license rights to numerous patents, patent applications, trademarks and trademark applications throughout the world relating to
our product lines.

In
addition, we are currently engaged in various collaborative ventures for the development, manufacturing, and distribution of current and new products. These projects include the
following:



We
had an agreement with Advanced Tissue Sciences, Inc., or ATS, under which we acquired an exclusive, worldwide license to certain intellectual property for the development and
distribution of certain of ATS's human-based, tissue-engineered products for surgical applications. We developed injectable collagen for the correction of facial wrinkles and marketing commenced in
early 2003 under the names CosmoDerm® and CosmoPlast® in the U.S. and Canada for which we are paying royalties on sales.

Due
to financial difficulties announced by ATS in the latter half of 2002 and a subsequent decision by the ATS Board to liquidate the company, we have entered into a supply agreement
with an affiliate of Smith and Nephew Inc. in March 2003 which will provide us, on a going forward basis, the raw materials previously provided by ATS. Smith and Nephew is also licensing
to us the intellectual property previously licensed to us by ATS.

We
are also a party to license agreements allowing other companies to manufacture products using some of our technology in exchange for royalties and other compensation or benefits.
Although we

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believe
our patents and patent rights are valuable, our technical knowledge with respect to manufacturing processes, materials, and product design are also valuable. As a condition of employment, we
require that all employees execute a confidentiality agreement relating to our proprietary information and intellectual property rights.

MANUFACTURING AND RAW MATERIALS

Our manufacturing facilities are located in Santa Barbara and Fremont, California; San José, Costa Rica; and in Arklow, Ireland. Our Carpinteria,
California manufacturing facility was closed at the end of 2002. In the fourth quarter of 2002, we announced the consolidation of our Santa Barbara manufacturing operations into our facilities in
Costa Rica and Ireland. See Note 4 of the notes to the consolidated financial statements.

Breast Aesthetics

Our breast implant and related tissue expander products are manufactured in our facilities in Santa Barbara, California; San José, Costa Rica; and
Arklow, Ireland. We manufacture our products in controlled environments utilizing specialized equipment for precision measurement, quality control, packaging, and sterilization.

Manufacturing
facilities producing medical devices intended for distribution in the U.S. are subject to regulation and periodic review by the FDA. All of our facilities are currently
approved by the FDA to manufacture medical devices for distribution in the U.S. The quality systems at our facilities in Santa Barbara, California were inspected by the FDA in March, June, and
November and Arklow, Ireland, was inspected by the FDA in June of 2003, as part of the FDA's gel-filled breast implant
pre-PMA inspection. Both facilities were found to be in substantial compliance with applicable quality system regulations, with no deficiencies identified. The quality system at our Costa
Rica facility was inspected by the FDA in February 2003, as part of the FDA's standard surveillance schedule, and was also found to be in substantial compliance with applicable quality system
regulations, with no deficiencies identified.

Manufacturing
facilities producing medical devices in the state of California are likewise subject to regulation and review by the California Food and Drug Branch (FDB) of the California
Department of Health Services. The Santa Barbara manufacturing facility was inspected by the FDB in March and November 2003, and found to be compliant with applicable state statutes and
licensed to manufacture medical devices in the state of California.

Manufacturing
facilities producing medical devices for distribution to markets in the European Economic Community and the European Union are subject to the regulatory requirements of the
European Medical Device Directive (MDD) as well as various International (ISO) and European National (EN) standards. All of our facilities which manufacture products for the breast aesthetics market
are certified to applicable European and International standards, which require us to be subject to inspection by European notified bodies. These certifications include ISO 9001, ISO 9002, ISO 13485,
EN 46001 and EN 46002. All of our facilities were inspected in 2003 and were found to be compliant and subject to continued certification.

In
late 1998, we entered into a strategic alliance with a privately held specialty chemical company, whereby that company has agreed to act as our exclusive supplier of silicone raw
materials.

Facial Aesthetics

Zyderm and Zyplast implants are manufactured at our Fremont, California facility. We use a patented viral inactivation process for these
collagen-based products to ensure both safety and quality. The production processes use readily available chemicals and enzymes and bovine dermis from cows as

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the
source of collagen. Since 1987, the hides have been sourced from a U.S.-located closed herd in an effort to prevent contamination of our bovine collagen based products. The closed herd is designed
to provide a reliable source of raw material with backup capabilities in case of natural disasters. The bovine collagen-based products have refrigerated shelf lives of 36 months.

In
2001, we began manufacturing activities for our bioengineered human collagen dermal filler products, CosmoDerm® and CosmoPlast® Originally, raw materials for
these products have been obtained in bulk from ATS and further processed and packaged at our Fremont facility. Due to financial difficulties announced by ATS in the latter half of 2002 and a
subsequent decision by the ATS Board to liquidate the company, we entered into a supply agreement with an affiliate of Smith & Nephew, Inc. in March 2003 to provide the raw
materials previously provided to us by ATS. In January 2003, we signed a development agreement with Immucor Inc., for the production of human collagen mesh, the raw material for
CosmoDerm® and CosmoPlast®. We expect to enter into a supply agreement with Immucor in 2004.

As
noted above, medical devices manufactured at our Fremont facility, and intended for distribution in the U.S. and internationally, are subject to regulation and periodic review by the
FDA and the requirements of the EEC MDD regulations, various international and European standards, and review by European notified bodies. Our Fremont manufacturing facilities were inspected by the
FDB in February 2003, and by the FDA in August 2003, and found to be substantially compliant with applicable regulations. In addition, these facilities were inspected by TUV Product
Services GMBH (a European notified body) in March 2003 and were re-certified as being in compliance with applicable international and European standards.

In
addition to the foregoing we sell facial injectable implants which are manufactured by third parties. These parties are subject to the same governmental inspection and regulation as
noted above.

Obesity Intervention

Our obesity intervention products are manufactured at our facilities in San Jose, Costa Rica and Santa Barbara, California. The FDA and TUV GMBH inspections and
subsequent approvals previously discussed apply to our obesity intervention products as well.

Other Products

We produce other collagen products at our Fremont, California facility for use by other medical manufacturers. Contigen® is manufactured for C. R.
Bard, Inc., CoStasis® for Cohesion Technologies, Inc. and Collagraft® and Collagraft® intermediates are manufactured for NeuColl Inc.

Environmental Compliance

Our manufacturing facilities in the U.S. are regulated by federal, state, and local laws. We believe that our operations are in full compliance with all
applicable laws and we received no citations or notices of violations in 2003. In 2004, we do not expect to incur any material expense to maintain our compliance level.

Our
manufacturing facility in Arklow, Ireland, is regulated by the Irish Environmental Protection Agency, or EPA. The Irish EPA carries out regular checks and monitors compliance with
the requirements of the Integrated Pollution Control License. We received no citations or notices of violations in 2003. In 2004, we do not expect to incur any material expense to maintain our
compliance level.

Our
manufacturing facility in Costa Rica is operated under the jurisdiction of the office of Human Environmental Control within the Ministry of Health. Inamed Costa Rica was granted a
working permit or license for industrial facilities in August 2000. The permit 0194-2000 has a validity of five years. We received no citations or notices of violations from the
Costa Rican authorities in 2003. We do not expect to incur any material expense to maintain this compliance level during 2004.

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GOVERNMENT REGULATION

Medical devices and biologics are subject to regulation by the U. S. Food and Drug Administration (FDA), state agencies and, in varying degrees, by foreign
government health agencies. These regulations, as well as various U.S. federal and state laws, govern the development, clinical testing, manufacturing, labeling, record keeping, and marketing of these
products. The majority of our product candidates must undergo rigorous testing and an extensive government regulatory approval process prior to sale in the U.S. and other countries. The lengthy
process of seeking required approvals and the continuing need for compliance with applicable laws and regulations require the expenditure of substantial resources. Regulatory approval, when and if
obtained, may be limited in scope, and may significantly limit the indicated uses for which a product may be marketed. Approved products and their manufacturers are subject to ongoing review, and
discovery of previously unknown problems with products may result in restrictions on their manufacture, sale, or use or their withdrawal from the market.

Regulation of Medical Devices

All of our current products are medical devices intended for human use and are subject to regulation by FDA in the U.S. Unless an exemption applies, each medical
device we market in the U.S. must have a 510(k) clearance (a demonstration that the new device is "substantially equivalent" to a device already on the market) or a Premarket Approval Application
(PMA) in accordance with the Federal Food, Drug, and Cosmetic Act, as amended. FDA regulations generally require reasonable assurance of safety and effectiveness prior to marketing, including safety
data obtained under approved clinical protocols and require compliance with "good manufacturing practices" (GMPs), as verified by detailed FDA inspections of manufacturing facilities. These
regulations also require reporting of alleged product defects to the FDA. FDA regulations divide medical devices into three classes. Class I devices are subject to general controls that require
compliance with device establishment registration, product listing, labeling, GMPs and other general requirements. Class II devices are subject to special controls in addition to general
controls. Class III devices are subject to the most extensive regulation and in most cases require submission to the FDA of a PMA application that includes data supporting the safety and
effectiveness of the device. Periodic reports must be submitted to the FDA, including any descriptions of any adverse events reported. The majority of our products are regulated as Class III
medical devices.

Products
marketed in the European Community must comply with the requirements of the European Medical Device Directive (MDD) and must be CE-marked. Medical device laws and
regulations similar to those described above are also in effect in many of the other countries to which
we export our products. These range from comprehensive device approval requirements for some or all of our medical device products to requests for product data or certifications. Failure to comply
with these domestic and international regulatory requirements could affect our ability to market and sell our products in these countries. The current regulatory status of our products is discussed in
the "Products and Product Candidates" section above.

Regulation of Biologics

Although we do not currently market any biologic products, we expect to seek approval to market biologic products in the future, including botulinum toxin Type A.
The FDA approval process for biologic products is a complex process with a number of discrete phases, beginning with laboratory analysis and pre-clinical testing in animals. To begin human
testing, an investigational new drug application is filed with the FDA. Human clinical testing typically involves three phases. In Phase 1, small clinical trials are conducted to determine the safety
of the product and the acceptable dose. In Phase 2, expanded clinical trials are conducted to determine optimal dose and to assess safety of the product. In Phase 3, still larger clinical trials are
conducted to provide sufficient data to assess safety

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and
efficacy at the optimal dose. After completing all three phases of human testing, a Biologic License Application (BLA) is submitted to the FDA for approval. If the FDA approves the BLA, the
product becomes available for marketing. Periodic reports must be submitted to the FDA, including descriptions of any adverse reactions reported. The FDA may request additional studies to evaluate
long-term effects. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing approval. Similarly, adverse events that are reported
after marketing approval can result in additional limitations being placed on the product's use and, potentially, withdrawal of the product from the market.

Regulation of Manufacturing

As a manufacturer of medical devices, our manufacturing processes and facilities are subject to continuing review by the FDA and various state and international
agencies. These agencies inspect our quality systems and facilities from time to time to determine whether we are in compliance with various regulations relating to manufacturing practices and other
requirements. In the U.S., our facilities must comply with the FDA's Quality System Regulation requirements for Good Manufacturing Practices. For products sold in Europe, we must demonstrate
compliance with the ISO 9000 and EN 46000 international quality system standards. The regulatory status of our manufacturing facilities is discussed under "Manufacturing and Raw Materials" above.

Other Regulations

We are subject to federal, state, local and foreign environmental laws and regulations, including the U.S. Occupational Safety and Health Act, the U.S. Toxic
Substances Control Act, the U.S. Resource Conservation and Recovery Act, and other current and potential future federal, state, or local regulations. Our manufacturing and research and development
activities involve the controlled use of hazardous materials, chemicals, and biological materials, which require compliance with various laws and regulations regarding the use, storage, and disposal
of such materials.

We
are also subject to various federal and state laws pertaining to health care information and privacy and "fraud and abuse," including anti-kickback laws and false claims
laws. Anti-kickback laws make it illegal to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription
of a particular product. The U.S. federal government has published regulations that identify "safe harbors" or exemptions for certain payment arrangements that do not violate the
anti-kickback statutes. We seek to comply with the safe harbors where possible. Due to the breadth of the statutory provisions and the absence of guidance in the form of regulations or
court decisions addressing some of our practices, it is possible that our practices might be challenged under anti-kickback or similar laws. False claims laws prohibit anyone from
knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed products or services that are false or
fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be
subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility
of exclusion from federal health care programs (including Medicare and Medicaid).

Our
present and future business has been and will continue to be subject to various other laws and regulations.

Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain
business or to influence a person

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working
in an official capacity. It is illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or
political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity.

THIRD PARTY COVERAGE AND REIMBURSEMENT

Purchases of breast aesthetics products for augmentation and facial aesthetics products are generally not reimbursed by government or private insurance carriers.
However, since 1998, U.S. federal law has mandated nationwide insurance coverage of reconstructive surgery following a mastectomy, which includes coverage for breast implants. Outside the U.S.,
reimbursement for breast implants used in reconstructive surgery following a mastectomy may be available, but the programs vary on a country-by-country basis.

In
the U.S., purchases of the BioEnterics® LAP-BAND® System to treat severe obesity are reimbursed in some regions by Medicare. Private insurance
coverage currently varies by carrier and geographic location. At the end of 2003, Inamed had established reimbursement coverage through insurers in the U.S. that covered approximately
80 million lives. The Company is pursuing reimbursement with many major carriers and hopes to achieve broader reimbursement coverage for the product in 2004. The older, more established,
surgical procedures for obesity treatment, including gastric bypass, are generally reimbursed.

Outside
the U.S., reimbursement programs vary on a country-by-country basis. In some countries, both the procedure and product are fully reimbursed by the
government healthcare systems for all citizens who need it, and there is no limit on the number of procedures that can be performed. In other countries, there is complete reimbursement but the number
of procedures that can be performed at each hospital is limited either by the hospital's overall budget or by the budget for the type of product.

PRODUCT REPLACEMENT PROGRAMS

We conduct our product development, manufacturing, marketing, and service and support activities with careful regard for the consequences to patients. As with any
medical device manufacturer, however, we receive communications from surgeons or patients with respect to various products claiming the products were defective, lost volume, or have resulted in injury
to patients. In the event of a deflation of our saline-filled breast implant products sold and implanted in the U.S., in most cases our ConfidencePlus program provides product replacement
and some financial assistance for surgical procedures required within ten years of implantation. Breast implants sold and implanted elsewhere are subject to a similar program, although no surgical
expenses are covered. We do not warrant any level of aesthetic result and, as required by government regulation, make extensive disclosure concerning the risks of our products and implantation
surgery.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The majority of our sales and long-lived assets are primarily in the U.S. and Canada. See Note 16 of the notes to the consolidated financial
statements.

WORKING CAPITAL

We maintain significant breast aesthetics consignment inventories, consistent with industry practice. Since a doctor may not be sure of the exact size of breast
implant required for implantation and cannot be sure that no accidental damage will occur to an implant, the doctor is likely to order extra quantities and sizes beyond the quantity and size
ultimately used in surgery. By carrying a consignment inventory

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of
typical sizes at certain hospitals and other medical offices, we reduce the level of product return subsequent to surgery.

Otherwise,
inventories are managed to a level that permits good customer service. Additionally, there are inventory builds prior to launching new products.

Our
accounts receivable payment terms are consistent with normal industry practices, which varies by customer class and geographic location.

EMPLOYEES

As of December 31, 2003, we had approximately 1,200 employees in active service, of which approximately 700 were in the U.S., Canada, and Costa Rica and
approximately 500 were at other international operations. Except for employees at our manufacturing facility in Arklow, Ireland, none of our employees are represented by a labor union.

We
recognize the importance of environmental responsibility and the need to provide a safe and healthy workplace for our employees by complying with all federal, state, and local laws,
rules, and regulations. During the past fiscal year, we have received no citations, notices of violations or other censures from public agencies regulating environmental compliance or our employees'
health and safety. We do not expect any significant capital expenditures to comply with environmental, health, or safety regulations in 2004. We believe that our current systems and processes are
adequate for current needs.

RISKS AND UNCERTAINTIES

Certain statements contained in this Annual Report on Form 10-K, and other written and oral statements made from time to time by us, do not
relate strictly to historical facts. These statements are considered "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan," "possible," "project," and "should," or similar words or
expressions, are intended to identify forward looking statements. This forward looking information involves important risks and uncertainties that could materially alter results in the future from
those expressed in any forward looking statements made by, or on behalf of, us. We caution you that such forward-looking statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, you should specifically consider the various factors that could cause actual events or results to differ materially, including those factors described below.
It is not possible to foresee or identify all factors affecting our forward-looking statements and you should not consider any list of such factors to be exhaustive. We are under no duty to update any
forward-looking statements.

IF
WE ARE UNABLE TO AVOID SIGNIFICANT PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS, WE MAY BE FORCED TO PAY SUBSTANTIAL DAMAGE AWARDS AND OTHER EXPENSES THAT COULD EXCEED OUR ACCRUALS AND INSURANCE
COVERAGE.

We
have in the past been, currently are, and may in the future be subject to product liability claims alleging that the use of our technology or products has resulted in adverse health
effects. These claims may be brought even with respect to products that have received, or in the future may receive, regulatory approval for commercial sale. In particular, the manufacture and sale of
breast implant products entails significant risk of product liability claims due to potential allegations of possible disease causation, transmission and other health factors, rupture or other product
failure. Other breast implant manufacturers that suffered such claims in the past have been forced to cease operations or even to declare bankruptcy. We also face a substantial risk of product
liability claims from our obesity

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intervention
products and our facial aesthetics products. In addition to product liability claims, we may in the future need to recall or issue field corrections related to our products due to
manufacturing deficiencies, labeling errors, or other safety or regulatory reasons.

At
present, we have no third-party liability insurance to protect us from the costs of claims for damages due to the use or recall of our products under certain circumstances and for
specific amounts. Product liability claims or recall orders could result in material losses in excess of our accruals.

Also
at present, we are actively engaged in efforts to seek product-liability coverage. However, to date, the Company and its brokers have not identified any carriers that are willing to
sell us risk-shifting liability insurance on terms and conditions which are acceptable to the Company. While we continue to explore the feasibility of purchasing risk-shifting
product liability insurance coverage from a third-party carrier or carriers, we cannot assure you that we will be successful in these efforts.

In
addition, we continue to incur substantial costs and expenses as a result of our liabilities related to the Trilucent implant. Our Trilucent costs and expenses derive in part from the
program announced by us on June 6, 2000, and include, among other things, continuing expenses of our explantation program, regulatory compliance, scientific and other investigative studies,
bodily injury and financial loss claims, and related legal and defense costs. While we have insurance for some of these expenses and have also established accruals for them in addition to our
insurance program, it is possible that the combined amount of our insurance and accruals may be insufficient to cover all our future Trilucent-related liabilities. In 2002, we came to final
settlements with each of our two insurers for product liability claims arising from the Trilucent implant. Under one settlement, with MEDMARC Casualty Insurance Company, MEDMARC paid
$6.0 million in cash to us in January 2003, $1.5 million cash to us in May 2003, and, effective November 16, 2002, agreed to make a policy with a limit of
$10.0 million available to us for defense and indemnification of Trilucent-related bodily injury claims worldwide. The policy does not cover claims filed against us after November 7,
2005. There was approximately $9.6 million remaining on the policy commitment at December 31, 2002 and $3.3 million remaining on the policy commitment at December 31, 2003.
Under the second settlement, AISLIC, an AIG company, agreed to make an excess policy with a limit of $10.0 million available to us for the indemnification of non-U.S. Trilucent
claims. There was $7.9 million remaining under this commitment at December 31, 2002 and approximately $6.2 million remaining at December 31, 2003. In addition, under
the settlement with AIG subject to certain conditions, we are required to pay up to $1.5 million to AIG on or before November 2005.

In
addition, at December 31, 2003, we had an accrual for future Trilucent claims, costs, and expenses of approximately $12.2 million, net of insurance. Thus, as of
December 31, 2003, we had approximately $21.7 million in accruals and insurance to cover our future Trilucent-related liabilities. While we currently believe this amount is adequate, it
is possible that our future Trilucent-related liabilities could exceed this amount. This could occur, for example, if additional scientific research discloses one or more Trilucent-related health
risks which are not sufficiently understood today, resulting in new legal claims and regulatory obligations. Further, the existing insurance coverage is subject to a number of conditions, notably, it
does not apply to any claims which may be filed against us after November 7, 2005. Thus, our accruals and liability insurance coverage under the foregoing insurance policies may be inadequate
to cover our future Trilucent-related liabilities, including our Trilucent-related bodily injury claims and other contingent liabilities.

Under
the program announced on June 6, 2000, we have, through our AEI Inc. subsidiary, undertaken a comprehensive program of support and assistance for women who received
Trilucent breast implants, under which we are covering medical expenses associated with the removal and replacement of those implants for the approximately 8,500 women who received them. To date, we
believe that more than 90% of the United Kingdom residents and more than two-thirds of the women in the rest of the world, who had these implants have had them removed. The product was not
sold

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commercially
in the United States. To date, an insurance company has honored its commitment under an insurance policy to reimburse us for most of the medical expenses incurred in connection with this
explantation program and is obligated under the same policy to cover 75% of these expenses in the future. We are currently engaged in efforts to explant the remainder of the Trilucent patients prior
to the expiration of this policy in February 2005. However, there can be no assurance that we will be able to complete this program prior to February 2005 and hence it is possible that
we will incur material liabilities for Trilucent-related explantation expenses after that date, for which we would not have insurance coverage.

Recipients
of the Trilucent implants have also asserted claims and brought legal proceedings against the Company, AEI (an affiliate of the Company), other affiliated and unaffiliated
entities, and persons alleging bodily injury and financial loss as a result of the implantation and explantation of their Trilucent implants. To date, we have been able to resolve these claims within
our accruals and with insurance proceeds. In the United Kingdom and Spain, we have entered into protocols under which women who have had their Trilucent implants removed since June 6, 2000 may
apply for certain fixed levels of compensation, or may obtain an independent, binding determination of their damages, without proof of defect or legal causation. In the United Kingdom, while we have
been successful in settling the vast majority of claims, numerous women have applied for a binding determination of their damages and we also face a group action on behalf of approximately 250 women
who were explanted prior to June 6, 2000. See Part I, Item 3 Legal Proceedings. In Spain, although approximately 310 women have accepted our protocol, approximately 50 have commenced
individual legal proceedings and a Spanish
consumer union has commenced a single action in which it alleges that it represents approximately 40 Spanish Trilucent explantees. More than 790 Spanish women were explanted and hence more than 300
have yet to make claims for bodily injury or financial loss (although we have already paid for their explants). The claims of many of these women may now be time-barred under Spanish law.
We are also facing Trilucent related claims and legal proceedings in Germany, Belgium, Italy and other countries. In Germany, where as many as 1,500 to 2,000 women are believed to have been implanted
with Trilucent, approximately 950 have been explanted, but only approximately 120 have made claims for bodily injury or financial loss (although we have already paid for their explants). By reason of
adverse publicity concerning Trilucent in 2003 and the announced closure as of December 31, 2003 of our explantantion program, the rate of filing of new Trilucent related bodily injury claims
by women in Germany, Belgium, Italy and other European countries may increase in 2004 or in the following years.

In
addition, under U.K. and Spanish law, the release granted to us under our settlement protocol is necessarily provisional, and each participating claimant reserves the right to pursue
a future claim should she develop cancer or reproductive abnormalities. Under agreements with the United Kingdom Medical Devices Agency (MDA), we are also continuing to fund Trilucent-related
scientific research. The scientific research now being conducted at MDA's request by the Trilucent Scientific Advisory Panel, or future research performed by this or another panel, could reveal that
the risk to human health of the Trilucent implant is greater than was previously believed. As a result of that research, the Panel could recommend that the remaining unexplanted Trilucent recipients
have their implants removed, an announcement that would affect a maximum of approximately 1,000 women. We could also be obligated to fund scientific or epidemiologic research, or incur expenses for
medical monitoring, that are in excess of the levels which are currently forecast. As a result of these and other factors, the total amount of accruals and insurance available to address our future
Trilucent-related liabilities may be insufficient and we may need to make additional provisions for Trilucent related liabilities in the future.

IF
WE SUFFER NEGATIVE PUBLICITY CONCERNING THE SAFETY OF OUR PRODUCTS, OUR SALES MAY BE HARMED AND WE MAY BE FORCED TO WITHDRAW PRODUCTS.

Physicians
and potential and existing patients may have a number of concerns about the safety of our products, including our breast implants, obesity intervention products and facial
dermal fillers,

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whether
such concerns have a basis in generally accepted science or peer-reviewed scientific research or not. Negative publicitywhether accurate or
inaccurateabout our products, based on, for example, news about breast implant litigation or regulatory activities, new government regulation, or bovine spongiform encephalopathy (BSE) or
Creutzfeldt-Jacob, or "mad cow" disease, could materially reduce market acceptance of our products and could result in product withdrawals. In addition, significant negative publicity could result in
an increased number of product liability claims, whether or not these claims have a basis in scientific fact.

OUR
QUARTERLY OPERATING RESULTS ARE SUBJECT TO SUBSTANTIAL FLUCTUATIONS AND ANY FAILURE TO MEET FINANCIAL EXPECTATIONS FOR ANY FISCAL QUARTER MAY DISAPPOINT SECURITIES ANALYSTS AND INVESTORS AND COULD
CAUSE OUR STOCK PRICE TO DECLINE.

Our
quarterly operating results have fluctuated in the past and may vary significantly in the future due to a combination of factors, many of which are beyond our control. These factors
include:



Q-Med's
facial aesthetic product Restylane® was approved for the U.S. facial aesthetics market by the FDA in December 2003. This product has experienced
positive acceptance in Europe and other markets, in part because it does not require a pre-procedure skin test. Sales of such product may adversely affect our U.S. market position in
facial aesthetics.

As
a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and you should not rely upon these
comparisons as indications of future performance. These factors may cause our operating results to be below securities analysts' expectations in some future quarters, which could cause the market
price of our stock to decline.

IF
CHANGES IN THE ECONOMY AND CONSUMER SPENDING REDUCE CONSUMER DEMAND FOR OUR PRODUCTS, OUR SALES AND PROFITABILITY WILL SUFFER.

Breast
augmentation and reconstruction, facial dermal fillers, and obesity intervention are elective procedures. Other than U.S. federally mandated insurance reimbursement for
post-mastectomy reconstructive surgery, breast augmentations and other cosmetic procedures are not typically covered by insurance. Adverse changes in the economy may cause consumers to
reassess their spending choices and reduce the demand for cosmetic surgery. This shift could have an adverse effect on our sales and profitability.

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Reimbursement
for obesity surgery, including use of our products, is available to various degrees in most of our international markets. In the United States, reimbursements by insurance
plans are increasing, but reimbursement is not widely available to all insured patients at this time. Adverse changes in the economy could have an adverse effect on consumer spending and governmental
health care resources. This shift could have an adverse effect on the sales and profitability of our obesity intervention business.

IF
WE ARE UNABLE TO CONTINUE TO DEVELOP AND MARKET NEW PRODUCTS AND TECHNOLOGIES, WE MAY EXPERIENCE A DECREASE IN DEMAND FOR OUR PRODUCTS OR OUR PRODUCTS COULD BECOME OBSOLETE.

The
medical device industry is highly competitive and is subject to significant and rapid technological change. We believe that our ability to respond quickly to consumer needs or
advances in medical technologies, without compromising product quality, is crucial to our success. We are continually engaged in product development and improvement programs to maintain and improve
our competitive position. We cannot, however, guarantee that we will be successful in enhancing existing products or developing new products or technologies that will timely achieve regulatory
approval or receive market acceptance.

There
is also a risk that our products may not gain market acceptance among physicians, patients and the medical community generally. The degree of market acceptance of any medical
device or other product that we develop will depend on a number of factors, including demonstrated clinical efficacy and safety, cost-effectiveness, potential advantages over alternative
products, and our marketing and distribution capabilities. Physicians will not recommend our products until clinical data or other factors demonstrate their safety and efficacy compared to other
competing products. Even if the clinical safety and efficacy of using our products is established, physicians may elect not to recommend using them for any number of other reasons, including whether
our products best meet the particular needs of the individual patient.

Our
products compete with a number of other products manufactured by major medical device companies, and may also compete with new products currently under development by others. If our
new products do not achieve significant market acceptance, or if our current products are not able to continue competing successfully in the changing market, our revenue and earnings may not grow as
much as expected or may even decline.

IF
CLINICAL TRIALS FOR OUR PRODUCTS ARE UNSUCCESSFUL OR DELAYED, WE WILL BE UNABLE TO MEET OUR ANTICIPATED DEVELOPMENT AND COMMERCIALIZATION TIMELINES, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

Before
obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through pre-clinical testing and clinical trials that our products are safe
and effective for use in humans. Conducting clinical trials is a lengthy, time-consuming and expensive process.

Completion
of clinical trials may take several years or more. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:



The
results from pre-clinical testing and early clinical trials are often not predictive of results obtained in later clinical trials. A number of new products have shown
promising results in clinical

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trials,
but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from pre-clinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including
perceived defects in the design of the clinical trials and changes in regulatory policy during the period of product development. Any delays in, or termination of, our clinical trials will materially
and adversely affect our development and commercialization timelines, which would cause our stock price to decline.

IF
OUR COLLABORATIVE PARTNERS DO NOT PERFORM, WE WILL BE UNABLE TO DEVELOP PRODUCTS AS ANTICIPATED.

We
have entered into collaborative arrangements with third parties to develop certain products. We cannot assure you that these collaborations will produce successful products. If we
fail to maintain our existing collaborative arrangements or fail to enter into additional collaborative arrangements, the number of products from which we could receive future revenues would decline.

Our
dependence on collaborative arrangements with third parties subjects us to a number of risks. These collaborative arrangements may not be on terms favorable to us. Agreements with
collaborative partners typically allow partners significant discretion in electing whether or not to pursue any of the planned activities. We cannot control the amount and timing of resources our
collaborative partners may devote to products based on the collaboration, and our partners may choose to pursue alternative products. Our partners may not perform their obligations as expected.
Business combinations, significant changes in a collaborative partner's business strategy, or its access to financial resources may adversely affect a partner's willingness or ability to complete its
obligations under the arrangement. Moreover, we could become involved in disputes with our partners, which could lead to delays or termination of the collaborations and time-consuming and
expensive litigation or arbitration. Even if we fulfill our obligations under a collaborative agreement, our partner can terminate the agreement under certain circumstances. If any collaborative
partner were to terminate or breach our agreement with it, or otherwise fail to complete its obligations in a timely manner, our chances of successfully commercializing products would be materially
and adversely affected.

OUR
FAILURE TO ATTRACT AND RETAIN KEY MANAGERIAL, TECHNICAL, SELLING AND MARKETING PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS

Our
success depends upon our retention of key managerial, technical, selling and marketing personnel. The loss of the services of key personnel might significantly delay or prevent the
achievement of our development and strategic objectives. We do not maintain key person life insurance on any of our employees, and none of our employees is under any obligation to continue providing
services to Inamed.

We
must continue to attract, train and retain managerial, technical, selling and marketing personnel. Competition for such highly skilled employees in our industry is high, and we cannot
be certain that we will be successful in recruiting or retaining such personnel. We also believe that our success depends to a significant extent on the ability of our key personnel to operate
effectively, both individually and as a group. If we are unable to identify, hire and integrate new employees in a timely and cost-effective manner, our operating results may suffer.

IF
OUR INTELLECTUAL PROPERTY RIGHTS DO NOT ADEQUATELY PROTECT OUR PRODUCTS OR TECHNOLOGIES, OTHERS COULD COMPETE AGAINST US MORE DIRECTLY, WHICH WOULD HURT OUR PROFITABILITY.

Our
success depends in part on our ability to obtain patents or rights to patents, protect trade secrets, operate without infringing upon the proprietary rights of others, and prevent
others from infringing on our patents, trademarks and other intellectual property rights. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent
that it is covered by

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valid
and enforceable patents, trademarks and licenses. Patent protection generally involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be predicted
with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that we own or license from others may not provide adequate protection against competitors. In
addition, our pending and future patent applications may fail to result in patents being issued. Also, those patents that are issued may not provide us with adequate proprietary protection or
competitive advantages against competitors with similar technologies. Moreover, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws
of the United States.

In
addition to patents and trademarks, we rely on trade secrets and proprietary know-how. We seek protection of these rights, in part, through confidentiality and proprietary
information agreements. These agreements may not provide meaningful protection or adequate remedies for violation of our rights in the event of unauthorized use or disclosure of confidential and
proprietary information. Failure to protect our proprietary rights could seriously impair our competitive position.

IF
THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM MARKETING OUR PRODUCTS.

Our
commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of others. However, regardless of our intent, our
technologies may infringe the patents or violate other proprietary rights of third parties. In the event of such infringement or violation, we may face litigation, become subject to damages, and may
be prevented from selling existing products and pursuing product development or commercialization. At present, we are a party in two such matters. See Part I, Item 3. Legal Proceedings, Patents
and License Litigation,Kuzmak MatterandManders Matter.

WE
DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR CERTAIN PRODUCTS AND RAW MATERIALS AND THE LOSS OF ANY SUPPLIER COULD ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE MANY OF OUR PRODUCTS.

We
currently rely on a single supplier for silicone raw materials used in many of our products. Although we have an agreement with this supplier to transfer the necessary formulations to
us in the event that it cannot meet our requirements, we cannot guarantee that we would be able to produce a
sufficient amount of quality silicone raw materials in a timely manner. We also depend on third party manufacturers for silicone molded components, Hylaform® (gelfacial injectable
implants, raw materials derived from human sources, and silicone facial implants. In addition, we currently rely on Smith and Nephew for the supply of human collagen mesh.

If
there is any disruption in the supply of these materials, our sales and profitability for the affected products would be adversely affected.

OUR
ABILITY TO SELL BOVINE COLLAGEN-BASED PRODUCTS COULD BE ADVERSELY AFFECTED IF WE EXPERIENCE PROBLEMS WITH THE CLOSED HERD OF DOMESTIC CATTLE FROM WHICH WE DERIVE THESE PRODUCTS.

We
rely on two closed herds of domestic cattle that are kept apart from all other cattle for the production of our bovine collagen-based products. If these herds suffered a significant
reduction or became unavailable to us, we would have a limited ability to access a supply of acceptable bovine collagen from a similarly segregated source. A significant reduction in the supply of
bovine collagen could have a material adverse effect on our ability to sell bovine collagen-based products.

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OUR INTERNATIONAL BUSINESS EXPOSES US TO A NUMBER OF RISKS.

More
than one-third of our sales are derived from international operations. Accordingly, any material decrease in foreign sales would have a material adverse effect on our
overall sales and profitability. Most of our international sales are denominated in U.S. dollars, euros, or yen. Depreciation or devaluation of the local currencies of countries where we sell our
products may result in our products becoming more expensive in local currency terms, thus reducing demand. In addition, we manufacture some of our breast implant products in Ireland and in Costa Rica.
Commencing in November 2002 and through the beginning of 2004, we are transitioning our Santa Barbara-based manufacturing to Ireland and Costa Rica as well. Therefore, an increasing percentage
of our operating expenses will be denominated in currencies other than the U.S. dollar. We cannot guarantee that we will not experience unfavorable currency fluctuation effects in future periods,
which could have an adverse effect on our operating results. Our operations and financial results also may be significantly affected by other international factors, including:



If
these risks actually materialize, our sales to international customers, as well as those U.S. customers that use products manufactured abroad, may decrease.

WE
ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

The
production and marketing of our products and our ongoing research and development, pre-clinical testing and clinical trial activities are subject to extensive regulation
and review by numerous governmental authorities both in the U.S. and abroad. Most of the medical devices we develop must undergo rigorous pre-clinical and clinical testing and an extensive
regulatory approval process before they can be marketed. This process makes it longer, harder and more costly to bring our products to market, and we cannot guarantee that any of our products will be
approved, or, once approved, not recalled. The pre-marketing approval process can be particularly expensive, uncertain and lengthy, and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling,
and record-keeping procedures. If we do not comply with applicable regulatory requirements, such violations could result in warning letters, non-approval, suspensions of regulatory
approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.

Delays
in or rejection of FDA or other government entity approval of our new products may also adversely affect our business. Such delays or rejection may be encountered due to, among
other reasons, government or regulatory delays, lack of efficacy during clinical trials, unforeseen safety issues,

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slower
than expected rate of patient recruitment for clinical trials, inability to follow patients after treatment in clinical trials, inconsistencies between early clinical trial results and results
obtained in later clinical trials, varying interpretations of data generated by clinical trials, or changes in regulatory policy during the period of product development in the U.S. and abroad. In the
U.S., there has been a continuing trend of more stringent FDA oversight in product clearance and enforcement activities, causing medical device manufacturers to experience longer approval cycles, more
uncertainty, greater risk, and higher expenses. Internationally, there is a risk that we may not be successful in meeting the quality standards or other certification requirements. Even if regulatory
approval of a product is granted, this approval may entail limitations on uses for which the product may be labeled and promoted. It is possible, for example, that we may not receive FDA approval to
market our current products for broader or different applications or to market updated products that represent extensions of our basic technology. In addition, we may not receive FDA export approval
to export our products in the future, and countries to which products are to be exported may not approve them for import. See Government Regulation section within Item 1 for additional information
about the FDA approval process

Our
manufacturing facilities also are subject to continual governmental review and inspection. The FDA has stated publicly that compliance with manufacturing regulations will be
scrutinized more strictly. A governmental authority may challenge our compliance with applicable federal, state and foreign regulations. In addition, any discovery of previously unknown problems with
one of our products or facilities may result in restrictions on the product or the facility, including withdrawal of the product from the market or other enforcement actions.

From
time to time, legislative or regulatory proposals are introduced that could alter the review and approval process relating to medical devices. It is possible that the FDA or other
governmental authorities will issue additional regulations further restricting the sale of our present or proposed products. Any change in legislation or regulations that govern the review and
approval process relating to our current and future products could make it more difficult and costly to obtain approval for new products, or to produce, market, and distribute existing products.

HEALTHCARE
REFORM LEGISLATION COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

If
any national healthcare reform or other legislation or regulations are passed that imposes limits on the number or type of medical procedures that may be performed or that has the
effect of restricting a physician's ability to select specific products for use in patient procedures, such changes could have a material adverse effect on the demand for our products. In the U.S.,
there have been, and we expect
that there will continue to be, a number of federal and state legislative and regulatory proposals to implement greater governmental control over the healthcare industry. These proposals create
uncertainty as to the future of our industry and may have a material adverse effect on our ability to raise capital or to form collaborations. In a number of foreign markets, the pricing and
profitability of healthcare products are subject to governmental influence or control. In addition, legislation or regulations that impose restrictions on the price that may be charged for healthcare
products or medical devices may adversely affect our sales and profitability.

IF
OUR USE OF HAZARDOUS MATERIALS RESULTS IN CONTAMINATION OR INJURY, WE COULD SUFFER SIGNIFICANT FINANCIAL LOSS.

Our
manufacturing and research activities involve the controlled use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. In
the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources.

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OUR
STOCK PRICE HAS BEEN VOLATILE AND OUR TRADING VOLUME HAS HISTORICALLY BEEN LOWER THAN THAT OF MANY NASDAQ LISTED STOCKS.

The
trading price of our common stock has been, and may be, subject to wide fluctuations in response to a number of factors, many of which are beyond our control. These factors include:



Historically,
the daily trading volume of our common stock has been relatively low to that of many other NASDAQ listed stocks. We cannot guarantee that an active public market for our
common stock will be sustained or that the average trading volume will remain at present levels or increase. In addition, especially in and since 2000 the stock market in general and the NASDAQ
National Market in particular have experienced significant price and volume fluctuations. Volatility in the market price for particular companies has often been unrelated or disproportionate to the
operating performance of those companies. Broad market factors may seriously harm the market price of our common stock, regardless of our operating performance. In addition, securities class action
litigation has often been initiated following periods of volatility in the market price of a company's securities. A securities class action suit against us could result in substantial costs,
potential liabilities, and the diversion of management's attention and resources.

RISK
RELATING TO ARTHUR ANDERSEN LLP'S LACK OF CONSENT

Arthur
Andersen LLP were the independent accountants for Inamed Corporation until July 19, 2002. Representatives of Arthur Andersen LLP are not available to provide the consent
required for the incorporation by reference of their report on the consolidated financial statements of Inamed Corporation appearing in this Annual Report on Form 10-K into
registration statements filed by Inamed Corporation with the Securities and Exchange Commission and currently effective under the Securities Act of 1933, and we can not comply with the requirement to
file their consent in reliance upon rule 437a under the Securities Act of 1933. Because Arthur Andersen LLP have not consented to the incorporation by reference of their report, investors will
not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for any untrue statements of a material fact contained in the consolidated financial statements
audited by Arthur Andersen LLP that are included in this report or any omissions to state a material fact required to be stated therein.

FUTURE
SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

The
market price of our common stock could decline as a result of sales of our common stock in private placements or in the public market, or the perception that these sales could occur.
In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock. As of March 10, 2004, there were 35,439,777 shares of our common stock
outstanding, with another 2.1 million shares of common stock issuable upon exercise of options granted under our stock option plans or under certain agreements with our senior officers. All of
the stock underlying these options have been registered for resale with the Securities Exchange Commission.

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FUTURE
CHANGES IN FINANCIAL ACCOUNTING STANDARDS MAY CAUSE ADVERSE UNEXPECTED REVENUE OR EXPENSE FLUCTUATIONS AND AFFECT OUR REPORTED RESULTS OF OPERATIONS.

A
change in accounting standards could have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Any
changes requiring that we record compensation expense in the statement of operations for employee stock options as an example using the fair value method could have a significant negative effect on
our reported results. New pronouncements and varying interpretations of pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may
adversely affect our reported financial results of the way we conduct our business.

LITIGATION
MAY HARM OUR BUSINESS OR OTHERWISE DISTRACT OUR MANAGEMENT.

Substantial,
complex or extended litigation could cause us to incur large expenditures and distract our management. For example, lawsuits by employees, stockholders or customers could be
very costly and substantially disrupt our business. Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure you that that we will always be able to resolve
such disputes out of court or on terms favorable to us.

ITEM 2. PROPERTIES

We lease all of our office, manufacturing, and distribution facilities which are as follows: Fremont, California; Santa Barbara, California; Arklow, Ireland; and
San José, Costa Rica.

We
lease office and warehouse space ranging from 1,500 square feet to 4,000 square feet for international sales offices, located in Canada, Australia, France, Germany, Italy, Japan,
Spain, and the United Kingdom. We believe our facilities are generally adequate for our needs for the foreseeable future. In the fourth quarter of 2002, we announced the consolidation of the Santa
Barbara manufacturing facility into our facilities in Costa Rica and Ireland. See Note 4 to the notes to the consolidated financial statements.

ITEM 3. LEGAL PROCEEDINGS

BREAST IMPLANT LITIGATION

Trilucent Breast Implant Matters

When we purchased Collagen in September 1999, we assumed certain liabilities relating to the Trilucent breast implant, a soybean oil-filled
breast implant, which had been manufactured and distributed by various subsidiaries of Collagen between 1995 and November 1998. In November 1998, Collagen announced the sale of its
LipoMatrix, Inc. subsidiary, manufacturer of the Trilucent implant, to Sierra Medical Technologies, Inc. Collagen retained certain liabilities for Trilucent implants sold prior to
November 1998.

In
March 1999, the United Kingdom Medical Devices Agency, or MDA, announced the voluntary suspension of marketing and withdrawal of the Trilucent implant in the U.K. 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 had 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. In March 1999, Collagen agreed with the U.K. National Health Service that, for a period of time, it would
perform certain product surveillance with respect to U.K. patients implanted with the Trilucent implant and pay for

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explants
for any U.K. women with confirmed Trilucent implant ruptures. 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. Subsequent to acquiring Collagen, Inamed elected to continue the voluntary program.

Inamed
estimates that approximately 8,000-9,000 women received Trilucent implants until commercial sales ceased in March 1999, and approximately half of them reside in
the U.K. In the U.S., 165 women received Trilucent breast implants in two clinical studies; enrollment in both studies ended by June 1997.

On
June 6, 2000, the MDA issued a hazard notice recommending that surgeons and their patients consider explanting the Trilucent implants even if the patient is asymptomatic. The
MDA also recommended that women avoid pregnancy and breast-feeding until the explantation. The hazard notice stressed, however, "that all of the above advice is precautionary. Although there have been
reports of breast swelling and discomfort in some women with these implants, there has been no clinical evidence of any serious health problems, so far."

Concurrently
with the MDA announcement of June 6, 2000, Inamed announced that, through its AEI, Inc. subsidiary, it had undertaken a comprehensive program of support and
assistance for women who have received Trilucent breast implants, under which it is covering medical expenses associated with the removal and replacement of those implants for women in the European
Community, the U.S. and other countries. After consulting with competent authorities in each affected country, we terminated this support program effective as of December 31, 2003 in all
countries other than Germany. Notwithstanding the termination of the general program, we may continue to pay for explanations and related expenses if a patient can justify her delay in having her
Trilucent implants removed on medical grounds or owing to lack of notice. Under this program, we pay a fee to any surgeon who conducts an initial consultation with any Trilucent implantee. We also pay
for the explantation procedure and related costs, and for replacement (non-Trilucent) implants for women who are candidates for and who desire them. To date, more than 90% of the U.K.
residents and more than two-thirds of the non-U.K. residents who have requested explantations as a result of an initial consultation have had them performed. To date, an
insurance company has reimbursed Inamed for approximately 70% of these expenses. Going forward, the insurance company is obligated to reimburse Inamed for not less than 75% of these expenses, up to an
aggregate of $50.0 million in coverage through February 15, 2005.

In
2000-2001, Inamed was sued in various litigations in the United States alleging bodily injury caused by Trilucent breast implants. All of these cases have now been
dismissed or settled and we do not face any Trilucent related claims or litigation in the United States at this time. One claim was settled without litigation for a small sum in the first quarter of
2003 and was covered by the Company's insurance settlement.

Also
during and since the third quarter of 2000, Inamed and its subsidiaries have received notices of claim from European women, the vast majority of them residents of the U.K. or Spain,
seeking compensation for general and special damages for alleged bodily injuries from Trilucent implants. In November, 2000, with the consent and approval of its insurers, AEI, Inc., on behalf
of itself, its affiliates and insurers, entered into a settlement protocol with the lead solicitor for the U.K. claimants. The protocol affords a fixed level of compensation to qualified claimants
who, in an uncomplicated surgical procedure, have had their Trilucent breast implants explanted in reliance on the June 2000 MDA hazard notice. The protocol also affords a mechanism for the
efficient resolution of any claims alleging that the early explantation of Trilucent implants involved serious surgical complications or resulted in a medical condition, which required either extended
hospitalization or extended home care. To date, close to 90% of the U.K. women who have had their Trilucent implants explanted since

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June 2000,
represented by more than 90 different solicitors, have sought compensation through the settlement protocol. To date, no such woman has brought civil proceedings.

In
addition, in Spain, Inamed has offered a protocol similar in structure to the United Kingdom protocol. To date, we have received approximately 310 claims under the Spanish protocol.
In addition, a Spanish consumer union has commenced a single action in which the consumer union alleges that it represents approximately 40 Spanish Trilucent explantees. Finally, approximately 50
women have commenced individual legal proceedings. To date, 7 of these proceedings have proceeded to judgment. We have won 4, and lost 3, of these cases. Damages in the cases we lost have averaged
$18,000 per case. We are taking appeals in each of the 3 cases.

In
2002, Inamed came to final settlements with each of its two insurers for product liability claims arising from the Trilucent implant. Under one settlement, with MEDMARC Casualty
Insurance Company, MEDMARC paid $6.0 million in cash to Inamed in January 2003, and $1.5 million in cash in May 2003, and, effective November 16, 2002, agreed to
make a policy with a limit of $10.0 million available to the Company for defense and indemnification of Trilucent-related bodily injury claims worldwide. The policy does not cover claims filed
against us after November 7, 2005. There was approximately $3.3 million remaining on the policy commitment at December 31, 2003. Under the second settlement, AISLIC, an AIG
company, agreed to make an excess policy with a limit of $10.0 million available to the Company for the indemnification of non-U.S. Trilucent claims. There was approximately
$6.2 million remaining under this commitment at December 31, 2003. As a result of these settlements, we released both carriers from any other actual or potential financial claims under
the policies and dismissed all carrier related litigation with prejudice. In addition, under
the settlement with AIG, subject to certain conditions, we are required to pay up to $1.5 million to AIG in or before November 2005.

By
agreement with the MDA, Inamed is currently funding additional scientific research and patient monitoring relating to Trilucent.

In
addition, at December 31, 2003, we had an accrual for future Trilucent claims, costs, and expenses of approximately $12.2 million, net of insurance.

Based
upon the information and analyses currently available to us, we believe that our current accruals and available insurance coverage are sufficient to discharge future Trilucent
related liabilities; however, there can be no assurances that the future Trilucent liabilities will not exceed the current accruals and insurance coverage.

Resolution of 3M Contractual Indemnity Claim

In connection with the February, 1999 settlement of its breast implant class action litigation (see "Breast Implant Class Action
Settlement,"below), 3M asserted against Inamed a contractual indemnity provision, which was part of the August 1984 transaction in which Inamed's McGhan Medical
subsidiary purchased 3M's plastic surgery business. To resolve these claims, on April 16, 1998, Inamed entered into a provisional agreement with 3M under which Inamed agreed to seek to obtain
releases of claims asserted against 3M in lawsuits involving breast implants manufactured by Inamed's McGhan Medical subsidiary. The 3M agreement provides for release of 3M's indemnity claim upon
achievement of an agreed minimum number of conditional releases for 3M.

Under
the terms of the 3M agreement, as later amended in January 1999, Inamed paid $3.0 million to 3M in February 1999. Also under the terms of the 3M agreement,
Inamed assumed limited indemnification obligations to 3M beginning in the year 2000, subject to a cap of $1.0 million annually and $3.0 million to $3.9 million in total. For 2000,
our total obligation under the 3M agreement, as amended, was $0.3 million, which we paid. In March 2002, 3M made a demand under

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the
3M agreement for $0.2 million relating to 2001. We have not received a further request for indemnification under this agreement.

Brown Litigation

InBrown v. Mentor Corporation, et al., Case NO CIV 00-534-T. U.S. District Court for the
Western District of Oklahoma, five plaintiffs, including one woman implanted with shaped saline breast implants manufactured by Inamed sought to represent a nationwide class of women who received
shaped saline breast implants manufactured either by McGhan or by Mentor Corporation (Mentor), an unrelated company. The complaint alleged that shaped saline implants manufactured and promoted by
Inamed's subsidiary and Mentor unexpectedly spun or rotated, causing cosmetic anomalies, physical pain and emotional distress. In addition, the complaint alleges that each plaintiff needs or has
undergone replacement surgery to remove the implants. The complaint sought compensatory and punitive damages on behalf of the individual plaintiffs and the putative class members in an amount
allegedly totaling "billions" of dollars, and also seeks an injunction against continued sale of the allegedly defective implants. The only defendants in this action were McGhan and Mentor.

As
of March 3, 2004, we entered into a settlement agreement with the named plaintiffs in this litigation. We made a payment to the named plaintiffs of an immaterial amount to
settle the matter, and the claims of such plaintiffs were dismissed with prejudice.

Sager Litigation

Inamed and its Inamed Medical Products Corporation subsidiary are defendants inVickie Sager and Elizabeth Weichsel v. Inamed Corporation,
et al., Case No. 01043771, Superior Court of the State of California for the County of Santa Barbara. In this putative class action, plaintiffs allege that they and
other women who received McGhan's shaped, saline breast implants overpaid for them as a result of Inamed's allegedly false and misleading promotions, advertising, and/or representations about this
product. Specifically, plaintiffs allege that, from approximately 1994 to the summer of 2000, Inamed falsely and wrongfully represented that the shaped breast implant was a superior product to round
implants offered at a lower cost. Plaintiffs allege our advertisements and promotions represented falsely that the shaped implants have a more natural and superior appearance after implantation than
round implants when, according to plaintiffs, this is not the case. For reasons unrelated to the allegations made by the plaintiffs, Inamed changed its marketing, advertising, and promotional program
for the shaped breast implants before this lawsuit was filed.

Plaintiffs
allege that Inamed's allegedly unlawful representations and promotions induced them and others to choose shaped implants at a cost of up to five hundred dollars more than the
cost of round breast implants. The complaint alleges that but for Inamed's allegedly false and misleading advertising and promotional campaigns, plaintiffs and the putative class members would have
paid approximately five hundred dollars less for their implants than they actually did.

The
operative complaint alleges that we engaged in fraud, negligent misrepresentation, breach of express and implied warranties, breach of contract, unlawful, unfair, and fraudulent
business practices in violation of California Business & Professions Code §17200,et seq.,false and deceptive advertising in
violation of California Business & Professions Code §17500et seq.,and analogous deceptive practices made unlawful by the California
Consumers Legal Remedies Act, California Civil Code §1750et seq.Plaintiffs purport to represent a class of all women residing in the U.S.
who received shaped implants from the date of that product's introduction (alleged to be in 1994) to a yet-to-be-ascertained date in the summer of 2000. Plaintiffs
seek compensatory and punitive damages. Plaintiffs also seek equitable and restitutionary relief that would generally require Inamed to disgorge and refund to the plaintiff class the alleged
difference in price between the shaped implants and less expensive round breast implants. In addition, plaintiffs seek equitable and injunctive relief barring Inamed and its subsidiaries from engaging
in further unlawful, deceptive, or misleading advertising or promotion of McGhan's shaped, saline breast implants. Plaintiffs also seek an award of attorney fees.

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We answered the complaint, denying all material factual allegations and asserting various affirmative defenses. In August, 2002, the Superior Court decided plaintiffs' motion to certify
this action as a class action and denied that motion in its entirety. Plaintiffs have taken an appeal from that decision. In December, 2002, the Superior Court decided Inamed's motion for summary
judgment or in the alternative for summary adjudication and, in general, denied that motion, finding that triable issues exist as to plaintiffs' reliance on the alleged misrepresentations, as to the
actionability of the alleged misrepresentations, and as to whether the named plaintiffs may proceed in a representative capacity under California Business & Professions Code §17204.
The parties unsuccessfully attempted to mediate a settlement of the case in May 2003. Since then, however, the parties were able to reach an agreement in principle on a settlement of the action
on a class wide basis. Without admitting any fault or liability, and to avoid the substantial cost of further complex litigation, Inamed will pay $2.1 million into a settlement fund for the
costs of notice, claims administration, the payment of verified claims, court-approved reasonable attorney fees, and related matters. The Court has vacated all dates in the case, including a trial
date, pending Court approval of the final settlement agreement. On November 5, 2003, the court preliminarily approved the settlement agreement in this case. Under a scheduling order entered
into by the court, a hearing on the parties' application for final approval of the settlement is to be held on March 30, 2004.

Breast Implant Class Action Settlement

Prior to a final settlement order issued by the U.S. District Court for the Northern District of Alabama, on February 1, 1999, Inamed was a defendant in
many thousands of state and federal court lawsuits involving breast implants. As part of that final order, all of those cases arising from breast implants (both silicone gel-filled and
saline-filled) that were implanted before June 1, 1993 were consolidated into a mandatory class action settlement and dismissed. The settlement order became final and non-appealable
on March 3, 1999. In May 1999, we made the final payment in connection with this settlement from a $31.1 equity issuance.

PATENTS AND LICENSE LITIGATION

Kuzmak Matter

In February 1999, Inamed and certain of our subsidiaries were named as respondents in an arbitration commenced by Dr. Lubomyr I. Kuzmak in the
American Arbitration Association, No. 13 184 00102 99, referred to below as the AAA action. Dr. Kuzmak alleged that as of the date of filing of the AAA action, he was owed approximately
$0.4 million in unpaid royalties under a license agreement covering four U.S. patents in the field of gastric banding naming Dr. Kuzmak as an inventor. In the past, Inamed worked with
Dr. Kuzmak in the development and improvement of gastric banding technology.

We
denied all of the material allegations raised by Dr. Kuzmak and asserted affirmative defenses and counterclaims, including non-infringement, invalidity and
unenforceability for inequitable conduct before the U.S. Patent and Trademark Office. In addition, in February 1999, we filed a civil action in the United States District Court for the Central
District of California against Dr. Kuzmak, No. CV 99-02160 MMM, referred to below as the California federal action, seeking a declaratory judgment of invalidity, unenforceability,
and non-infringement of the patents to which Dr. Kuzmak claims ownership. Dr. Kuzmak moved to dismiss the action for lack of personal jurisdiction.

On
January 24, 2000, shortly before hearings were set to begin in the AAA action, lawyers for Dr. Kuzmak and Inamed came to agreement on various terms and conditions of a
possible settlement of the California federal action, the AAA action, and a third action between BioEnterics Corporation and Dr. Kuzmak pending in the Superior Court of New Jersey, Chancery
Division, Essex County. The agreed-upon terms of the settlement were set forth in a letter agreement, the Letter Agreement,

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executed
by the parties' respective counsel on January 24, 2000. The Letter Agreement provided,inter alia, that Inamed would pay
Dr. Kuzmak an agreed upon amount in two installments and would pay royalties on each sale of a gastric band in the United States. The parties agreed that the first installment of
$0.4 million was to be paid "immediately upon execution of a settlement agreement, which the parties will use their best efforts to sign off on as soon as possible" and a second installment of
$0.25 million was to be paid "within 90 days of execution of the settlement agreement." The Letter Agreement also provided that Inamed would pay a royalty of $36 on each band sold in the
United States and an advance against royalties of $2.0 million within thirty days of FDA approval "following execution of the settlement agreement."

On
February 16, 2000, our attorneys sent the settlement agreement, for review and comment, to attorneys for Dr. Kuzmak. Despite repeated requests, Dr. Kuzmak refused
to execute the settlement agreement. On April 5, 2000, we filed a civil action in the United States District Court for the District of New Jersey, No. 00-CV-1610
(WHW) (the New Jersey federal action), seeking specific performance of the Letter Agreement or, in the alternative, relief from Dr. Kuzmak's breach of the Letter Agreement, as well as the
relief sought in the California federal action.

On
March 1, 2001, the court hearing the California federal action entered judgment dismissing that action, without prejudice, for lack of personal jurisdiction. Inamed appealed
this decision and on May 15, 2001, the United States Court of Appeals for the Federal Circuit rendered an opinion and judgment reversing the district court's dismissal and remanding the case to
the district court for further proceedings. At a scheduling conference held October 2, 2001, the court in the California federal action ordered the parties to participate in a mediation
proceeding, and bifurcated the court proceedings so that the question of the enforceability of the settlement agreement is resolved before other patent-related issues are addressed.

On
November 27, 2001, Ethicon Endo-Surgery, Inc., or Ethicon, acquired all of Dr. Kuzmak's rights, title and interest in his patents and patent
applications in the field of gastric banding technology. Ethicon then filed a motion to substitute itself as the real party in interest in place of Dr. Kuzmak in the California federal action.
In March 2002, the court granted Ethicon's motion to be added as a real party in interest but did not dismiss Dr. Kuzmak.

On
or about December 7, 2001, the parties stipulated to dismiss the New Jersey federal action without prejudice in favor of the California federal action and the New Jersey
federal action was so dismissed.

On
February 15, 2002, we filed a motion for partial summary judgment in the California federal action, seeking specific performance of the Letter Agreement or, in the alternative,
a determination that Dr. Kuzmak had breached the Letter Agreement. Ethicon and Kuzmak filed an opposition to the motion asking that summary judgment be granted in their favor instead,
determining that the Letter Agreement is unenforceable. On May 8, 2002, the court heard argument on that motion and, in an opinion dated May 28, 2002, denied that motion and granted
summary judgment on these claims to Ethicon and Kuzmak. Inamed took an appeal from the federal district court's May 28 rulings to the U.S. Court of Appeals for the Federal Circuit. That appeal
was fully briefed and, on April 9, 2003, argued. On May 15, 2003 the Federal Circuit affirmed the district court's grant of summary judgment on the basis that Inamed had not proven a
breach of the Letter Agreement by Dr. Kuzmak. In so doing, however, the Federal Circuit expressly overruled the district court's conclusion that a binding contract to settle this litigation had
never been formed. On the basis of certain language in the Federal Circuit's opinion that we believe renders the Letter Agreement currently enforceable, we moved the district court for a stay of all
proceedings. The district court held a conference call on June 10, 2003 and suggested the parties seek clarification from the Federal Circuit regarding the implications of its opinion on the
current enforceability of the Letter Agreement. We subsequently did so and the Federal Circuit denied the motion for clarification. We renewed its stay request, which the district court denied

29

---

on
July 22, stating that its interpretation of the Federal Circuit's opinion was that the Letter Agreement was terminated. We are currently evaluating our options with respect to enforcement of
the Letter Agreement.

Following
its denial of the stay request, the district court held a "Markman" claim construction hearing on July 28, 2003 to construe certain disputed claim terms of the asserted
patents. The final Claim Construction Order was issued on November 7, 2003. The court held a telephonic scheduling conference on November 19, 2003 at which time it set a schedule for
briefing on Inamed's motions for summary judgment of invalidity and non-infringement as well as expert discovery. On January 29, 2004 the court held a hearing on Inamed's summary
judgment motions for invalidity of the '339, '176 and '429 patents and for non-infringement of the '339 and '176 patents. Following the hearing, the court issued an order noting that the
previously scheduled February 17, 2004 trial date was vacated and that the issues raised in Inamed's summary judgment motions remain under consideration and further directing the parties to
submit a stipulation regarding a preferred trial date. On February 2, 2004 the parties submitted a stipulation requesting a trial date in late June 2004. The court has not yet confirmed
such or any other date. Inamed will vigorously prosecute any remaining declaratory relief claims and defend any remaining infringement claims at trial.

We
continue to believe that the Letter Agreement is an enforceable settlement agreement, that Kuzmak or Ethicon breached it, and that we did not breach it. If we are ultimately
successful in enforcing the Letter Agreement, we would obtain an exclusive license to, or a covenant not to sue under, all of the patents at issue in the federal litigation through June 2005,
when the earliest patent containing the broadest claims expires. We would also be obligated to pay Ethicon a running royalty of thirty-six U.S. dollars per BioEnterics®
LAP-BAND® System sold in the U.S. through June 2005 and a nonrefundable advance on royalties of $2.0 million. In that event, the federal district court need not
reach or decide Ethicon's claims for patent infringement or our claims for declarations of patent invalidity, unenforceability and/or non-infringement (together, the Patent Claims).
However, we do not expect that we will be able to enforce the Letter Agreement before we are required to litigate the Patent Claims.

If
we lose at a trial of the Patent Claims, a judgment could be entered against us (i) for damages in the form of royalties payable to Ethicon from December, 1998, and
(ii) enjoining us from making or selling the BioEnterics® LAP-BAND® System in the U.S. until the expiration of the last-to-expire
patent at issue in the litigation found to be valid and enforceable and to be infringed by the BioEnterics® LAP-BAND® System. Upon a finding that we willfully
infringed one or more of the patents at issue, the Court could also hold us liable to Ethicon for treble damages. In terminating a license agreement with Dr. Kuzmak in 1998, we acted in
reliance upon a written opinion issued by specialized patent counsel. This factor generally reduces the likelihood of a finding of willful infringement in patent litigation.

Among
other relief, Ethicon seeks, and Inamed opposes, the entry of an injunction against Inamed enjoining it from infringement of its patents. While the earliest and broadest of the
patents at issue in this litigation expires in 2005, other patents-in-suit expire in 2011 and 2013. Therefore, if Ethicon prevails on the patent claims and its request for an
injunction is granted, Inamed could be enjoined until 2013. In opposing the entry of such an injunction, we would rely in part on a well-established exception to this rule under which
injunctions have been denied in the context of litigation over medical device patents on public health grounds. While we believe that such an opposition would be well-grounded in law and
in fact, no assurance can be given that such an application would in fact be granted.

Dr. Kuzmak
has no continuing financial interest in this matter, as he assigned all such rights to Ethicon in November 2001.

30

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Although
we believe we have meritorious arguments in favor of our positions and continue to vigorously assert our rights and defenses in the litigation with Ethicon, if we are ultimately
unable to enforce the Letter Agreement and if we lose at a trial of the Patent Claims, and depending on determinations as to which patents were found to be infringed, the applicable royalty rate,
whether the infringement was willful and whether a permanent injunction issues, an adverse judgment which is not appealed successfully could have a material adverse impact on our financial condition,
results of operations and/or our prospects. Without prejudice to our position on the enforceability of the Letter Agreement, we have settled the AAA action with Ethicon, and paid the settlement amount
in full, resulting in the final dismissal of that matter. This settlement has no bearing on federal court litigation described above.

Manders Matter

Inamed is also a defendant in Ernest K. Manders, M.D. v. McGhan Medical Corporation, et al., pending in the U.S. District Court for the Western District of
Pennsylvania, Case No. 02-CV-1341. The Amended Complaint in the Manders case seeks damages for alleged infringement of a patent allegedly held by Manders in the field of
tissue expanders. We do not believe we practice the device claimed by Manders or that we teach the methods he claims. Accordingly, in February 2003, we answered the complaint, denying its
material allegations, and counterclaimed against Manders for declarations of invalidity as well as noninfringement. The parties are proceeding with fact discovery, which will be completed in
March 2004. Manders has elected to limit his claim for infringement to twelve of the forty-six claims in his patent. The parties are in the process of drafting claim construction
papers for these twelve claims in preparation for the Markman proceedings, which will begin in April 2004. Inamed believes it has strong defenses to this lawsuit and intends to defend it
vigorously.

Other Matters

Inamed is involved in various other legal actions arising in the ordinary course of business, which may involve product liability claims for bodily injury and/or
financial loss arising from the use of our products. These claims have not had, and are not expected to have, a material adverse effect on our financial condition or results of operations.

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

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or
otherwise.

31

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PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

DIVIDENDS

As a result of the fractional shares created by the three for two stock split, we paid cash of $0.1. We do not anticipate paying cash dividends on our common
stock in the foreseeable future. Our credit facility permits the payment of cash dividends as long as the maintenance of financial ratios and other conditions are met.

MARKET INFORMATION

On March 10, 2004, we had 429 stockholders of record. Our common stock price at the close of business on March 10, 2004, was $49.19 per share.

The
table below sets forth the high and low bid prices of our common stock for the periods indicated as reported on the NASDAQ National Market under the symbol IMDC. Quotations reflect
prices between dealers, do not reflect retail markups, markdowns or commissions, and may not necessarily represent actual transactions.

|            |  | High |       | Low
|----------- |  | ---- | ----- | ---
|2002        |  |      |       |    
|1st Quarter |  | $    | 22.62 |    
|2nd Quarter |  | $    | 24.93 |    
|3rd Quarter |  | $    | 17.41 |    
|4th Quarter |  | $    | 21.81 |    
|2003        |  |      |       |    
|1st Quarter |  | $    | 24.00 |    
|2nd Quarter |  | $    | 37.64 |    
|3rd Quarter |  | $    | 52.45 |    
|4th Quarter |  | $    | 58.90 |    

SECURITIES AUTHORIZED FOR ISSUANCES UNDER EQUITY COMPENSATION PLANS

See Part III Item 12 in Form 10-K for the securities authorized for issuances under equity compensation plans.

32

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ITEM 6. SELECTED FINANCIAL DATA

The following financial information is qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the notes
thereto included in this Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Annual Report. The selected consolidated
financial information presented below is derived from our audited consolidated financial statements for each of the five years through the period ended December 31, 2003.

|                                     |                                                             | Years Ended December 31, |      
|------------------------------------ | ----------------------------------------------------------- | ------------------------ | -----
|
|Statements of income data:           |                                                             |                          |      
|Net sales                            |                                                             | $                        | 332.6
|Cost of goods sold                   |                                                             |                          | 92.8 
|                                     |                                                             |                          |      
|                                     | Gross profit                                                |                          |      
|                                     |                                                             |                          |      
|Operating expenses:                  |                                                             |                          |      
|                                     | Selling, general and administrative                         |                          |      
|                                     | Research and development                                    |                          |      
|                                     | Restructuring charges                                       |                          |      
|                                     | Amortization of intangible assets and non-cash compensation |                          |      
|                                     |                                                             |                          |      
|                                     | Total operating expenses                                    |                          |      
|                                     | Operating income                                            |                          |      
|Other income (expense):              |                                                             |                          |      
|                                     | Net interest expense and debt costs                         |                          |      
|                                     | Foreign currency transaction gains (losses)                 |                          |      
|                                     | Royalty income and other                                    |                          |      
|                                     |                                                             |                          |      
|                                     | Total other expense, net                                    |                          |      
|                                     |                                                             |                          |      
|Income before income tax expense     |                                                             |                          | 67.2 
|Income tax expense                   |                                                             |                          | 14.2 
|                                     |                                                             |                          |      
|Net income                           |                                                             |                          | 53.0 
|                                     |                                                             |                          |      
|Net income per share of common stock |                                                             |                          |      
|                                     | Basic                                                       |                          | $    
|                                     | Diluted                                                     |                          | $    
|Weighted average shares outstanding: |                                                             |                          |      
|                                     | Basic                                                       |                          |      
|                                     | Diluted                                                     |                          |      

33

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|                                                                |  | December 31,
|--------------------------------------------------------------- |  | ------------
|
|
|Balance sheet data:                                             |  |             
|Working capital                                                 |  | $           
|Total assets                                                    |  |             
|Total long-term debt and capital leases (incl. current portion) |  |             
|Stockholders' equity                                            |  |             

---

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

The following Management's Discussion and Analysis (MD&A) is intended to help the reader to better understand Inamed Corporation. MD&A is provided as a supplement
to-and should be read in conjunction with- our financial statements and the accompanying notes. The following provides a brief description of each section of our MD&A:



COMPANY AND INDUSTRY OVERVIEW

Inamed is a global health care company that develops, manufactures and markets a diverse line of products that enhance the quality of peoples' lives. These
products include breast implants for aesthetic augmentation and reconstructive surgery following a mastectomy, a range of dermal products to correct facial wrinkles and the BioEnterics®
LAP-BAND®System and BIB® Systems used to treat severe and morbid obesity. We generate approximately 33% of our revenues outside the U.S./Canada. Demand for our
products remains on a steady positive trend upward in our primary markets notwithstanding economic conditions and the fact that most of our customers do not have access to reimbursement programs for
purchases of our products. With 2003 sales of nearly $333.0 million, and approximately 1,200 employees in more than 10 countries, we are a global leader in developing innovative medical devices
and implants that improve the quality of life for people around the world.

Our
primary markets are very competitive and subject to substantial government regulation. Pricing and market share pressures vary by product line and geographic market. In general,
inflationary trends result in increases in our labor and material costs. In addition, there are foreign currency fluctuations and other risks associated with operating on a global basis, such as price
and currency-exchange controls, import restrictions, and changing economic, social and political conditions in foreign countries. We expect these trends and risks to continue. We will continue to
manage these issues by capitalizing on our market presence, developing innovative products, investing in human resources, consolidating manufacturing facilities, leveraging our cost structure, and
possibly entering into alliances and other

34

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arrangements.
We will also seek opportunities where appropriate to limit any potential unfavorable impacts of operating in countries with weakened economic conditions.

We
derive all of our revenues from product sales. We sell our breast aesthetics, facial aesthetics and obesity intervention products in the U.S./Canada to hospitals, clinics and doctors
through a direct sales force. Internationally, our products are sold either through direct sales forces in countries where we have our own subsidiaries or through third party distributors. We realize
approximately 67% of our revenues from sales in the U.S./Canada and 33% internationally.

We
manufacture our products in California, Costa Rica and Ireland. We also purchase finished products and certain raw material components from third party manufacturers. The cost of
goods sold represents the cost of third party finished products, raw materials, labor and overhead. Gross margins may fluctuate from period to period due to changes in the selling prices of our
products, the mix of products sold, changes in the cost of third party finished products, raw materials, labor and overhead and manufacturing efficiencies or inefficiencies. In 2003, the cost of goods
sold also includes accelerated depreciation charges related to the manufacturing consolidation (see Note 4 to the Consolidated Financial Statements).

Our
selling, general and administrative expense incorporates the expenses of our sales and marketing organization and the general and administrative expenses necessary to support the
global corporation. Our sales and marketing expenses consist primarily of salaries, commissions, and marketing program costs. General and administrative expenses incorporate the costs of finance,
human resources, information services and legal and insurance costs.

Our
research and development expenses are comprised of the following types of costs incurred in performing clinical development and research and development activities: salaries and
benefits, allocated overhead, clinical trial and related clinical manufacturing costs, contract services, and other outside costs. We also conduct research on materials technology, product design and
product improvement.

We
feel that our development pipeline of products will favorably position our company to address the opportunities and challenges that lay ahead of us. Our development pipeline of
products currently includes products that have commenced or will soon commence clinical development in the U.S. These products include:



(For
a further discussion on the status of U.S. and international regulatory approvals, see Part I Item 1. "Business" on our Annual Report on Form 10-K

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $80.5 million at December 31, 2003, an increase of $41.2 million from $39.3 million at
December 31, 2002. At December 31, 2003, approximately $34.5 million of our cash was held internationally and may be subject to U.S. income tax if repatriated to the U.S. The
increase during 2003 was the result of cash provided by operations of $75.2 million and cash from the issuance of common stock of $33.2 million offset primarily by net principal
repayments of notes payable and long-term debt of $51.2 million and the purchase of plant and equipment of $12.1 million. Cash provided by operating activities has been, and
is expected to continue to be, our primary source of funds.

35

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Cash
provided by operations of $75.2 million in 2003 reflects net income of $53.0 million that was adjusted by non-cash charges including $15.3 million
of depreciation and amortization and an $18.3 million tax benefit from stock option exercises, as well as the effect of an increase in trade accounts receivable of $20.5 million, a
decrease in other assets of $8.4 million, and other changes in assets and liabilities. Cash provided by operations in 2002 of $43.8 million reflects net income of $32.9 million
that was adjusted by non-cash charges, including $12.6 million of depreciation and amortization, special charges of $5.7 million and other non-cash items, as well
as the effect of an increase in trade accounts receivable of $8.8 million, an increase in accruals and other long-term liabilities of $11.3 million, and other changes in
assets and liabilities.

Cash
used in investing activities of $16.9 million in 2003 and $18.6 million in 2002 consisted primarily of capital expenditures for our global ERP system and capacity
expansion projects. We anticipate spending between $23.0 and $26.0 million in 2004 on capital projects, primarily for production expansion at our Fremont and Arklow facilities.

Cash
used in financing activities in 2003 of $19.4 million reflected net principal payments of $51.2 million on our long-term debt, which were partially offset
by $33.2 million in proceeds from the issuance of common stock upon the exercise of outstanding employee stock options. On July 25, 2003, we retired our existing term loan facility with
a balance of $79.2 million and obtained a new credit facility having a principal balance of $65.0 million for a term of five years and also entered into a new revolving credit facility
of $35.0 million. The borrowings under the new credit facilities bear interest at the London Interbank Offered Rate or LIBOR plus 2.25% that will decrease to LIBOR plus 2.0% at
March 31, 2004. Cash used in financing activities in 2002 of $22.2 million reflected principal payments of $36.5 million on our long-term debt, including
$25.0 million of principal prepayments which were partially offset by $14.3 million in proceeds from the issuance of common stock upon the exercise of outstanding warrants and employee
stock options. As of December 31, 2003 our credit agreement allows us to use up to $75 million of its funds to pay dividends and purchase our common stock. We had no stock repurchase
program in place as of December 31, 2003.

As
of December 31, 2003, we had long-term debt of $32.5 million. Annual principal payments of $10.0, $12.5, and $10.0 million are due in 2004 through
2006, each year, respectively. In addition, we have a $35.0 million revolving line of credit. As of December 31, 2003, we have used $14.8 million of the revolver capacity by
having one of the banks issue letters of credit in favor of several insurance companies, the purpose of which is to collateralize liability insurance programs. The remaining $20.2 million of
revolver capacity is unused as of December 31, 2003.

The
following summarizes our contractual obligations and other commitments at December 31, 2003, and the effect such obligations could have on our liquidity and cash flow in
future periods (in millions):

|                                                                                     |  | Payments due by period
|------------------------------------------------------------------------------------ |  | ----------------------
|
|Long-term debt                                                                       |  | $                     
|Operating leases                                                                     |  |                       
|Purchase obligations                                                                 |  |                       
|Distribution agreements                                                              |  |                       
|Other long-term liabilities reflected on the registrant's balance sheet under GAAP * |  |                       
|                                                                                     |  |                       
|Total                                                                                |  | $                     
|                                                                                     |  |                       

---

*
Total other long-term liabilities is $46.8 million. The $55.8 million includes $9.0 million of the short-term portion of the long-term obligation.

36

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The primary objectives for our cash investments are liquidity and safety of principal. Investments are generally of short duration and high credit quality.

We
believe that existing funds, cash generated from operations, and existing debt financing are adequate to satisfy our working capital and capital expenditure requirements for the
foreseeable future. Further, we believe that we will be able to obtain sufficient replacement financing, which coupled with our operating cash flow, will be in an amount sufficient to repay the
existing term loan. However, we may raise additional debt or equity capital from time to time.

RESULTS OF OPERATIONS

Sales

|                                   |       |   |       |       |    |     |   |       |       |    |     |   |       | 03 vs. 02 |    | 02 vs. 01 |  
|---------------------------------- | ----- | - | ----- | ----- | -- | --- | - | ----- | ----- | -- | --- | - | ----- | --------- | -- | --------- | -
|
|Inamed AestheticsBreast           |       | $ | 177.8 |       | 53 | %   | $ | 156.3 |       | 57 | %   | $ | 140.7 |           | 59 | %         | $
|Inamed AestheticsFacial           |       |   | 87.2  |       | 26 | %   |   | 73.8  |       | 27 | %   |   | 67.2  |           | 28 | %         |  
|Inamed HeatlhObesity intervention |       |   | 63.1  |       | 20 | %   |   | 39.4  |       | 14 | %   |   | 24.1  |           | 10 | %         |  
|Other Products                     |       |   | 4.5   |       | 1  | %   |   | 6.2   |       | 2  | %   |   | 6.1   |           | 3  | %         |  
|                                   |       |   |       |       |    |     |   |       |       |    |     |   |       |           |    |           |  
|                                   | Total |   | $     | 332.6 |    | 100 | % | $     | 275.7 |    | 100 | % | $     | 238.1     |    | 100       | %
|                                   |       |   |       |       |    |     |   |       |       |    |     |   |       |           |    |           |  

Net sales (net of returns, discounts, and allowances), or sales, for 2003 were effected by foreign exchange rate fluctuations positively by
approximately 4% in 2003, 1% in 2002 and negatively by 2% in 2001. We expect sales to grow at a low double-digit rate in 2004.

Inamed AestheticsBreast.The growth in 2003 and 2002 of breast aesthetic sales was
driven by several key factors:



In
2004, sales of breast aesthetics products are expected to grow at a mid double-digit rate.

Inamed AestheticsFacial.Facial aesthetics sales for 2003 experienced positive growth in
the U.S. The reasons for continued market and product growth spans several areas:



37

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Facial
aesthetics sales for 2002 experienced strong growth in the U.S. which we attribute to the increasing acceptance of cosmetic procedures, the demographic expansion of the market
segment that most uses anti-wrinkle products, the introduction and continued acceptance of Allergan's Botox® into the U.S. market, focused execution by our sales representatives and
improved management of average selling prices. Our overall international facial sales were down in 2002. Sales growth in Europe was positive, but our sales performance declined in Japan more than
offsetting the European growth.

In
2004, sales of facial aesthetics products are expected to decrease slightly from 2003 due to the introduction of Restylane® in the United States in the first quarter of
2004.

Inamed HealthObesity Intervention.The increase in 2003 and 2002 sales was primarily due
to the following:



In
2004, sales of obesity intervention products are expected to increase in the 30% range over sales in 2003. We expect to achieve this growth by training and qualifying more physicians
on the procedure, working to achieve broader reimbursement for the product and the procedure and educating consumers about the benefits of the BioEnterics®
LAP-BAND® System versus other medical procedures.

Cost of Goods Sold

Cost of goods sold

Percent of sales

Gross profit margin

Percent change over prior year2003

$
92.8

27.9
%
72.1
%
0.2
%2002

$
77.6

28.1
%
71.9
%
0.1
%2001

$
67.2

28.2
%
71.8
%


The
improvement of gross margins in 2002 and 2003 reflected the emergence of a more balanced product portfolio and improved operational efficiencies. Included in cost of goods sold for
2003 and 2002 was $3.4 million and $0.6 million of accelerated depreciation respectively relating to the manufacturing consolidation. See Note 4 of the notes to the consolidated
financial statements. In 2004, we expect cost of goods sold to be 26% to 28% and the gross profit margin to be 72% to 74% of sales, including the impact of accelerated depreciation from the
manufacturing consolidation, which we estimate to be $0.4 million.

38

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Selling, General, and Administrative (SG&A)

SG&A

Percent of sales

Dollar change over prior year

Percent change over prior year2003

$
141.8

42.6
%
$
15.1

11.9
%2002

$
126.7

46.0
%
$
30.1

31.2
%2001

$
96.6

40.6
%


In
2003 much of the increase in SG&A expenses was to support the launch of CosmoDerm®and
CosmoPlast®with focus on consumer awareness, and royalties associated with the sales of our aesthetic products. Also included in SG&A was a
$2.1 million charge related to a legal dispute with Sager et al. involving alleged misleading advertising that originated in the mid-1990s and a specific increase in the allowance
for doubtful accounts for $2.1 million related to our Italian facial business which had been operated through a sales agency arrangement that we terminated subsequent to year end.

In
2003 our selling and marketing expenses increased on an absolute basis and as a percentage of sales. Our general and administrative expense decreased in absolute dollars and decreased
as a percentage of sales.

In
2002 much of the increase in SG&A was due to the increased promotion of the BioEnterics® LAP-BAND® System and continued promotion of our Aesthetics
products. There were also increases in insurance costs and legal fees associated with various legal matters as discussed in Note 20 of the notes to the consolidated financial statements. We
have also specifically included $0.5 million of charges and credits related to litigation, $5.7 million for investment impairments, $1.3 for sales tax liability adjustments, and $(0.3)
credits for other items.

In
2002 our selling and marketing expenses increased on an absolute basis and as a percentage of sales. Our general and administrative expense increased in absolute dollars and increased
as a percentage of sales.

In
2004, we expect SG&A expenses to be in the range of 40% to 42% of sales, as we continue to invest in key business initiatives. These include several product launches in the breast and
facial aesthetics businesses.

Research and Development (R&D)

R&D

Percent of sales

Dollar change over prior year

Percent change over prior year2003

$
21.5

6.5
%
$
7.9

58.1
%2002

$
13.6

4.9
%
$
1.4

11.5
%2001

$
12.2

5.1
%


The
majority of the expenses in 2003 related to the clinical development programs for our Hylaform® dermal filler, the botulinum toxin Type A product, and the silicone gel
and cohesive silicone gel breast implant clinical trial, and PMA applications as applicable in the U.S.

The
increase in 2002 over 2001 was due primarily to an increase in development expense funding for silicone-gel filled breast implants, Hylaform® dermal filler
and the botulinum toxin Type A clinical trial.

39

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In
2004, we expect research and development expenses will increase $7.0 to $9.0 million over 2003 and be in the range of $28.0 to $30.0 million. The increase in investment
in R&D is essential to advance our strategic and market positions in our three main product lines around the world.

Restructuring Charges

In 2002 we recorded $5.1 million of restructuring costs. This restructuring was undertaken to consolidate manufacturing facilities. The manufacturing
consolidation will lead to improved efficiencies and cost savings. The consolidation will continue through 2004 and involves transitioning Santa Barbara-based manufacturing to our facilities in Costa
Rica and Ireland. In 2003, we eliminated approximately 80 positions in Santa Barbara and approximately 70 will be eliminated in the first half of 2004. The majority of the costs relate to severance
which will be paid from the beginning of 2003 through 2004. As part of the manufacturing consolidation we have accelerated the depreciation on certain assets with shortened useful lives. For the years
ending December 31, 2003 and 2002 we incurred $3.4 and $0.6 million of accelerated depreciation charges included in cost of goods sold on the income statement. We expect additional
accelerated depreciation charges related to this manufacturing consolidation of approximately $0.4 million in 2004.

In
2001, we recorded $12.0 million of restructuring charges to reflect costs associated with changing senior management and consolidating facilities and administrative functions.
The Santa Barbara reduction was facilitated by moving certain manufacturing operations to our new facility in Costa Rica, which began full operation late in 2000, and the move of Santa Barbara's
remaining manufacturing to a local facility. These costs were primarily employee severance costs. We do not expect any further material costs related to the 2001 restructuring.

Amortization

In 2003 amortization of intangible assets and non-cash compensation was $4.0 million compared to $4.9 million in 2002 and
$11.3 million in 2001, a decrease of $0.9 million in 2003 and $6.4 million in 2002. The decrease in 2003 was primarily due to one patent becoming fully amortized in
August 2003. The decrease in 2002 was due to the adoption of FAS 142, under which goodwill and other intangible assets with indefinite lives are no longer amortized.

Interest Expense

Net interest and other financing expense totaled $9.4 million, $11.7 million, and $11.7 million in 2003, 2002, and 2001, respectively. We had
a decrease of $2.3 million, or 20%, in 2003 and no change in 2002. The decrease is due to lower interest rates and significantly lower debt levels, offset by additional charges each year for
the recognition of unamortized loan fees and the realization of unrealized losses on our interest rate swap in connection with the refinancing and prepayment of our debt.

Foreign Currency

Foreign currency gains and losses fluctuate based largely upon the fluctuation of the dollar to the EU Euro and the Japanese Yen.

Royalty Income and Other

Royalty income, net of other expenses, was $4.2 million, $5.8 million, and $5.0 million in 2003, 2002, and 2001, respectively.

40

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Income Tax Expense

Our effective tax rate was 21%, 22%, and 34%, for 2003, 2002, and 2001, respectively. The lower tax rate in 2003 was due to increased economic activity in low tax
jurisdictions and several non-recurring items, including the recognition of additional foreign net operating loss carryforwards, the write-off of the tax basis of certain
foreign subsidiaries and the favorable resolution of several tax issues. The decrease in 2002 was related to the recognition of certain foreign net operating loss carryforwards, the utilization of
miscellaneous tax credits, U.S. charges related to our manufacturing consolidation and other finance charges, all non-recurring items. In addition, our tax rate benefited from a lower
state effective tax rate and increased economic activity in low tax jurisdictions. In 2004, we expect our effective tax rate to be in a range of 24% to 26%.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue recognition, inventories, adequacy of allowances for doubtful accounts, valuation of long-lived assets and goodwill, income
taxes, litigation and warranties. We base our
estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. The
policies discussed below are considered by management to be critical to an understanding of our financial statements. These estimates form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from those estimates.

Revenue Recognition

We recognize product revenue, net of sales discounts, returns and allowances, in accordance with Staff Accounting Bulletin (SAB) No. 104, "Revenue
Recognition" and SFAS No. 48 "Revenue Recognition When Right of Return Exists." These statements establish that revenue can be recognized when persuasive evidence of an arrangement exists,
delivery has occurred and all significant contractual obligations have been satisfied, the fee is fixed or determinable, and collection is considered probable. We recognize revenue upon delivery of
product to third party distributors and customers. Due to the widespread holding of consignment inventory in our industry, we also recognize revenue when the products are withdrawn from consignment
inventory in hospitals, clinics and doctors' offices. Appropriate reserves are established for anticipated returns and allowances based on our product return history. We believe our estimates for
anticipated returns is a "critical accounting estimate" because it requires us to estimate returns and, if actual returns vary, it could have a material impact on our reported sales and results of
operations. Historically our estimates of return rates have not fluctuated from the actual returns by more than 1% to 2%.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. We capitalize inventory costs
associated with certain product candidates prior to regulatory approval, based on our judgment of probable future commercialization. We believe our estimates of inventory values is a "critical
accounting estimate" because we could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other factors, a
decision denying approval of the product candidate by the necessary regulatory bodies, which could have a material impact on our results of operations.

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Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of some of our customers to make required payments. The allowances
for doubtful accounts are based on the analysis of historical bad debts, customer credit-worthiness, past transaction history with the customer, current economic trends, any deterioration of the
accounts receivable aging, and changes in customer payment terms. We believe our estimates for our allowance for doubtful accounts is a "critical accounting estimate" because if the financial
condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances may be required, which could have a material impact on our results of
operations.

Valuation of Long-lived Assets and Goodwill

We account for long-lived assets, other than goodwill in accordance with the provisions of Statement of Financial Accounting Standards SFAS
No. 144, "Accounting for the Impairment and Disposal of Long Lived Assets," which supercedes SFAS No. 121 and certain sections of APB Opinion No. 30 specific to discontinued
operations. SFAS No. 144 classifies long-lived assets as either (1) to be held and used, (2) to be disposed of by other than sale, or (3) to be disposed of by
sale. This standard introduces a probability-weighted cash flow estimation approach to deal with situations in which alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration or a range is estimated for the amount of possible future cash flows. We have adopted this statement, which has not had a material impact on our
financial position or results of operations. SFAS No. 144 requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. With the exception of the manufacturing consolidation that occurred in 2002, see
Note 4 to the notes to the consolidated financial statements, attached as Exhibit (a) (1), we do not believe that any such changes have taken place.

We
also adopted SFAS No. 142 "Goodwill and Other Intangible Assets," on January 1, 2002. As a result, goodwill is no longer amortized, but is subject to a transitional
impairment analysis and is tested for impairment on an annual basis, or more frequently as impairment indicators arise. The test for impairment involves the use of estimates related to the fair values
of the business operations with which goodwill is associated and is usually based on projected cash flows or market value approach. Other intangible assets are amortized using the
straight-line method over their estimated useful lives, of which periods of up to 30 years.

We
believe the estimate of our valuation of Long-lived Assets and Goodwill is a "critical accounting estimate" because if circumstances arose that led to a decrease in the
valuation it could have a material impact on our results of operations.

Income Taxes

Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the years in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in
the deferred income tax assets or liabilities from period to period. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be
realized. We consider our ability to carryback losses, forecasted earnings and future taxable income and feasible tax planning strategies in determining the need for and amount of a valuation
allowance. We believe the estimate of our income tax assets, liabilities and expense are "critical accounting estimates" because if the actual income tax assets, liabilities and expenses differ from
our estimates the outcome could have a material impact on our results of operations.

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Litigation

We are involved in various litigation matters as a claimant and as a defendant. We record any amounts recovered in these matters when collection occurs. We record
liabilities for claims against us when the losses are probable and can be reasonably estimated. Amounts recorded are based on reviews by outside counsel, in-house counsel, and management.

Product Warranties

We have an accrual for our "Confidence Plus" warranty program for our breast implant sales in the United States. We estimate the amount of potential future claims
from this warranty based on actuarial analysis. Expected future obligations are determined based on the history of product shipments and claims and are discounted to a current value. We believe that
our estimate for product warranties is a "critical accounting estimate" because it requires us to estimate failure rates, claim amounts, and discount rates. Changes to actual claims and interest rates
could have a material impact on the actuarial calculation which could materially impact our reported expenses and results of operations.

Recent Pronouncements

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51," which addresses consolidation by business enterprises of variable interest entities ("VIEs") either: (1) that do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In
December 2003, the FASB completed deliberations of proposed modifications to FIN 46 ("Revised Interpretations") resulting in multiple effective dates based on the nature as well as the creation
date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. VIEs
created after January 1, 2004, must be accounted for under the Revised Interpretations. Special Purpose Entities ("SPEs") created prior to February 1, 2003 may be accounted for under the
original or revised interpretation's provisions. Non-SPEs created prior to February 1, 2003, should be accounted for under the Revised Interpretation's provisions. The Revised
Interpretations are effective for periods after June 15, 2003 for VIEs in which the Company holds a variable interest it acquired before February 1, 2003. For entities acquired or
created before February 1, 2003, the Revised Interpretations are effective no later than the end of the first reporting period that ends after March 15, 2004, except for those VIEs that
are considered to be SPEs, for which the effective date is no later than the end of the first reporting period that ends after December 31, 2003. The adoption of FIN 46 and the Revised
Interpretations has not and is not expected to have a material impact on our financial position or results from operations.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies the
accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after
September 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company's financial position or results from operations.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes
the accounting for certain financial instruments that, under previous guidance, were accounted for as equity. SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments: (1) mandatory redeemable

43

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shares,
which the issuer is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets; and, (3) obligations that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a
market index, or varies inversely with the value of the issuer's shares. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company's financial position or results from operations.

In
December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which codifies, revises, and rescinds certain sections of SAB
No. 101, "Revenue Recognition," in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes
noted in SAB No. 104 did not have a material effect on our financial position or results from operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our operations are exposed to fluctuations in interest rates and foreign currencies. These fluctuations can vary its cost of
financing and operations.

Interest
Rate ExposureBased on our overall interest rate exposure at December 31, 2003, which was variable rate debt, a hypothetical 10% change in interest rates
applied to our outstanding debt as of December 31, 2003, would have no material impact on earnings, cash flows, or fair values of interest rate risk sensitive instruments over a
one-year period.

Foreign
Currency ExposureOur foreign currency risk exposure results from fluctuating currency exchange rates, primarily the movement of the U.S. dollar relative to the euro
and yen. Our transactional currency exposures arise when we or one of our subsidiaries enter into transactions denominated in currencies other than their local currency. We also face currency exposure
arising from the translation of the financial results of our global operations into U.S. dollars at exchange rates that have fluctuated during the reporting period.

From
time to time, we have entered into agreements to hedge certain foreign currency exposures on commitments, denominated in foreign currencies, thereby limiting our risk that would
otherwise result from changes in exchange rates. There were no foreign exchange forward contracts, transactions, or open contracts at December 31, 2003 or 2002. Based on Inamed's overall
exposure for foreign currency at December 31, 2003, a hypothetical 10% change in foreign currency rates would not have a material impact on its balance sheet, sales, net income, or cash flows
over a one-year period.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements begin on page F-1.

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

Arthur Andersen LLP were previously the principal accountants for Inamed Corporation. On July 19, 2002, that firm's appointment as principal accountants
was terminated and KPMG LLP was engaged as principal accountants. The decision to change accountants was approved by the Audit Committee of the Board of Directors.

In
connection with the audits of the fiscal year ended December 31, 2001, and the subsequent interim period through July 19, 2002, there were no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject matter of the disagreement in connection with their report for such years; and there were no reportable events as defined
in Item 304 (a) (1) (v) of regulation S-K.

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The audit reports of Arthur Andersen LLP on the consolidated financial statements of Inamed Corporation and subsidiaries as of and for the years ended December 31, 2001 and 2000,
did not contain any adverse opinions, disclaimer of opinions, nor were they qualified or modified as to the uncertainty, audit scope, or accounting principles.

The
Company has provided Arthur Andersen LLP with a copy of the Form 8-K filed on July 23, 2002 and has requested Arthur Andersen LLP to furnish a letter
addressed to the Securities and Exchange Commission stating whether it agrees with the statements in the Form 8-K. The Company has attempted to contact Arthur Andersen's offices in
order to ascertain whether the firm will supply this letter. After reasonable efforts, the Company was unable to obtain the letter from Arthur Andersen and the Company has therefore omitted the letter
from the Form 8-K/A pursuant to Item 304T (b)(2) of Regulation S-K.

During
the two years ended December 31, 2001 and through July 19, 2002, the Company did not consult KPMG LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the audit opinion that might be rendered on Inamed's consolidated financial statements, or any other matters or reportable events listed in
Items 304 (a)(2)(i) and (ii) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. In the course
of conducting this evaluation, our management evaluated our internal control framework with respect to certain accounts receivable in Italy that relate to sales of our facial aesthetics products. We
had a sales agency arrangement with a third party pursuant to which the third party originated sales in Italy of our facial aesthetics products and collected the corresponding accounts receivable. The
third party, after collecting certain receivables, failed to remit the proceeds to us. Upon discovery of this situation, we immediately terminated the agency relationship and recorded a charge, in the
fourth quarter of 2003, of $2.1 million as an increase to the allowance for doubtful accounts. We were advised by KPMG LLP, our independent auditors, that the foregoing circumstances resulted
in a reportable condition, but not a material weakness, with respect to our internal controls. Based upon this advice, management concluded that our disclosure controls and procedures may not have
been effective with respect to the circumstances described above. Subject to the foregoing exception, based upon their evaluation of our
disclosure controls and procedures, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period
covered by this Annual Report.

PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY

The information required in this item is incorporated herein by reference to of the information under the captions "Elections of Directors", "Compliance with
Section 16(a) of the Exchange Act" and "Code of Ethics" of the registrant's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later
than April 29, 2004.

ITEM 11. EXECUTIVE COMPENSATION

The information required in this item is incorporated herein by reference information under the heading "Executive Compensation" of the registrant's Proxy
Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than April 29, 2004.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required in this item is incorporated herein by reference the information under the captions "Security Ownership of Certain Beneficial Owners and
Management" and "Securities Authorized for Issuances Under Equity Compensation Plans" of the registrant's Proxy Statement for
Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than April 29, 2004.

|                                                   |  | Authorized
shares |  | Number of
securities to be
issued upon the
exercise of
outstanding
options |  | Weighted average
exercise price of
outstanding options |       | Number of securities
remaining available for
future issuance
|-------------------------------------------------- |  | ----------------- |  | -------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | ------------------------------------------------------------
|The 1993 Plan                                      |  | 225,000           |  | 52,500                                                                     |  | $                                                      | 19.71 |                                                             
|The 1998 Plan                                      |  | 675,000           |  | 11,150                                                                     |  | $                                                      | 4.33  |                                                             
|The 1999 Program                                   |  | 1,350,000         |  | 192,249                                                                    |  | $                                                      | 43.16 |                                                             
|The 2000 Option Plan                               |  | 2,287,500         |  | 1,591,711                                                                  |  | $                                                      | 33.81 |                                                             
|The 2003 Outside Director Plan                     |  | 225,000           |  | 37,500                                                                     |  | $                                                      | 40.34 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             
|Equity compensation plans approved by Stockholders |  | 4,762,500         |  | 1,885,110                                                                  |  | $                                                      | 34.33 |                                                             
|Stand Alone Options, not approved by Stockholders  |  | 2,426,250         |  | 200,001                                                                    |  | $                                                      | 15.34 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             
|Total                                              |  | 7,188,750         |  | 2,085,111                                                                  |  | $                                                      | 32.51 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             

|                               |  | Authorized shares |  | Number of shares issued |  |  |  | Available for Issuance
|------------------------------ |  | ----------------- |  | ----------------------- |  |  |  | ----------------------
|The 2003 Restricted Stock Plan |  | 150,000           |  | 142,500                 |  |  |  | 7,500                 
|                               |  |                   |  |                         |  |  |  |                       

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required in this item is incorporated herein by reference to information under the caption "Certain Relationships and Related Transactions" of the
registrant's Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than April 29, 2004.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required in this item is incorporated herein by reference to information under the caption "Independent Public Accountants" of the registrant's
Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than April 29, 2004.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND CURRENT REPORTS ON FORM 8-K

(a)(1)

Consolidated Financial Statements:Reports of Independent Public Accountants

F-1Consolidated Balance Sheets as of December 31, 2003 and 2002

F-3Consolidated Statements of Income for three years ended December 31, 2003

F-4Consolidated Statements of Stockholders' Equity and Comprehensive Income for three years ended December 31, 2003

F-5Consolidated Statements of Cash Flows for three years ended December 31, 2003

F-6Notes to Consolidated Financial Statements

F-8(a)(2)

Consolidated Financial Statement Schedules:Schedule IIValuation accounts

S-2All other schedules are omitted because the required information is not present or is not required.(a)(3)

ExhibitsThe following exhibits are filed as part of this Annual Report on Form 10-K.


|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger dated as of December 22, 1998 by and between Inamed Corporation and Inamed Corporation (Delaware). (Incorporated herein by reference to Exhibit 2.1 of Inamed's Current Report on Form 8-K filed
with the Commission on December 30, 1998.)                                                           
|2.2         |  | Agreement and Plan of Merger, dated as of July 31, 1999, by and among Inamed Corporation, Inamed Acquisition Corporation and Collagen Aesthetics, Inc. (Incorporated herein by reference to Exhibit (c)(1) to Schedule 14D-1
filed by Inamed Corporation and Inamed Acquisition Corporation with the Commission on August 4, 1999.)
|3.1         |  | Inamed's Restated Certificate of Incorporation, as amended December 22, 1998. (Incorporated herein by reference to Exhibit 3.1 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29,
1999.                                                                                                                 
|3.2         |  | Inamed's By-Laws, as amended December 22, 1998. (Incorporated herein by reference to Exhibit 3.2 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 1999.                                                                                                                                               
|4.1         |  | Registration Rights Agreement, dated as of September 30, 1998. (Incorporated herein by reference to Exhibit 99.10 of Inamed's Current Report on Form 8-K filed with the Commission on October 15, 1998.)                                                                                                                           
|4.2         |  | Registration Rights Agreement by and between Inamed Corporation and Santa Barbara Bank and Trust, as trustee, dated as of November 5, 1998. (Incorporated herein by reference to Exhibit 99.9 of Inamed's Current Report on
Form 8-K filed with the Commission on November 19, 1998.)                                              
|4.3         |  | Amended and Restated Rights Agreement, dated as of November 16, 1999, by and between Inamed Corporation and U.S. Stock Transfer Corporation, as Rights Agent. (Incorporated herein by reference to Exhibit 4.1 of Inamed's
Current Report on Form 8-K filed with the Commission on November 19, 1999.)                             
|            |  |                                                                                                                                                                                                                                                                                                                                    

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|4.4   |  | Amendment No. 1 to Amended and Restated Rights Agreement, dated as of December 22, 1999, by and among Inamed Corporation, Appaloosa Management LP and U.S. Stock Transfer Corporation, as Rights Agent. (Incorporated by
reference to Exhibit 4.1 of Inamed's Current Report on Form 8-K filed with the Commission on December 30, 1999.)                                                                                                                                                             
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5   |  | Amendment No. 2 to Amended and Restated Rights Agreement, dated as of April 1, 2002, by and between Inamed Corporation and U.S. Stock Transfer Corporation, as Rights Agent. (Incorporated herein by reference to Exhibit 4.5
of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                    
|4.6   |  | Letter Agreement by and between Inamed Corporation and Appaloosa Management LP regarding Rights Agreement. (Incorporated herein by reference to Exhibit 4.6 of Inamed's Annual Report on Form 10-K filed with the Commission
on March 29, 2002.)                                                                                                                                                                                                                                                      
|10.1  |  | Loan Agreement, dated as of September 1, 1999, by and among Inamed Corporation and Inamed Acquisition Corporation, as Borrowers, the Initial Lenders named therein, as Initial Lenders, and Ableco Finance LLC, as
Administrative Agent. (Incorporated herein by reference to Exhibit 4.1 of Inamed's Current Report on Form 8-K filed with the Commission on September 15, 1999.)                                                                                                                    
|10.2  |  | Loan Agreement, dated as of February 1, 2000, by and among Inamed Corporation, as Borrower, and the Several Lenders from Time to Time Parties Hereto, First Union National Bank, as Administrative Agent, Bear Stearns
Corporate Lending, Inc., as Syndication Agent, GMAC Commercial Credit, LLC, as Documentation Agent, and Bear Stearns & Co., as Arranger. (Incorporated herein by reference to Exhibit 10.2 of Inamed's Annual Report on Form 10-K filed with the
Commission on March 29, 2002.)
|10.6  |  | Option agreement for Nicholas L. Teti, dated July 23, 2001. (Incorporated herein by reference to Exhibit 10.6 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29,
2002.)                                                                                                                                                                                                                                                                                                    
|10.7  |  | Option agreement for Hani Zeini, dated September 28, 2001. (Incorporated herein by reference to Exhibit 10.7 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                                                                                                                                     
|10.8  |  | Employment agreement with Nicholas L. Teti dated as of July 23, 2001. (Incorporated herein by reference to Exhibit 10.7 of Inamed's Quarterly Report on Form 10-Q filed with the Commission on November 14, 2001.)                                                                                                                                                                                                                                                                                    
|10.9  |  | Second Amendment to the Lease by and between AMB Property, LP, and Collagen Corporation dated as of October 27, 1993 for 48340 Milmont Drive, Fremont, California. (Incorporated herein by reference to Exhibit 10.9 of
Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                             
|10.10 |  | Second Amendment to the Lease by and between Ekwill Partners, Ltd., and McGhan Medical Corporation dated as of May 8, 1996 for 5540 Ekwill Street, Santa Barbara, California. (Incorporated herein by reference to Exhibit
10.10 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                 
|10.11 |  | First Amendment to the Lease by and between Ekwill Partners, Ltd., and McGhan Medical Corporation dated as of May 5, 1996 for 5520 Ekwill Street, Santa Barbara, California. (Incorporated herein by reference to Exhibit
10.11 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                  
|10.12 |  | Lease Agreement by and between Zona Franca Metropólitana, S.A., and McGhan Medical Corporation dated as of May 13, 1999 for Leased Premises in Barreal de Heredia, within Metro Free Zone, Costa Rica. (Incorporated
herein by reference to Exhibit 10.12 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                        
|10.13 |  | Contract of Operation by and between La Promotora de Comércio Exterior de Costa Rica and McGhan Médico, S.A., dated November 30, 1999. (Incorporated herein by reference to Exhibit 10.13 of Inamed's Annual
Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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|10.14 |  | Sublease Agreement by and between McGhan Medical Corporation and Agility Communications, Inc. dated as of January 28, 2000 for 600 Ward Drive, Santa Barbara, California. (Incorporated herein by reference to Exhibit 10.14
of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | Lease by and between Rockber Partners, LLC, and McGhan Medical Corporation dated as of November 16, 1999 for 71 South Los Carneros, Santa Barbara, California. (Incorporated herein by reference to Exhibit 10.15 of Inamed's
Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                       
|10.16 |  | Amendment to Lease by and between Ekwill Street, LP and McGhan Medical Corporation dated as of September 1, 2001 for 5511, 5531, 5551, and 5571 Ekwill Street, Santa Barbara, California. (Incorporated herein by reference
to Exhibit 10.16 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                            
|10.17 |  | Sub-Lease by and between the Industrial Development Authority and McGhan Limited dated as of August 29, 1990 for Kilbride Industrial Estate, Arklow, County Wicklow, Ireland. (Incorporated herein by reference to Exhibit
10.17 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                        
|10.18 |  | Agreement to Grant Option to Purchase Premises by and between the Industrial Development Authority and McGhan Limited dated as of August 30, 1991 for Kilbride, County Wicklow, Ireland. (Incorporated herein by reference to
Exhibit 10.18 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                             
|10.19 |  | Lease Agreement by and between Allman Equities Limited and Chamfield Limited dated as of September 20, 1994 for Kilbride Industrial Estate, Arklow, County Wicklow, Ireland. (Incorporated herein by reference to Exhibit
10.19 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                         
|10.20 |  | Agreement by and between Allman Equities Limited and Chamfield Limited dated as of September 25, 1994 for the right to surrender that Lease dated September 20, 1994 for Kilbride Industrial Estate, Arklow, County Wicklow,
Ireland. (Incorporated herein by reference to Exhibit 10.20 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)
|10.21 |  | Fourth Amendment to Lease by and between Browne Trust Number Two and Inamed Corporation dated as of April 4, 1987 for 1035 Cindy Lane, Carpinteria, California. (Incorporated herein by reference to Exhibit 10.21 of
Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                      
|10.22 |  | Standard Sublease by and between Q.A.D., Inc and BioEnterics Corporation dated as of February 23, 2000 for 6420 Via Real, Suites 8 & 9, Carpinteria, California. (Incorporated herein by reference to Exhibit 10.22 of
Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                     
|10.23 |  | Standard Sublease by and between ValueClick, Inc. and BioEnterics Corporation dated as of November 1, 2000 for 6430 Via Real, Carpinteria, California. (Incorporated herein by reference to Exhibit 10.23 of Inamed's Annual
Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                               
|10.24 |  | Standard Sublease by and between Q.A.D., Inc. and BioEnterics Corporation dated as of December 21, 1999 for 6430 Via Real, Suites 3, 4 & 5, Carpinteria, California. (Incorporated herein by reference to Exhibit 10.24
of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                                                                 
|10.25 |  | Standard Industrial Lease by and between William D. & Edna J. Wright dba South Coast Business Park and Q.A.D., Inc. dated as of November 30, 1993 for 6430 Via Real, Suites 3 through 8, Carpinteria, California.
(Incorporated herein by reference to Exhibit 10.25 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                              

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|10.26 |  | Standard Industrial/Commercial Single-Tenant Lease by and between Eleanor H. Simpson, Trustee for the Eleanor H. Simpson Trust dated as of June 28, 1977 for 1125 Mark Avenue, Carpinteria, California. (Incorporated herein
by reference to Exhibit 10.26 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 |  | Standard Industrial/Commercial Single-Tenant Lease by and between Eleanor H. Simpson, Trustee for the Eleanor H. Simpson Trust dated as of June 28, 1977 for 1125 Mark Avenue, Carpinteria, California. (Incorporated herein
by reference to Exhibit 10.26 of Inamed's Annual Report on Form 10-K filed with the Commission on March 29, 2002.)
|10.39 |  | United States Distribution agreement dated June 14, 1996 between Biomatrix, Inc. and Collagen Corporation. (Incorporated herein by reference to Exhibit 10.39 of Inamed's Quarterly Report on Form 10-Q filed with the
Commission on August 19, 2002.)                                                                                         
|10.40 |  | International Distribution agreement dated June 14, 1996 between Biomatrix, Inc. and Collagen Corporation. (Incorporated herein by reference to Exhibit 10.39 of Inamed's Quarterly Report on Form 10-Q filed with the
Commission on August 19, 2002.)                                                                                         
|10.41 |  | Development Agreement and Amendment to United States Distribution Agreement dated September 30, 2002 between Genzyme Biosurgery Corporation and Inamed Corporation. (Incorporated herein by reference to
Exhibit 10.41 of Inamed's Quarterly Report on Form 10-Q filed with the Commission on November 15, 2002.)                              
|10.42 |  | Transition and Advisory Agreement dated July 2002 by and between Richard G. Babbitt and BIA Advisors, Inc. and Inamed Corporation. (Incorporated herein by reference to Exhibit 10.42 of Inamed's Quarterly Report on
Form 10-Q filed with the Commission on November 15, 2002.)                                                               
|10.43 |  | Employment Agreement by and between Inamed Corporation and Robert Vaters, dated January 21, 2003. (Incorporated herein by reference to Inamed's Quarterly Report on Form 10-Q filed with the Commission on August 14,
2003.)                                                                                                                   
|10.44 |  | Credit Agreement, dated as of July 25, 2003, by and among the Company, certain of its subsidiaries and the Lenders set forth on the signature page to the Credit Agreement. (Incorporated herein by reference to Exhibit 99.1
of Inamed's Form 8-K filed with the Commission on August 8, 2003.)                                               
|10.45 |  | Security Agreement, dated as of July 25, 2003, by and among the Company, certain of its subsidiaries and the Lenders set forth on the signature page of the Security Agreement. (Incorporated herein by reference to Exhibit
99.2 of Inamed's Form 8-K filed with the Commission on August 8, 2003.)                                           
|10.46 |  | Amendment to the Inamed Corporation 2000 Employee Stock Purchase Plan restated as of May 12, 2003. (Incorporated herein by reference to Annex A of Inamed's 2003 Proxy Statement on Schedule 14A filed with the Commission on
June 13, 2003.)                                                                                                  
|10.47 |  | Inamed Corporation 2003 Restricted Stock Plan as of May 12, 2003. (Incorporated herein by reference to Annex B of Inamed's 2003 Proxy Statement on Schedule 14A filed with the Commission on June 13, 2003.)                                                                                                                                   
|10.48 |  | Inamed Corporation 2003 Outside Director Compensation Plan as of May 12, 2003. (Incorporated herein by reference to Annex C of Inamed's 2003 Proxy Statement on Schedule 14A filed with the Commission on June 13,
2003.)                                                                                                                      
|10.49 |  | Employment Agreement by and between Inamed Corporation and Joseph A. Newcomb, dated August 1, 2003. (Incorporated herein by reference to Inamed's Quarterly Report on Form 10-Q filed with the Commission on November 14,
2003.)                                                                                                               
|21.0  |  | Subsidiaries of registrant.                                                                                                                                                                                                                                                                                                                    
|23.1  |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                           
|23.2  |  | Notice regarding consent of Arthur Andersen LLP.                                                                                                                                                                                                                                                                                               
|31.1  |  | Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                

50

---

|31.2 |  | Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- |  | ----------------------------------------------------------------------------------------------------
|32.1 |  | Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2 |  | Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Form 8-K
furnished October 29, 2003The Company issued a press release regarding the Company's financial results for its third fiscal quarter ended
September 30, 2003.

51

---



SIGNATURES

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

| |  | INAMED CORPORATION
| |  | ------------------
| |  | By:               

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

|                                                          |  |                                                                                    |  |               
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|/s/NICHOLAS L. TETINicholas L. Teti                       |  | Chairman, President and Chief Executive Officer
(Principal Executive Officer)      |  | March 15, 2004
|/s/ROBERT S. VATERSRobert S. Vaters                       |  | Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |  | March 15, 2004
|/s/JOY A. AMUNDSONJoy A. Amundson                         |  | Director                                                                           |  | March 15, 2004
|/s/JAMES E. BOLINJames E. Bolin                           |  | Director                                                                           |  | March 15, 2004
|/s/MALCOLM R. CURRIE, PH.D.Malcolm R. Currie, Ph.D.       |  | Director                                                                           |  | March 15, 2004
|/s/JOHN C. MILESJohn C. Miles                             |  | Director                                                                           |  | March 15, 2004
|/s/MITCHELL S. ROSENTHAL, M.D.Mitchell S. Rosenthal, M.D. |  | Director                                                                           |  | March 15, 2004
|/s/TERRY E. VANDEWARKERTerry E. Vandewarker               |  | Director                                                                           |  | March 15, 2004

52

---



INDEPENDENT AUDITORS' REPORT

The
Board of Directors and Stockholders of Inamed Corporation:

We
have audited the accompanying consolidated balance sheets of Inamed Corporation (a Delaware corporation) and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for the years then ended. In connection with our audits of the 2003 and 2002 consolidated financial
statements, we have also audited the 2003 and 2002 financial statement schedule as listed in the accompanying index at Item 15(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our
audits. The 2001 consolidated financial statements and financial statement schedule, prior to the revisions discussed in Notes 1 and 2, were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those consolidated financial statements and financial statement schedule in their report dated February 1, 2002.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inamed Corporation and subsidiaries as of
December 31, 2003 and 2002 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related 2003 and 2002 financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.

As
discussed above, the consolidated financial statements of the Company for the year ended December 31, 2001 were audited by other independent auditors who have ceased
operations. As described in Notes 1 and 2, these financial statements have been restated to reflect the three-for-two stock split that was declared by the Company's Board of
Directors on October 30, 2003 and have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, which was adopted by the Company as of January 1, 2002. We audited the adjustments described in Note 1 that were applied to restate the 2001 consolidated financial statements and
the transitional disclosures described in Note 2. In our opinion, such adjustments are appropriate and have been properly applied and the transitional disclosures for 2001 in Note 2 are
appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of Inamed Corporation, other than with respect to such adjustments and
disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

KPMG
LLP

Los
Angeles, California

February 19,
2004

F-1

---

THIS
IS A CONFORMED COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH INAMED CORPORATION'S FILING ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 AND
2000. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K. SEE EXHIBIT 23.2 FOR FURTHER DISCUSSION. THE CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 2001 AND THE INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2000 REFERRED TO IN THIS REPORT HAVE NOT BEEN INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS. THE FINANCIAL
STATEMENTS TO WHICH THIS REPORT RELATES HAVE BEEN RESTATED TO REFLECT THE THREE-FOR-TWO STOCK SPLIT WHICH WAS DECLARED BY INAMED CORPORATION'S BOARD OF DIRECTORS ON OCTOBER 30,
2003 AND HAVE BEEN REVISED TO INCLUDE THE TRANSITIONAL DISCLOSURES REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, WHICH WAS ADOPTED BY THE
COMPANY AS OF JANUARY 1, 2002.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors and the Stockholders of Inamed Corporation:

We
have audited the accompanying consolidated balance sheets of Inamed Corporation (a Delaware corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are
the responsibility of Inamed's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Inamed Corporation and Subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States.

Arthur
Andersen LLP

Los
Angeles, California

February 1,
2002

F-2

---



INAMED CORPORATION AND SUBSIDIARIES    Consolidated Balance Sheets    As of December 31, 2003 and 2002    (millions, except par value)

|                                                    |                                                                                                                                                      | December 31,
2003                          |       | December 31,
2002 |      
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ----------------- | -----
|Assets                                              |                                                                                                                                                      |                                            |       |                   |      
|Current assets:                                     |                                                                                                                                                      |                                            |       |                   |      
|                                                    | Cash and cash equivalents                                                                                                                            |                                            | $     | 80.5              |      
|                                                    | Trade accounts receivable, net of allowances of $19.7 and $11.5 in 2003 and 2002, respectively                                                       |                                            |       | 63.7              |      
|                                                    | Inventories, net                                                                                                                                     |                                            |       | 47.0              |      
|                                                    | Prepaid expenses and other current assets                                                                                                            |                                            |       | 10.6              |      
|                                                    | Deferred income taxes                                                                                                                                |                                            |       | 10.3              |      
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|                                                    |                                                                                                                                                      | Total current assets                       |       |                   | 212.1
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|Property and equipment, net                         |                                                                                                                                                      |                                            | 51.2  |                   |      
|Goodwill                                            |                                                                                                                                                      |                                            | 151.2 |                   |      
|Other intangible assets, net                        |                                                                                                                                                      |                                            | 44.5  |                   |      
|Deferred income taxes                               |                                                                                                                                                      |                                            | 32.9  |                   |      
|Other assets                                        |                                                                                                                                                      |                                            | 9.1   |                   |      
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|                                                    |                                                                                                                                                      | Total assets                               |       | $                 | 501.0
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|Liabilities and Stockholders' Equity                |                                                                                                                                                      |                                            |       |                   |      
|Current liabilities:                                |                                                                                                                                                      |                                            |       |                   |      
|                                                    | Current portion of long-term debt                                                                                                                    |                                            | $     | 10.0              |      
|                                                    | Accounts payable                                                                                                                                     |                                            |       | 23.5              |      
|                                                    | Income taxes payable                                                                                                                                 |                                            |       | 10.3              |      
|                                                    | Accrued liabilities and other                                                                                                                        |                                            |       | 36.4              |      
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|                                                    |                                                                                                                                                      | Total current liabilities                  |       |                   | 80.2 
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|Long-term debt, net of current portion              |                                                                                                                                                      |                                            | 22.5  |                   |      
|Other long-term liabilities                         |                                                                                                                                                      |                                            | 46.8  |                   |      
|Commitments and contingencies (see notes 18 and 20) |                                                                                                                                                      |                                            |       |                   |      
|Stockholders' equity:                               |                                                                                                                                                      |                                            |       |                   |      
|                                                    | Common stock, $0.01 par value; authorized 50.0 shares; issued 35.3 and 32.9 shares; outstanding 35.3 and 32.9 shares for 2003 and 2002, respectively |                                            |       | 0.4               |      
|                                                    | Additional paid-in capital                                                                                                                           |                                            |       | 223.3             |      
|                                                    | Deferred compensation                                                                                                                                |                                            |       | (6.9              | )    
|                                                    | Retained earnings                                                                                                                                    |                                            |       | 128.9             |      
|                                                    | Accumulated other comprehensive income (loss)                                                                                                        |                                            |       | 5.8               |      
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|                                                    |                                                                                                                                                      | Total stockholders' equity                 |       |                   | 351.5
|                                                    |                                                                                                                                                      |                                            |       |                   |      
|                                                    |                                                                                                                                                      | Total liabilities and stockholders' equity |       | $                 | 501.0
|                                                    |                                                                                                                                                      |                                            |       |                   |      

See
accompanying notes to consolidated financial statements.

F-3

---

INAMED CORPORATION AND SUBSIDIARIES    Consolidated Statements of Income    For the Three Years Ended December 31, 2003    (millions, except par value)

|                                     |                                                             | 2003 |       | 2002  |   | 2001  |      
|------------------------------------ | ----------------------------------------------------------- | ---- | ----- | ----- | - | ----- | -----
|Net sales                            |                                                             | $    | 332.6 |       | $ | 275.7 |      
|Cost of goods sold                   |                                                             |      | 92.8  |       |   | 77.6  |      
|                                     |                                                             |      |       |       |   |       |      
|                                     | Gross profit                                                |      |       | 239.8 |   |       | 198.1
|                                     |                                                             |      |       |       |   |       |      
|Operating expenses:                  |                                                             |      |       |       |   |       |      
|                                     | Selling, general and administrative                         |      |       | 141.8 |   |       | 126.7
|                                     | Research and development                                    |      |       | 21.5  |   |       | 13.6 
|                                     | Restructuring charges                                       |      |       |      |   |       | 5.1  
|                                     | Amortization of intangible assets and non-cash compensation |      |       | 4.0   |   |       | 4.9  
|                                     |                                                             |      |       |       |   |       |      
|                                     | Total operating expenses                                    |      |       | 167.3 |   |       | 150.3
|                                     |                                                             |      |       |       |   |       |      
|                                     | Operating income                                            |      |       | 72.5  |   |       | 47.8 
|                                     |                                                             |      |       |       |   |       |      
|Other income (expense):              |                                                             |      |       |       |   |       |      
|                                     | Net interest expense and debt costs                         |      |       | (9.4  | ) |       | (11.7
|                                     | Foreign currency transaction gains (losses)                 |      |       | (0.1  | ) |       | 0.3  
|                                     | Royalty income and other                                    |      |       | 4.2   |   |       | 5.8  
|                                     |                                                             |      |       |       |   |       |      
|                                     | Total other expense, net                                    |      |       | (5.3  | ) |       | (5.6 
|                                     |                                                             |      |       |       |   |       |      
|Income before income tax expense     |                                                             |      | 67.2  |       |   | 42.2  |      
|Income tax expense                   |                                                             |      | 14.2  |       |   | 9.3   |      
|                                     |                                                             |      |       |       |   |       |      
|Net income                           |                                                             | $    | 53.0  |       | $ | 32.9  |      
|                                     |                                                             |      |       |       |   |       |      
|Net income per share of common stock |                                                             |      |       |       |   |       |      
|                                     | Basic                                                       |      | $     | 1.54  |   | $     | 1.04 
|                                     |                                                             |      |       |       |   |       |      
|                                     | Diluted                                                     |      | $     | 1.51  |   | $     | 1.00 
|                                     |                                                             |      |       |       |   |       |      
|Weighted average shares outstanding: |                                                             |      |       |       |   |       |      
|                                     | Basic                                                       |      |       | 34.5  |   |       | 31.5 
|                                     |                                                             |      |       |       |   |       |      
|                                     | Diluted                                                     |      |       | 35.2  |   |       | 32.9 
|                                     |                                                             |      |       |       |   |       |      

See
accompanying notes to consolidated financial statements.

F-4

---



INAMED CORPORATION AND SUBSIDIARIES    Consolidated Statements of Stockholders Equity and Comprehensive Income    For the Three Years Ended December 31, 2003    (millions)

|                                                     |                                                     | Common Stock (Issued) |   |   |       |   |   |       |  |   |       |   |   |       |     
|---------------------------------------------------- | --------------------------------------------------- | --------------------- | - | - | ----- | - | - | ----- |  | - | ----- | - | - | ----- | ----
|
|
|
|Balance, December 31, 2000                           |                                                     | 31.0                  |   |   | 0.3   |   |   | 161.8 |  |   | (8.8  | ) |   | 22.1  |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Comprehensive income:                                |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Net income                                          |                       |   |   |       |   |   |       |  |   |       |   |   |       | 21.0
|                                                     | Translation adjustment                              |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Unrealized loss on interest rate swaps              |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Total comprehensive income                          |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Stock repurchase                                     |                                                     |                       |   |   |       |   |   |       |  |   | (15.2 | ) |   |       |     
|Compensation expense                                 |                                                     |                       |   |   |       |   |   | 0.4   |  |   |       |   |   |       |     
|Employee stock purchase plan                         |                                                     |                       |   |   |       |   |   | 0.7   |  |   |       |   |   |       |     
|Exercise of stock options and warrants               |                                                     | 0.9                   |   |   |       |   |   | 4.4   |  |   |       |   |   |       |     
|Tax benefit of stock option
exercises                |                                                     |                       |   |   |       |   |   | 2.7   |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Balance, December 31, 2001                           |                                                     | 31.9                  |   |   | 0.3   |   |   | 170.0 |  |   | (24.0 | ) |   | 43.1  |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Comprehensive income:                                |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Net income                                          |                       |   |   |       |   |   |       |  |   |       |   |   |       | 32.9
|                                                     | Translation adjustment                              |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Unrealized gain on interest rate swaps              |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Total comprehensive income                          |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Cancellation of treasury stock                       |                                                     | (1.5                  | ) |   | (24.0 | ) |   | 24.0  |  |   |       |   |   |       |     
|Compensation expense                                 |                                                     |                       |   |   | 0.7   |   |   |       |  |   |       |   |   |       |     
|Employee stock purchase plan                         |                                                     | 0.1                   |   |   | 0.4   |   |   |       |  |   |       |   |   |       |     
|Exercise of stock options and warrants               |                                                     | 2.4                   |   |   | 13.9  |   |   |       |  |   |       |   |   |       |     
|Tax benefit of stock option exercises                |                                                     |                       |   |   |       |   |   | 3.8   |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Balance, December 31, 2002                           |                                                     | 32.9                  |   |   | 0.3   |   |   | 164.8 |  |   |      |   |   | 76.0  |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Comprehensive income:                                |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Net income                                          |                       |   |   |       |   |   |       |  |   |       |   |   |       | 53.0
|                                                     | Translation adjustment                              |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Unrealized gain on interest rate swap agreement     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Realization of loss on interest rate swap agreement |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|                                                     | Total comprehensive income                          |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Cash paid for fractional share impact of stock split |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   | (0.1  | )   
|Restricted stock grant                               |                                                     | 0.1                   |   |   |       |   |   | 7.0   |  |   |       |   |   |       |     
|Employee stock purchase plan                         |                                                     | 0.1                   |   |   |       |   |   | 1.9   |  |   |       |   |   |       |     
|Amortization of stock
compensation                   |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Exercise of stock options                            |                                                     | 2.2                   |   |   | 0.1   |   |   | 31.3  |  |   |       |   |   |       |     
|Tax benefit of option exercises                      |                                                     |                       |   |   |       |   |   | 18.3  |  |   |       |   |   |       |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     
|Balance, December 31, 2003                           |                                                     | 35.3                  |   | $ | 0.4   |   | $ | 223.3 |  | $ |      |   | $ | 128.9 |     
|                                                     |                                                     |                       |   |   |       |   |   |       |  |   |       |   |   |       |     

See accompanying notes to consolidated financial statements.

F-5

---

INAMED CORPORATION AND SUBSIDIARIES    Consolidated Statements of Cash Flows    Years ended December 31, 2003, 2002, and 2001    (millions)

|                                                  |                                                | 2003                                                |       | 2002   |       | 2001  |      
|------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | ----- | ------ | ----- | ----- | -----
|Cash flows from operating activities:             |                                                |                                                     |       |        |       |       |      
|                                                  | Net income                                     |                                                     | $     | 53.0   |       | $     | 32.9 
|                                                  | Non-cash elements included in net income:      |                                                     |       |        |       |       |      
|                                                  |                                                | Depreciation and amortization                       |       |        | 15.3  |       |      
|                                                  |                                                | Tax benefit from stock option exercises             |       |        | 18.3  |       |      
|                                                  |                                                | Deferred income taxes                               |       |        | (5.0  | )     |      
|                                                  |                                                | Non-cash compensation                               |       |        | 0.1   |       |      
|                                                  |                                                | Loss on disposition of property and equipment       |       |        | 0.2   |       |      
|                                                  |                                                | Provision for doubtful accounts, notes, and returns |       |        | 7.3   |       |      
|                                                  |                                                | Amortization of deferred loan costs                 |       |        | 0.5   |       |      
|                                                  |                                                | Write-off of deferred loan fees                     |       |        | 1.6   |       |      
|                                                  |                                                | Special charges                                     |       |        |      |       |      
|                                                  | Changes in operating assets and liabilities:   |                                                     |       |        |       |       |      
|                                                  |                                                | Trade accounts receivable                           |       |        | (20.5 | )     |      
|                                                  |                                                | Inventories                                         |       |        | (2.0  | )     |      
|                                                  |                                                | Prepaid expenses and other current assets           |       |        | 2.4   |       |      
|                                                  |                                                | Other assets                                        |       |        | 8.4   |       |      
|                                                  |                                                | Accounts payable                                    |       |        | 0.8   |       |      
|                                                  |                                                | Income taxes payable                                |       |        | (3.0  | )     |      
|                                                  |                                                | Accruals and other long-term liabilities            |       |        | (2.2  | )     |      
|                                                  |                                                |                                                     |       |        |       |       |      
|                                                  | Net cash provided by operating activities      |                                                     |       | 75.2   |       |       | 43.8 
|                                                  |                                                |                                                     |       |        |       |       |      
|Cash flows from investing activities:             |                                                |                                                     |       |        |       |       |      
|                                                  | Purchase of property and equipment             |                                                     |       | (12.1  | )     |       | (14.8
|                                                  | Purchase of intangibles                        |                                                     |       | (4.8   | )     |       |     
|Other                                             |                                                |                                                     |      |        |       | (3.8  | )    
|                                                  |                                                |                                                     |       |        |       |       |      
|Net cash used in investing activities             |                                                |                                                     | (16.9 | )      |       | (18.6 | )    
|                                                  |                                                |                                                     |       |        |       |       |      
|Cash flows from financing activities:             |                                                |                                                     |       |        |       |       |      
|                                                  | Proceeds of long-term debt                     |                                                     |       | 65.0   |       |       |     
|                                                  | Decreases in capital leases                    |                                                     |       |       |       |       |     
|                                                  | Principal repayment of long-term debt          |                                                     |       | (116.2 | )     |       | (36.5
|                                                  | Payment of deferred loan costs                 |                                                     |       | (1.3   | )     |       |     
|                                                  | Issuance of common stock                       |                                                     |       | 33.2   |       |       | 14.3 
|                                                  | Payment of cash dividend                       |                                                     |       | (0.1   | )     |       |     
|                                                  | Acquistion of treasury shares                  |                                                     |       |       |       |       |     
|                                                  |                                                |                                                     |       |        |       |       |      
|Net cash used in financing activities             |                                                |                                                     | (19.4 | )      |       | (22.2 | )    
|                                                  |                                                |                                                     |       |        |       |       |      
|Effect of exchange rate changes on cash           |                                                |                                                     | 2.3   |        |       | 1.5   |      
|Change in cash and cash equivalents:              |                                                |                                                     |       |        |       |       |      
|                                                  | Net increase in cash and cash equivalents      |                                                     |       | 41.2   |       |       | 4.5  
|                                                  | Cash and cash equivalents at beginning of year |                                                     |       | 39.3   |       |       | 34.8 
|                                                  |                                                |                                                     |       |        |       |       |      
|                                                  | Cash and cash equivalents at end of year       |                                                     | $     | 80.5   |       | $     | 39.3 
|                                                  |                                                |                                                     |       |        |       |       |      
|Supplemental disclosure of cash flow information: |                                                |                                                     |       |        |       |       |      
|                                                  | Cash paid during the year for:                 |                                                     |       |        |       |       |      
|                                                  |                                                | Interest                                            |       | $      | 8.1   |       | $    
|                                                  |                                                |                                                     |       |        |       |       |      
|                                                  |                                                | Income taxes                                        |       | $      | 5.1   |       | $    
|                                                  |                                                |                                                     |       |        |       |       |      

See
accompanying notes to consolidated financial statements.

F-6

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INAMED CORPORATION AND SUBSIDIARIES    Consolidated Statements of Cash Flows (Continued)    Years ended December 31, 2003, 2002, and 2001    (millions)

Supplemental
Schedule of Non-Cash Investing and Financing Activities:

Year Ended December 31, 2001.Inamed recorded an additional license for $1.4. Furthermore, Inamed entered into an
interest rate swap agreement for $50.0. As of December 31, 2001, the estimated value of the swap liability was approximately $4.2.

F-7

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INAMED CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2003  (millions)

NOTE 1DESCRIPTION OF BUSINESS

Inamed Corporation, a Delaware corporation, and its subsidiaries ("Inamed") or the ("Company"), is a global health care company that develops, manufactures, and
markets a diverse line of products that enhance the quality of people's lives. The Company has three principal product lines (which, for financial reporting purposes, are considered to be one
segment): breast aesthetics (consisting primarily of breast implants and tissue expanders sold largely for use in plastic and reconstructive surgery), facial aesthetics (consisting primarily of
collagen and other dermal fillers sold largely to dermatologists and plastic surgeons), and obesity intervention (consisting of products for use in treating severe and morbid obesity). Our
manufacturing locations are in California, Costa Rica, and Ireland; and our administrative support functions are principally in California and Ireland. We sell our products through our staff of sales
representatives in the U.S. and other countries; through our wholly owned subsidiaries, and in certain countries through independent distributors.

Common Stock Split

On October 30, 2003, the Board approved a three for two stock split of the Company's Common Stock in the form of a 50 percent stock dividend. The
stock split was effected on December 15, 2003 for shareholders of record at the close of business on December 1, 2003. A total of 11,727,612 shares of common stock were issued in
connection with the stock split. The par value of the shares was not changed from $0.01. All references in the Annual Report on Form 10-K to shares, per
share amounts, stock option data and market prices of the Company's stock have been restated to reflect the stock split.

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Inamed and its subsidiaries after elimination of all significant intercompany accounts and
transactions.

Reclassifications

Certain items in the prior years' consolidated financial statements have been reclassified to conform to the current year presentation.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires Inamed to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates and judgments, including those related to revenue recognition, inventories, adequacy of allowances for doubtful accounts, valuation of long-lived assets and
goodwill, income taxes, litigation and warranties. Inamed bases its estimates on historical and anticipated results and trends and on various other assumptions that it believes are reasonable under
the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that

F-8

---

are
not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist principally of cash in banks and highly liquid debt instruments purchased with original maturities of three months or less.
Inamed maintains balances in highly-qualified financial institutions. In the U.S., these balances at times are in excess of federally insured limits.

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses
approximate fair value due to their short-term maturities. The amounts presented for long-term debt, interest rate swap, and other long-term liabilities also
approximate fair value.

Allowance for Doubtful Accounts

Inamed maintains allowances for doubtful accounts for estimated losses resulting from the inability of some of its customers to make required payments. The
allowances for doubtful accounts are based on the analysis of historical bad debts, customer credit-worthiness, past transaction history with the customer, current economic trends, and changes in
customer payment terms. If the financial condition of Inamed's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances may be required.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Inamed capitalizes inventory costs
associated with certain product candidates prior to regulatory approval, based on management's judgment of probable future commercialization. Inamed could be required to expense previously capitalized
costs related to pre-approval inventory upon a change in such judgment, due to, among other factors, a decision denying approval of the product candidate by the necessary regulatory
bodies.

Current Vulnerability Due to Certain Concentrations

Inamed has limited sources of supply for certain raw materials and finished goods that are significant. A change in suppliers could cause a delay in manufacturing
and a possible loss of sales, which would adversely affect operating results.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is recorded on the straight-line basis over
the estimated useful lives of the assets, which range from three to ten years. Amortization of leasehold improvements is based upon the estimated

F-9

---

useful
lives of the assets or the term of the lease, whichever is shorter. Maintenance and repairs are charged to operations as incurred, while significant improvements are capitalized. Asset
retirements and dispositions are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 144 as described below.

The
Company capitalizes certain costs incurred in connection with developing or obtaining internal use software in accordance with American Institute of Certified Public Accountants
Statement of Position 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These capitalized software
costs are included in "Property, plant and equipment, net" in the consolidated balance.

Accounting for Long-Lived Assets

Inamed accounts for long-lived assets, other than goodwill, in accordance with the provisions of Statement of Financial Accounting Standards SFAS
No. 144, "Accounting for the Impairment and Disposal of Long Lived Assets," which supercedes SFAS No. 121 and certain sections of APB Opinion No. 30 specific to discontinued
operations. SFAS No. 144 classifies long-lived assets as either (1) to be held and used, (2) to be disposed of by other than sale, or (3) to be disposed of by
sale. This standard introduces a probability-weighted cash flow estimation approach to deal address situations in which alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration or a range is estimated for the amount of possible future cash flows. Inamed has adopted this statement, which has not had a material impact on its
financial position or results of operations. SFAS No. 144 requires, among other things, that an entity review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. With the exception of the manufacturing consolidation that occurred in 2002 (see
Note 4), Inamed does not believe that any such changes have taken place.

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the fair value of identifiable net assets of businesses acquired. Other intangible assets consist primarily of
distribution rights, purchased technology and patents. The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets," on January 1, 2002. As a result, goodwill is no longer
amortized, but was subject to a transitional impairment analysis and is tested for impairment on an annual basis in October, or more frequently as impairment indicators arise. The test for impairment
involves the use of estimates related to the fair values of the business operations with which goodwill is associated and is usually based on a market value approach. Other intangible assets are
amortized using the straight-line method over their estimated useful lives and are evaluated for impairment under SFAS No. 144.

License
and distribution rightsIn the normal course of business, the Company enters into collaborative license and distribution contracts. These collaborative agreements
usually require the Company to pay up-front fees and milestone payments, some of which are significant. When the Company pays an up-front or milestone payment for these license
and distribution rights, management evaluates the stage of the acquired technology's development to determine the appropriate accounting treatment. Payments for these rights made in advance of
regulatory approval will be evaluated for

F-10

---

capitalization
based upon the probabilities of certain factors including: the contract, the expected launch date of the product, the market acceptance of the product in other countries, competitive
product information (including products using the same compounds, similar compounds, or products used for the same application), level of development, clinical experience and regulatory information.
Payments made to third parties subsequent to regulatory approval will be capitalized. Capitalized rights are stated at cost, less accumulated amortization, and are amortized using the
straight-line method over their estimated useful lives of five to seventeen years. Significant changes to any of the factors above may result in a reduction in the useful life of the
license and an acceleration of related amortization expense. License rights are assessed periodically for impairment.

Product Warranties

The company has an accrual for the "Confidence Plus" warranty program for our breast implant sales in the United States. Management estimates the amount of
potential future claims from this warranty based on actuarial analysis. Expected future obligations are determined based on the history of product shipments and claims and are discounted to a current
value. Changes to actual claims and interest rates could have a material impact on the actuarial calculation which could materially impact Inamed's reported expenses and results of operations.

Accrued WarrantyBalance at December 31, 2000

$
8.4Accruals for warranties issued during the period


4.3Settlements made during the period


(3.0
)Balance at December 31, 2001

$
9.7Accruals for warranties issued during the period


3.8Adjustments made to accruals related to pre-existing warranties


(0.6
)Settlements made during the period


(3.4
)Balance at December 31, 2002

$
9.5Accruals for warranties issued during the period


5.0Settlements made during the period


(4.1
)Balance at December 31, 2003

$
10.4


Revenue Recognition

Inamed recognizes product revenue, net of sales discounts, returns and allowances, in accordance with Staff Accounting Bulletin (SAB) No. 104, "Revenue
Recognition" and SFAS No. 48 "Revenue Recognition When Right of Return Exists." Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and all
significant contractual obligations have been satisfied, the fee is fixed or determinable and collection is considered probable. Appropriate reserves are established for anticipated returns and
allowances based on product history.

F-11

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Research and Development (R&D)

Inamed conducts its R&D internally as well as through contracts with other companies in the research and development of new products and processes. R&D expenses
are comprised of the following types of costs incurred in performing research and development activities: salaries and benefits, allocated overhead, clinical trials and related clinical manufacturing
costs, contract services, and other outside costs. In accordance with SFAS No. 2, "Accounting for Research and Development Costs," all R&D costs are expensed as incurred.

Stock-Based Compensation

Inamed has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with SFAS No. 123, Inamed has elected
the disclosure-only provisions related to employee stock options and follows the intrinsic value method in Accounting Principals Board Opinion (APB) No. 25 in accounting for stock
options issued to employees. Under APB No. 25, compensation expense, if any, is recognized as the difference between the exercise price and the fair value of the common stock on the measurement
date, which is typically the date of grant, and is recognized over the service period, which is typically the vesting period.

Inamed
accounts for options and warrant grants to non-employees using the guidance prescribed by SFAS No. 123, Financial Accounting Standards Board (FASB)
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation, and interpretation of APB No. 25," and Emerging Issue Task Force No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or In Conjunction with Selling, Goods, or Services," whereby the fair value of such option and warrant grants
are measured using the fair value at the earlier of the date at which the non-employee's performance is completed or a performance commitment is reached.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure". SFAS No. 148 amends SFAS
No. 123 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure requirements of SFAS No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. Inamed adopted the
disclosure requirements of SFAS No. 148 in the fourth quarter of 2002 and will adopt, upon the completion of final FASB rules, the fair value based method of accounting for stock-based employee
compensation.

On
December 15, 2003 Inamed's Board granted to certain executives 142,500 shares from the 2003 restricted stock plan. In accordance with APB No. 25 Inamed has recorded $7.0
in deferred stock based compensation. Stock compensation expense will be recognized over the vesting period of the stock. The awards vest fifty percent in July 2006 and the balance in
July 2008. The holders of the restricted stock are also "locked out" from selling any of these shares prior to July 2008, with the exception that shares may be sold as of
July 2006 to satisfy tax liabilities. Stock compensation expense for the year ended December 31, 2003 was $0.1.

F-12

---

Pro
forma disclosures of the effect of stock-based compensation

Pro
forma information regarding results of operations and net income per share is required by SFAS No. 123, which also requires that the information be determined as if Inamed had
accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option valuation
model with the following weighted-average assumption used for grants:

Year

Risk Free
Interest Rate

Weighted Average Expected Life of the Option (Years)

Volatility Factor2003

2.74% - 3.25%

4

34.7% - 58.2%2002

3.01% - 4.46%

4

33.6% - 75.0%2001

3.66% - 4.99%

5

78.2%


The option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because Inamed's employee stock options have characteristics
significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models
do not provide a reliable single measure of the fair value of its employee stock options.

Had
compensation costs for Inamed's stock-based compensation plan been determined using the fair value at the grant dates for awards under the plan calculated using the Black-Scholes
option valuation model, Inamed's net income would have been decreased to the pro forma amounts indicated below:

2003

2002

2001Net income as reported

$
53.0

$
32.9

$
21.0Add: Stock-based compensation expense included in reported net income, net of related tax effects


0.1


0.4


0.3Deduct: Total stock-based compensation expense determined under the fair value method for all awards, net of tax effects


(5.5
)

(4.9
)

(5.3
)Pro forma net income

$
47.6

$
28.4

$
16.0Earnings Per ShareBasic as reported

$
1.54

$
1.04

$
0.69Basic pro-forma

$
1.38

$
0.90

$
0.53Diluted as reported

$
1.51

$
1.00

$
0.64Diluted pro-forma

$
1.34

$
0.86

$
0.49


F-13

---

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries with functional currencies other than the U.S. dollar are translated into U.S dollars using the exchange rates in
effect at the balance sheet date. Results of their operations are translated using the average exchange rates during the period. The resulting foreign currency translation adjustment is included in
stockholders' equity as a component of accumulated other comprehensive income (loss). Transaction gains and losses are recorded in the consolidated statements of income. Accumulated foreign currency
gains (losses) were $5.8 and $(4.4) in 2003 and 2002, respectively.

Income Taxes

Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax bases of assets and
liabilities using the statutory marginal income tax rate in effect for the years in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in
the deferred income tax assets or liabilities from period to period. A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not
to be realized.

Interest Rate Swaps

On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Certain Hedging
Activities"and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of
SFAS 133", as amended by SFAS No. 149,"Amendment of Statement 133 on Deriviative Instruments and Hedging
Activities,". SFAS Nos. 133 and 138 require that all
derivative instruments be recorded on the balance sheet at their respective fair values. If the hedging criteria in SFAS No. 133 are met, the resulting valuation adjustments are included in
stockholders' equity as a component of other comprehensive income (loss), net of tax when no ineffectiveness exists. Amounts in accumulated other comprehensive income (loss) shall be reclassified into
earnings in the same period during which the hedged forecasted transaction affects earnings or when a cash flow hedge is discontinued because it is probable that the original forecasted transaction
will not occur. (See Note 10 for a further discussion on the swap).

Recent Pronouncements

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51," which addresses consolidation by business enterprises of variable interest entities ("VIEs") either: (1) that do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In
December 2003, the FASB completed deliberations of proposed modifications to FIN 46 ("Revised Interpretations") resulting in multiple effective dates based on the nature as well as the creation
date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be

F-14

---

accounted
for either based on the original interpretation or the Revised Interpretations. VIEs created after January 1, 2004, must be accounted for under the Revised Interpretations. Special
Purpose Entities ("SPEs") created prior to February 1, 2003 may be accounted for under the original or revised interpretation's provisions. Non-SPEs created prior to
February 1, 2003, should be accounted for under the Revised Interpretation's provisions. The Revised Interpretations are effective for periods after June 15, 2003 for VIEs in which the
Company holds a variable interest it acquired before February 1, 2003. For entities acquired or created before February 1, 2003, the Revised Interpretations are effective no later than
the end of the first reporting period that ends after March 15, 2004, except for those VIEs that are considered to be SPEs, for which the effective date is no later than the end of the first
reporting period that ends after December 31, 2003. The adoption of FIN 46 and the Revised Interpretations has not and is not expected to have a material impact on our financial position or
results from operations.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies the
accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after
September 30, 2003. The Company does not anticipate the adoption of SFAS No. 149 will have a material effect on its financial position or results from operations.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes
the accounting for certain financial instruments that, under previous guidance, were accounted for as equity. SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments: (1) mandatory redeemable shares, which the issuer is obligated to buy back in exchange for cash or other assets; (2) put options and forward purchase contracts
that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and, (3) obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer's shares. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company's financial position or results from
operations.

In
December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which codifies, revises, and rescinds certain sections of SAB
No. 101, "Revenue Recognition," in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The changes
noted in SAB No. 104 did not have a material effect on our financial position or results from operations.

NOTE 3GOODWILL AND OTHER INTANGIBLE ASSETS

In 1999, Inamed acquired Collagen Aesthetics, Inc., (Collagen) a designer, developer, manufacturer and marketer of products that treat defective, diseased,
traumatized or aging human tissue. The principal acquired products, Zyderm and Zyplast collagen-based dermal fillers are used

F-15

---

in
aesthetic applications for the correction of scars and facial wrinkles. Inamed recorded goodwill for the difference between the aggregate purchase price and the fair value assets and liabilities
acquired.

During
the first quarter of 2002 Inamed adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 142, Inamed discontinued amortizing
goodwill and other intangible assets with indefinite lives. Inamed completed the transitional goodwill impairment test during the second quarter of 2002 and determined that there was no transitional
impairment of goodwill. Inamed performed its annual impairment test of goodwill using a market value approach, during the fourth quarters of 2003 and 2002 and determined that there was no impairment
of goodwill.

Goodwill
was $151.2 as of December 31, 2003 and $150.0 as of December 31, 2002. The changes since December 31, 2002 represent the effect of foreign exchange
translation on goodwill carried in subsidiaries with functional currencies other than the U.S. dollar.

Net
other intangible assets subject to amortization were $40.4 and $39.7 as of December 31, 2003 and 2002, respectively. These assets will continue to be amortized over their
expected useful lives, which range from three to seventeen years. Other intangible assets not subject to amortization were $4.1 and $4.0 at December 31, 2003 and 2002, respectively. Total other
intangible assets are as follows:

|                                              |          |  |      | December 31, 2003 |      | December 31, 2002
|--------------------------------------------- | -------- |  | ---- | ----------------- | ---- | -----------------
|
|                                              | Licenses |  | 12.0 |                   | $    | 51.1             
|                                              | Patents  |  | 15.5 |                   |      | 5.7              
|                                              | Other    |  | 5.0  |                   |      | 2.4              
|                                              |          |  |      |                   |      |                  
|Total intangibles subject to amortization     |          |  |      | $                 | 59.2 |                  
|                                              |          |  |      |                   |      |                  
|Other intangibles not subject to amortization |          |  |      |                   | 4.1  |                  
|                                              |          |  |      |                   |      |                  
|Total other intangibles                       |          |  |      | $                 | 63.3 |                  
|                                              |          |  |      |                   |      |                  

Aggregate amortization expense for intangible assets was $4.0, $4.2, and $3.3 for the years ended December 31, 2003, 2002, and 2001 respectively. For the
years 2004 through 2006, amortization expense is expected to be between $4.3 and $5.0, annually.

F-16

---

The
following table presents net income on a comparable basis, after adjustment for amortization of goodwill and other intangible assets no longer subject to amortization for the years
ended December 31 (per share amounts shown as actual, not millions):

|                           |                                   | Year Ended December 31, 2003 |      | Year Ended December 31, 2002 |   | Year Ended December 31, 2002
|-------------------------- | --------------------------------- | ---------------------------- | ---- | ---------------------------- | - | ----------------------------
|Net income as reported     |                                   | $                            | 53.0 |                              | $ | 32.9                        
|Add back:                  |                                   |                              |      |                              |   |                             
|                           | Goodwill amortization, net of tax |                              |      |                             |   |                             
|                           |                                   |                              |      |                              |   |                             
|Adjusted net income        |                                   | $                            | 53.0 |                              | $ | 32.9                        
|                           |                                   |                              |      |                              |   |                             
|Basic earnings per share:  |                                   |                              |      |                              |   |                             
|                           | As reported                       |                              | $    | 1.54                         |   | $                           
|                           |                                   |                              |      |                              |   |                             
|                           | As adjusted                       |                              | $    | 1.54                         |   | $                           
|                           |                                   |                              |      |                              |   |                             
|Diluted earnings per share |                                   |                              |      |                              |   |                             
|                           | As reported                       |                              | $    | 1.51                         |   | $                           
|                           |                                   |                              |      |                              |   |                             
|                           | As adjusted                       |                              | $    | 1.51                         |   | $                           
|                           |                                   |                              |      |                              |   |                             

NOTE 4RESTRUCTURING COSTS

Inamed recorded $5.1 of restructuring costs in 2002. This restructuring was undertaken to consolidate manufacturing facilities. The manufacturing consolidation
will lead to improved efficiencies and cost savings. The consolidation will continue through the beginning of 2004 and involves transitioning Santa Barbara-based manufacturing to the Company's
facilities in Costa Rica and Ireland. The Company will eliminate approximately 150 manufacturing positions in Santa Barbara and add approximately half of those positions in Ireland and Costa Rica by
April 2004. The majority of the costs relate to severance which will be paid from the beginning of 2003 through early 2004. Through December 31, 2003, 87 employees have received
severance. Inamed has accounted for the restructuring in accordance with EITF 94-3"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)". As part of the manufacturing consolidation the Company has accelerated the depreciation on certain
assets with shortened useful lives. For the years ending December 31, 2003 and 2002 Inamed recorded $3.4 and $0.6 of accelerated depreciation charges included in cost of goods sold. Inamed
expects additional accelerated depreciation charges related to this manufacturing consolidation of approximately $0.4 in 2004.

Inamed
recorded $12.0 of restructuring costs in 2001. This restructuring was a series of events to change senior management and to consolidate facilities and administrative functions.
The Santa Barbara reduction was facilitated by certain manufacturing operations having moved to Inamed's new facility in Costa Rica and the imminent move of Santa Barbara's remaining manufacturing to
a local facility. These costs were primarily employee severance costs. Inamed does not expect any further material costs related to the 2001 restructuring.

F-17

---

A
summary of activity related to the restructuring charges is as follows:

|                                           |  | Employee
Termination
Benefits |      | Lease
Obligations |   | Asset Write
Offs |   | Total |     
|------------------------------------------ |  | ----------------------------- | ---- | ----------------- | - | ---------------- | - | ----- | ----
|2001 restructuring accrual:                |  |                               |      |                   |   |                  |   |       |     
|2001 restructuring charge                  |  | $                             | 11.2 |                   | $ | 0.8              |   | $     |    
|Cash paid through December 31, 2001        |  |                               | (7.5 | )                 |   |                 |   | $     |    
|                                           |  |                               |      |                   |   |                  |   |       |     
|Accrual balance at December 31, 2001       |  | $                             | 3.7  |                   | $ | 0.8              |   | $     |    
|Cash paid through December 31, 2002        |  |                               | (2.4 | )                 |   | (0.6             | ) |       |    
|                                           |  |                               |      |                   |   |                  |   |       |     
|Accrual balance at December 31, 2002       |  | $                             | 1.3  |                   | $ | 0.2              |   | $     |    
|Cash paid through December 31, 2003        |  |                               | (0.6 | )                 |   | (0.2             | ) |       |    
|                                           |  |                               |      |                   |   |                  |   |       |     
|Accrual balance at December 31, 2003       |  | $                             | 0.7  |                   | $ |                 |   | $     |    
|2002 restructuring accrual:                |  |                               |      |                   |   |                  |   |       |     
|2002 restructuring charge                  |  | $                             | 4.7  |                   | $ |                 |   | $     | 0.4 
|Cash paid through December 31, 2002        |  |                               |     |                   |   |                 |   |       | (0.4
|                                           |  |                               |      |                   |   |                  |   |       |     
|Accrual balance at December 31, 2002       |  | $                             | 4.7  |                   | $ |                 |   | $     |    
|Cash paid through December 31, 2003        |  |                               | (1.5 | )                 |   |                 |   |       |    
|                                           |  |                               |      |                   |   |                  |   |       |     
|Accrual balance at December 31, 2003       |  | $                             | 3.2  |                   | $ |                 |   | $     |    
|                                           |  |                               |      |                   |   |                  |   |       |     
|Total accrual balance at December 31, 2003 |  | $                             | 3.9  |                   | $ |                 |   | $     |    
|                                           |  |                               |      |                   |   |                  |   |       |     

NOTE 5SPECIAL CHARGES

Special charges of $6.7 relating to the twelve months ended December 31, 2002 have been reclassified on the Income Statement. The following have been
specifically included in selling, general, and administrative expenses: $0.5 of charges and credits related to litigation, $5.7 for investment impairments, $0.3 of other; $1.3 for sales tax liability
adjustments, and a $0.6 credit for a sales tax refund. The $0.5 gain on the sale of an investment has been included in other income/expense.

NOTE 6NET INCOME PER SHARE (Per share data shown as actual, not millions)

Basic net income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding during
the period. Diluted net income per share is calculated by dividing income available to common stockholders by the weighted-average

F-18

---

number
of common and dilutive common equivalent shares outstanding during the period. A computation of per share earnings for the three years ended December 31, 2003 are as follows:

2003

2002

2001Net IncomeBasic and Diluted

$
53.0

$
32.9

$
21.0Weighted average shares outstandingBasic


34.5


31.5


30.3Dilutive effect of stock options and warrants


0.7
(1)

1.4
(1)

2.3
(1)Weighted average shares outstandingDiluted


35.2


32.9


32.6Per share amountBasic

$
1.54

$
1.04

$
0.69Diluted

$
1.51

$
1.00

$
0.64


---

NOTE 7INVENTORIES

Inventories are summarized as follows:

December 31,2003

2002Raw materials

$
11.7

$
8.2Work in progress


7.1


14.6Finished goods


28.2


20.2$
47.0

$
43.0


Inamed
capitalizes inventory costs associated with product candidates prior to regulatory approval, based on its judgment of probable future commercialization. At December 31,
2002, Inamed had $8.5 of such product, comprised entirely of bioengineered human collagen in support of the introduction of CosmoDerm®and
CosmoPlast®in March 2003. As of December 31, 2003, Inamed holds no inventory for product candidates not yet approved by
regulatory agencies.

F-19

---



NOTE 8PROPERTY AND EQUIPMENT

Property and equipment, at cost, is summarized as follows:

December 31,2003

2002Machinery and equipment

$
50.6

$
30.9Leasehold improvements


36.8


41.6Gross property and equipment


87.4


72.5Less: Accumulated depreciation and amortization


(36.2
)

(24.1
)Property and equipment, net

$
51.2

$
48.4


NOTE 9ACCRUED LIABILITIES AND OTHER

Accrued liabilities and other is summarized as follows:

December 31,2003

2002Salaries, wages, and payroll taxes

$
14.7

$
10.5Acquisition and restructuring costs


2.4


3.8Royalties payable


2.6


1.9Trilucent liability, current


3.5


3.5Accrued legal and settlement expense


1.0


1.0Sales tax liability


5.0


5.1Warranty provision, current


2.7


2.6Other


4.5


7.4Total accrued liabilities and other

$
36.4

$
35.8


NOTE 10INTEREST RATE SWAPS

At December 31, 2002 Inamed had an interest rate swap agreement with a financial institution. The purpose of this agreement was to establish a hedge
against interest rate fluctuations associated with Inamed's variable interest rate debt. The swap agreement fixed the interest rates at 9.815% on a $39.8 notional value. The swap required monthly
interest payments to settle the differences in its fixed rates compared to one month London Interbank Offered Rate ("LIBOR") plus 3.5%. Inamed included these payments in interest expense. At
December 31, 2002, the fair value of the swap represented a liability of approximately $3.9, which is included in other long-term liabilities in the accompanying consolidated
balance sheets and accumulated other comprehensive income (loss). In July 2003, the Company terminated the interest rate swap agreement. In accordance with SFAS No. 133, "Accounting for
Derivative Instruments and Certain Hedging Activities" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS No. 133," as
amended by SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," as of June 30, 2003, the Company had determined that it was probable that the
original forecasted transactions would not occur, and therefore all remaining unrealized losses of $3.6 previously included

F-20

---

in
accumulated other comprehensive income (loss) were reclassified to realize the losses in net interest expense and debt costs. As of December 31, 2003, the Company had no interest rate swap.

NOTE 11LONG-TERM DEBT

Long-term debt consisted of the following amounts:

|                                                                           |  | December 31, |      
|-------------------------------------------------------------------------- |  | ------------ | -----
|
|Variable 1-month LIBOR plus 3.5% notes ("Term Notes"), due in January 2005 |  | $            |     
|Variable 1-month LIBOR plus 2.25% note, due in July 2008                   |  |              | 32.5 
|6% MPDI Note Payable, maturing in December 2003                            |  |              |     
|                                                                           |  |              |      
|                                                                           |  |              | 32.5 
|Less: current maturities                                                   |  |              | (10.0
|                                                                           |  |              |      
|Long-term debt                                                             |  | $            | 22.5 
|                                                                           |  |              |      

On
July 25, 2003, the Company retired its existing term loan facility with a balance of $79.2 and obtained a new credit facility having a principal balance of $65.0 for a term of
five years and also entered into a new revolving credit facility of $35.0. The borrowings under the new credit facilities bear interest at LIBOR plus 2.25% that will decrease to LIBOR plus 2.0% at
March 31, 2004. The variable interest rate as of December 31, 2003 applicable to Inamed's long term debt was approximately 3.4%.

As
a result of the refinancing transaction and an accelerated principal payment on the new credit facility, the Company expensed unamortized deferred loan fees in the amount of $1.4
during 2003.

The
long-term debt facilities above are secured by substantially all of the Company's assets and requires the Company to maintain a minimum net worth, minimum fixed charge
coverage ratio and maximum leverage ratio. In addition, the sum of funds used to pay dividends and purchase shares of the Company's common stock is limited to $75.0 over the life of the facility. As
of December 31, 2003, the Company was in compliance with these covenants.

As
of December 31, 2003 and 2002, Inamed had $.9 and $1.6, respectively of unamortized financing costs recorded in other assets. The balance as of December 31, 2003 is to
be amortized ratably over the life of the term loan facility maturing in July 2008.

On
July 25, 2003, Inamed retired a 6.0% note, prior to the December 2003 maturity date, held by Medical Products Development, Inc., in the amount of $4.1.

Net
interest expense for 2003, 2002, and 2001 was $9.4, $11.7, and $11.7, respectively.

F-21

---

The
aggregate maturities required on long-term debt at December 31, 2003 are as follows:

Term Notes2004

$
10.02005


12.52006


10.0$
32.5


NOTE 12INCOME TAXES

Income tax expense is summarized as follows:

2003

2002

2001CurrentFederal

$
(2.7
)
$
2.5

$
0.7State and local


(0.3
)

0.4


0.1Foreign


4.1


4.0


4.7$
1.1

$
6.9

$
5.5DeferredFederal

$
(1.0
)
$
1.6

$
2.4State and local


(2.4
)

(1.7
)

0.1Foreign


(1.8
)

(1.3
)

(5.2
)

(1.4
)

2.5Charge in lieu of taxes attributable to tax benefit from employee stock options


18.3


3.8


2.7Total income tax expense

$
14.2

$
9.3

$
10.7


The
domestic and foreign components of income before income taxes were $32.1 and $35.1, respectively, for the year ended December 31, 2003, and $24.0 and $18.2, respectively, for
the year ended December 31, 2002, and $9.1 and $22.6, respectively, for the year ended December 31, 2001.

F-22

---

The
income tax expense differs from the amounts computed by applying the applicable federal statutory rate due to the following:

2003

2002

2001Federal income taxes at the statutory rate

35.0
%
35.0
%
35.0
%State and local income taxes, net of federal benefit

0.5
%
-1.2
%
-1.6
%Amortization of goodwill





6.0
%Benefit of lower foreign tax brackets

-8.9
%
-9.6
%
-11.0
%Detriment (benefit) of extraterritorial income exclusion

-1.0
%
-0.7
%
2.2
%Tax credits

-1.5
%
-1.5
%
-1.6
%Change in valuation allowance

-1.3
%


1.0
%Other

-1.7
%
-0.6
%
0.5
%Subpart F income



0.5
%
Income tax expense

21.1
%
21.9
%
33.7
%


The
principal items that comprise Inamed's net deferred tax assets and liabilities are as follows:

2003

2002Deferred tax assetsSales return and bad debt allowances

$
5.1

$
3.1Accrued liabilities


12.4


12.9Depreciable and amortizable assets


(0.6
)

1.6Net operating losses and credits


30.4


24.9Other deferred costs





1.3Uniform capitalization adjustment


0.6


47.9


43.8Valuation allowance


(1.1
)

(2.0
)Total deferred tax assets

$
46.8

$
41.8Deferred tax liabilitiesUnrealized foreign currency gains

$
(0.8
)
$
(0.8
)License agreements


(2.9
)

(3.0
)Other





(0.1
)Total deferred tax liabilities

$
(3.7
)
$
(3.9
)Net deferred tax asset

$
43.1

$
37.9


No
provision has been made for U.S. or additional foreign taxes on undistributed earnings of certain foreign subsidiaries. Those earnings have been, and will continue to be, permanently
reinvested, but could become subject to additional tax if they were remitted as dividends, were loaned to Inamed or a U.S. affiliate, or if Inamed should sell the stock of its foreign subsidiaries.
The additional tax on

F-23

---

the
cumulative amount of reinvested earnings that has not been recorded was approximately $29.3, $16.2, and $12.8 as of December 31, 2003, 2002, and 2001, respectively.

For
federal income tax purposes, Inamed currently has federal net operating losses carryforward of approximately $34.0. These net operating losses begin to expire in 2019. Inamed also
has federal tax credit carryforwards of approximately $6.5 that will expire in various years beginning in 2008.

For
state income tax purposes, Inamed has net operating losses of approximately $30.5 with a corresponding tax benefit of about $2.4. In addition, Inamed has state tax credit
carryforwards of approximately $4.4.

Realization
of the deferred tax asset is dependent on generating sufficient taxable income prior to the expiration of any net operating loss or credit carryforwards. Although realization
is not assured, management believes it is more likely than not that the deferred tax asset will be realized.

NOTE 13STOCKHOLDERS' EQUITY (Share quantity and per share data shown as actual, not millions)

Stock Options

Inamed has adopted several stock option plans and issued both standalone stock options and warrants. At December 31, 2003, under the terms of all director,
officer and employee stock option plans, 570,661 shares of common stock were available for grant.

In
1984, Inamed adopted a non-qualified stock option plan the ("1984 Plan"), which authorized Inamed to issue options to key employees. The exercise price per share is the
fair market value per share on the date of grant. The options are exercisable for ten years after the option grant date and vest ratably over three years.

In
1993, Inamed adopted a Non-Employee Director Stock Option Plan the ("1993 Plan"), which authorized Inamed to issue options to directors who are not employees of or
consultants to Inamed and who are thus not eligible to receive stock option grants under Inamed's other stock option plans. The exercise price per share is the fair market value per share on the date
of grant. The options are exercisable for ten years after the option grant date and vest in full one year from grant date.

In
1998, Inamed adopted a non-qualified stock option plan the ("1998 Plan"), which authorized Inamed to issue options to key employees. The exercise price per share is the
fair market value per share on the date of grant. The options are exercisable for ten years after the option grant date and vest ratably over three years.

In
1999, Inamed adopted a non-qualified stock option program the ("1999 Program"), which authorized Inamed to issue options to key employees. The exercise price per share is
the fair market value per share on the date of grant. The options are exercisable for ten years after the option grant date and vest ratably over three years.

In
1999, Inamed adopted a Non-Employee Director Stock Election Plan the ("Stock Election Plan"), which authorized Inamed to issue options to directors and receive shares of
common stock in lieu of cash compensation owed to them as a result of their service on Inamed's Board of Directors.

F-24

---

In
2000, Inamed adopted the 2000 Employee Stock Option Plan the ("2000 Option Plan"), which authorized Inamed to issue options to key employees. The exercise price per share is the fair
market value per share on the date of grant. The options are exercisable for ten years after the option grant date. In general, options issued under the 2000 Option Plan vest ratably,
one-third per year on the first, second, and third anniversaries of their issuance.

During
the year ended December 31, 2001, Inamed granted options from the 1999 Program to purchase 37,500 shares to a consultant at an exercise price of $13.10 per share, a fair
market value of $331,000, and an expiration date of November 2004. The Company accounted for the options under the variable method of accounting thus resulting in non-cash
compensation expense of $55,000 using an option-pricing model calculated as the services were rendered. There were no options granted to non-employees or consultants during 2003 or 2002.

In
2003, Inamed adopted the 2003 Outside Director Compensation Plan ("the Directors Plan"), which authorizes Inamed to grant stock options to directors who are not employees of Inamed or
any of its subsidiaries. The exercise price per share is the fair market value per share on the date of grant. The options are exercisable for seven years after the option grant date. In general,
options issued under the 2003 Outside Director Compensation Plan vest and become exercisable in full on the first anniversary of their issuance.

Executive Standalone Stock Options

In 2001, Inamed granted a standalone option for 450,000 shares of common stock to an executive. The exercise price per share is the fair market value per share on
the date of grant. These options vest ratably on the first, second, and third anniversaries of the grant date. Some or all of these options may also vest immediately upon a
change-of-control, as defined in the option agreement.

In
2001, Inamed also granted a standalone option for 150,000 shares of common stock to another executive. The exercise price per share is the fair market value per share on the date of
grant. These options vest ratably on the first, second, and third anniversaries of the grant date. Some or all of these options may also vest immediately upon a
change-of-control, as defined in the option agreement.

F-25

---

The
following table represents share information for all the option plans for Inamed:

|                                                   |  | Authorized
shares |  | Number of
securities to be
issued upon the
exercise of
outstanding
options |  | Weighted average
exercise price of
outstanding options |       | Number of securities
remaining available for
future issuance
|-------------------------------------------------- |  | ----------------- |  | -------------------------------------------------------------------------- |  | ------------------------------------------------------ | ----- | ------------------------------------------------------------
|The 1993 Plan                                      |  | 225,000           |  | 52,500                                                                     |  | $                                                      | 19.71 |                                                             
|The 1998 Plan                                      |  | 675,000           |  | 11,150                                                                     |  | $                                                      | 4.33  |                                                             
|The 1999 Program                                   |  | 1,350,000         |  | 192,249                                                                    |  | $                                                      | 43.16 |                                                             
|The 2000 Option Plan                               |  | 2,287,500         |  | 1,591,711                                                                  |  | $                                                      | 33.81 |                                                             
|The 2003 Outside Director Plan                     |  | 225,000           |  | 37,500                                                                     |  | $                                                      | 40.34 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             
|Equity compensation plans approved by Stockholders |  | 4,762,500         |  | 1,885,110                                                                  |  | $                                                      | 34.33 |                                                             
|Stand Alone Options, not approved by Stockholders  |  | 2,426,250         |  | 200,001                                                                    |  | $                                                      | 15.34 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             
|Total                                              |  | 7,188,750         |  | 2,085,111                                                                  |  | $                                                      | 32.51 |                                                             
|                                                   |  |                   |  |                                                                            |  |                                                        |       |                                                             

Summary

Activity under these plans for the years ended December 31, 2003, 2002, and 2001 was as follows (shares in millions):

|                                                               |  | 2003 |   | 2002 |       | 2001
|-------------------------------------------------------------- |  | ---- | - | ---- | ----- | ----
|
|Options outstanding at the beginning of the year               |  | 3.3  |   | $    | 15.18 |     
|Granted                                                        |  | 1.1  |   | $    | 47.37 |     
|Cancelled                                                      |  | (0.1 | ) | $    | 21.89 |     
|Exercised                                                      |  | (2.2 | ) | $    | 14.15 |     
|                                                               |  |      |   |      |       |     
|Options outstanding at the end of the year                     |  | 2.1  |   | $    | 32.51 |     
|Options exercisable at the end of the year                     |  | 0.2  |   | $    | 19.40 |     
|Weighted average fair value of options granted during the year |  |      |   | $    | 14.54 |     

F-26

---

The following table summarizes information about stock options outstanding at December 31, 2003 (shares in millions):

Options Outstanding

Options ExercisableRange of exercise prices

Number Outstanding

Wgtd. Avg. Remaining Contractual Life (Years)

Wgtd. Avg. Exercise Price

Number Exercisable

Weighted Avg. Exercise Price$4.33 - $12.80

0.2

7.78

$
11.28



$
9.58$14.69 - $16.50

0.3

6.29

$
15.41

0.1

$
16.38$16.68 - $18.17

0.3

6.6

$
17.45



$
18.00$19.85 - $27.29

0.2

7.2

$
23.22

0.1

$
25.69$38.00 - $48.15

0.2

9.16

$
45.23



$
$48.68



9.75

$
48.68



$
$48.99

0.8

9.75

$
48.99



$
$49.17

0.1

9.66

$
49.17



$
$49.70



6.73

$
49.70



$
$51.08



9.73

$
51.08



$
$4.33 - $51.08

2.1

8.25

$
32.51

0.2

$
19.40


2000 Employee Stock Purchase Plan

In January 2000, Inamed adopted the 2000 Employee Stock Purchase Plan. The 2000 Stock Purchase Plan is intended to assist Inamed in securing and retaining
its employees by allowing them to participate in the ownership and growth of Inamed through the grant of certain rights to purchase shares of Inamed's common stock at a discount of 15% from the fair
market value of the shares. The granting of such rights serves as partial consideration for employment and gives employees an additional inducement to remain in the service of Inamed and its
subsidiaries and provides them with an increased incentive to work toward Inamed's success.

Under
the 2000 Employee Stock Purchase Plan, each eligible employee is permitted to purchase shares of common stock through regular payroll deductions and/or cash payments in amounts
ranging from 1% to 15% of the employee's compensation for each payroll period. The fair market value of the shares of common stock which may be purchased by any employee under this or any other Inamed
plan that is intended to comply with Section 423 of the Internal Revenue Code.

The
2000 Employee Stock Purchase Plan, as amended in 2001, provides for a series of consecutive offering periods that are six months long. Offering periods commence on February 1
and August 1 of each year during the term of the Plan. During each offering period, participating employees are able to purchase shares of common stock at a purchase price equal to 85% of the
fair market value of the common stock at either the beginning of each offering period or the end of each offering period, whichever price is lower. Under terms of the 2000 Stock Purchase Plan, as
amended, 600,000 shares of common stock have been reserved for issuance to employees. In 2003, 2002, and 2001, 155,089 shares

F-27

---

($1.9),
36,979 shares ($0.4), and 56,451 shares ($0.7) respectively were purchased by approximately 200, 200, and 150 participating employees under the Plan.

Restricted Stock Plan

In 2003 Inamed adopted the 2003 Restricted Stock Plan, which authorizes Inamed to issue shares to any employee, officer, consultant, or non-employee
director. Restricted Stock Awards may be granted by the Board subject to vesting and any other restrictions (including a period during which vested shares may not be sold) as determined by the Board
and stated in the Award Agreement. Restricted stock may not be sold or otherwise transferred or pledged until the restrictions lapse or are terminated.

|                               |  | Authorized Shares |  | Number of shares issued |  | Available for Issuance
|------------------------------ |  | ----------------- |  | ----------------------- |  | ----------------------
|The 2003 Restricted Stock Plan |  | 150,000           |  | 142,500                 |  | 7,500                 
|                               |  |                   |  |                         |  |                       

Warrants

During the twelve months ended December 31, 2002, a holder of a warrant exercised one warrant and acquired 390,000 shares of Inamed's common stock. The
warrant was exercised for 390,000 shares of common stock at an exercise price of $8.27 per share. The shares issued by Inamed pursuant to the exercise of the warrants are registered with the
Securities and Exchange Commission on a Form S-3 registration statement, filed on June 6, 2000. Inamed received aggregate proceeds from the foregoing in the amount of
approximately $3.2.

Also,
during the twelve months ended December 31, 2002, affiliates of Appaloosa Management L.P. exercised four warrants originally issued in 1998 and acquired an aggregate of
1,412,694 shares of Inamed's common stock. Two of the warrants were each exercised for 434,633 shares of common stock (a total of 869,265 shares) at an exercise price of $4.33 per share, and the
remaining two warrants were each exercised for 271,715 shares of common stock (a total of 543,429 shares) at an exercise price of $5.00 per share. The shares issued by Inamed pursuant to the exercise
of the warrants are registered with the Securities and Exchange Commission on a Form S-3 registration statement, filed on June 6, 2000. Inamed received aggregate proceeds
from the foregoing in the amount of approximately $6.5.

There
were no warrants outstanding to purchase shares of common stock at December 31, 2003 or 2002.

NOTE 14STOCK REPURCHASE PROGRAM

As of December 31, 2003, Inamed has the ability under the term loan agreement to purchase up to $75.0 of its common stock, reduced by the amount of
dividends paid over the life of the credit facility. Inamed has no stock repurchase program in place as of December 31, 2003.

F-28

---



NOTE 15EMPLOYEE BENEFIT PLANS

In January 1990, Inamed adopted a 401(k) Defined Contribution Plan (the Plan) for all U.S. employees. Participants may contribute to the Plan and Inamed
may, at its discretion, match a percentage of the participant's contribution as specified in the Plan's provisions. Inamed's contributions to the plan approximated $0.9, $0.7, and $0.9, for the years
ended December 31, 2003, 2002, and 2001, respectively.

In
February 1990, McGhan Limited (Ireland) adopted a Defined Contribution Plan for all non-production employees. Upon commencement of service, these employees become
eligible to participate in the plan and contribute to the plan up to 5% of their compensation. Inamed's matching contribution was restructured during 2002. It is now equal to 8.5% (previously 10%) of
the participant's compensation. Inamed's contributions to the plan approximated $0.4, $0.3, and $0.4 for the years ended December 31, 2003, 2002, and 2001, respectively.

Certain
other foreign subsidiaries sponsor defined contribution plans. The remaining plans, covering approximately 80 non-U.S. employees, were instituted at various times
during 1991 through 1997 and the accumulated assets and obligations are immaterial. These plans are funded annually according to plan provisions with aggregate contributions of $0.3, $0.3, and $0.3
for the years ended December 31, 2003, 2002, and 2001, respectively.

NOTE 16PRODUCT LINE AND GEOGRAPHICAL FINANCIAL INFORMATION

Inamed's sales by product line are as follows:

2003

2002

2001Breast Aesthetics

$
177.8

$
156.3

$
140.7Facial Aesthetics*


87.2


73.8


67.2Obesity intervention


63.1


39.4


24.1Other**


4.5


6.2


6.1Total

$
332.6

$
275.7

$
238.1


---

Inamed's
sales by major country (according to the location of the customer) were as follows:

2003

2002

2001U.S. / Canada

$
222.1

$
181.0

$
146.6All Other Countries*


110.5


94.7


91.5Total

$
332.6

$
275.7

$
238.1


---

F-29

---

Long-lived assets (which consist of property and equipment plus intangible assets) by major country were as follows:

2003

2002U.S. / Canada

$
220.9

$
221.9All Other Countries*


26.0


20.2Total

$
246.9

$
242.1


---

NOTE 17MAJOR SUPPLIERS

The Company purchases its raw materials from many different suppliers worldwide. There are three suppliers which account for $21.3, $12.2, and $14.7 of raw
material purchases for the years ending December 31, 2003, 2002, and 2001 respectively.

NOTE 18LEASE, GOVERNMENT SUBSIDY AND ROYALTY COMMITMENTS

Inamed leases facilities under operating leases. Rent expense aggregated $5.7, $6.4 and $6.6 for the years ended December 31, 2003, 2002, and 2001,
respectively.

Minimum
lease commitments under all non-cancelable operating leases at December 31, 2003 are as follows:

2004

$
8.32005


7.02006


5.82007


4.32008


3.7Thereafter


21.1$
50.2


Deferred
grant income represents grants received from the Irish Industrial Development Authority, or IDA, for the purchase of capital equipment and is being amortized to income over the
life of the related assets. Amortization for each of the years ended December 31, 2003, 2002, and 2001 was less than $0.1. IDA grants are subject to revocation upon a change of ownership or
liquidation of McGhan Limited, Inamed's Irish subsidiary. If the grant were revoked, Inamed would be liable on demand from the IDA for all sums received and deemed to have been received by Inamed in
respect to the grant. In the event of revocation of the grant, Inamed could be liable for the amount of approximately $1.9, $1.6 and $1.4 at December 31, 2003, 2002 and 2001, respectively.

F-30

---

Inamed
has obtained the right to produce, use and sell patented technology through various license agreements. Inamed pays royalties ranging from 5% to 10% of the related sales,
depending upon sales levels. Royalty expense under these agreements was approximately $6.1, $3.7, and $4.9 for the years ended December 31, 2003, 2002, and 2001, respectively, and is included
in marketing expense. The license agreements expire at the expiration of the related patents.

NOTE 19RELATED PARTY TRANSACTIONS

In 2001, Inamed loaned an executive $0.2 under a full recourse note bearing minimum interest at approximately 4%. The note has annual installments due of
one-third of the principal
balance in February of 2003, 2004, and 2005, with all accrued interest due and payable on February 2005. As of December 31, 2003 and 2002 the note balance was $0.1 and $0.2,
respectively.

In
2003, Inamed paid $1.4 to a marketing consulting firm, which is owned by the son-in-law of one of the Company's Directors. Management believes that the terms
entered into are at arms-length and that such terms are comparable to those with third parties. The unpaid balance at December 31, 2003 was $0.0.

NOTE 20LITIGATION

BREAST IMPLANT LITIGATION

Trilucent Breast Implant Matters

When the Company purchased Collagen in September 1999, Inamed assumed certain liabilities relating to the Trilucent breast implant, a soybean
oil-filled breast implant, which had been manufactured and distributed by various subsidiaries of Collagen between 1995 and November 1998. In November 1998, Collagen
announced the sale of its LipoMatrix, Inc. subsidiary, manufacturer of the Trilucent implant, to Sierra Medical Technologies, Inc. Collagen retained certain liabilities for Trilucent
implants sold prior to November 1998.

In
March 1999, the United Kingdom Medical Devices Agency, or MDA, announced the voluntary suspension of marketing and withdrawal of the Trilucent implant in the U.K. 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 had 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. In March 1999, Collagen agreed with the U.K. National Health Service that, for a period of time, it would
perform certain product surveillance with respect to U.K. patients implanted with the Trilucent implant and pay for explants for any U.K. women with confirmed Trilucent implant ruptures. 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. Subsequent to acquiring Collagen, Inamed elected to continue the voluntary program.

F-31

---

Inamed
estimates that approximately 8,000-9,000 women received Trilucent implants until commercial sales ceased in March 1999, and approximately half of them reside in
the U.K. In the U.S., 165 women received Trilucent breast implants in two clinical studies; enrollment in both studies ended by June 1997.

On
June 6, 2000, the MDA issued a hazard notice recommending that surgeons and their patients consider explanting the Trilucent implants even if the patient is asymptomatic. The
MDA also recommended that women avoid pregnancy and breast-feeding until the explantation. The hazard notice stressed, however, "that all of the above advice is precautionary. Although there have been
reports of breast swelling and discomfort in some women with these implants, there has been no clinical evidence of any serious health problems, so far."

Concurrently
with the MDA announcement of June 6, 2000, Inamed announced that, through its AEI, Inc. subsidiary, it had undertaken a comprehensive program of support and
assistance for women who have received Trilucent breast implants, under which it is covering medical expenses associated with the removal and replacement of those implants for women in the European
Community, the U.S. and other countries. After consulting with competent authorities in each affected country, the Company terminated this support program effective as of December 31, 2003 in
all countries other than Germany. Notwithstanding the termination of the general program, Inamed may continue to pay for explanations and related expenses if a patient can justify her delay in having
her Trilucent implants removed on medical grounds or owing to lack of notice. Under this program, the Company may pay a fee to any surgeon who conducts an initial consultation with any Trilucent
implantee. The Company also pays for the explantation procedure and related costs, and for replacement (non-Trilucent) implants for women who are candidates for and who desire them. To
date, more 90% of the U.K. residents and more than two-thirds of the non-U.K. residents who have requested explantations as a result of an initial consultation have had them
performed. To date, an insurance company has reimbursed Inamed for approximately 70% of these expenses. Going forward, the insurance company is obligated to reimburse Inamed for not less than 75% of
these expenses, up to an aggregate of $50.0 million in coverage through February 15, 2005.

In
2000-2001, Inamed was sued in various litigations in the United States alleging bodily injury caused by Trilucent breast implants. All of these cases have now been
dismissed or settled and do not face any Trilucent related claims or litigation in the United States at this time. One claim was settled without litigation for a small sum in the first quarter of 2003
and was covered by the Company's insurance settlement.

Also
during and since the third quarter of 2000, Inamed and its subsidiaries have received notices of claim from European women, the vast majority of them residents of the U.K. or Spain,
seeking compensation for general and special damages for alleged bodily injuries from Trilucent implants. In November, 2000, with the consent and approval of its insurers, AEI, Inc., on behalf
of itself, its affiliates and insurers, entered into a settlement protocol with the lead solicitor for the U.K. claimants. The protocol affords a fixed level of compensation to qualified claimants
who, in an uncomplicated surgical procedure, have had their Trilucent breast implants explanted in reliance on the June 2000 MDA hazard notice. The protocol also affords a mechanism for the
efficient resolution of any claims alleging that the early explantation of Trilucent implants involved serious surgical complications or

F-32

---

resulted
in a medical condition, which required either extended hospitalization or extended home care. To date, close to 90% of the U.K. women who have had their Trilucent implants explanted since
June 2000, represented by more than 90 different solicitors, have sought compensation through the settlement protocol. To date, no such woman has brought civil proceedings.

In
addition, in Spain, Inamed has offered a protocol similar in structure to the United Kingdom protocol. To date, Inamed has received approximately 310 claims under the Spanish
protocol. In addition, a Spanish consumer union has commenced a single action in which the consumer union alleges that it represents approximately 40 Spanish Trilucent explantees. Finally,
approximately 50 women have commenced individual legal proceedings. To date, 7 of these proceedings have proceeded to judgment. Inamed has won 4, and lost 3, of these cases. Damages in the cases
Inamed lost have averaged $18,000 per case. The Company is taking appeals in each of the 3 cases.

In
2002, Inamed came to final settlements with each of its two insurers for product liability claims arising from the Trilucent implant. Under one settlement, with MEDMARC Casualty
Insurance Company, MEDMARC paid $6.0 million in cash to Inamed in January 2003, and $1.5 million in cash in May 2003, and, effective November 16, 2002, agreed to
make a policy with a limit of $10.0 million available to the Company for defense and indemnification of Trilucent-related bodily injury claims worldwide. The policy does not cover claims filed
against the Company after November 7, 2005. There was approximately $3.3 million remaining on the policy commitment at December 31, 2003. Under the second settlement, AISLIC, an
AIG company, agreed to make an excess policy with a limit of $10.0 million available to the Company for the indemnification of non-U.S. Trilucent claims. There was approximately
$6.2 million remaining under this commitment at December 31, 2003. As a result of these settlements, the Company released both carriers from any other actual or potential financial
claims under the policies and dismissed all carrier related litigation with prejudice. In addition,
under the settlement with AIG, subject to certain conditions, the Company is required to pay up to $1.5 million to AIG in or before November 2005.

By
agreement with the MDA, Inamed is currently funding additional scientific research and patient monitoring relating to Trilucent.

In
addition, at December 31, 2003 and 2002, the Company had an accrual for future Trilucent claims, costs, and expenses of approximately $12.2 million and
$7.3 million, net of insurance.

Based
upon the information and analyses currently available to the Company, the Company believes that its current accruals and available insurance coverage are sufficient to discharge
future Trilucent related liabilities; however, there can be no assurances that the future Trilucent liabilities will not exceed the current accruals and insurance coverage.

Resolution of 3M Contractual Indemnity Claim

In connection with the February, 1999 settlement of its breast implant class action litigation (see "Breast Implant Class Action
Settlement,"below), 3M asserted against Inamed a contractual indemnity provision, which was part of the August 1984 transaction in which Inamed's McGhan Medical
subsidiary purchased 3M's plastic surgery business. To resolve these claims, on April 16, 1998, Inamed entered into a provisional agreement with 3M under which Inamed agreed to seek to obtain
releases of

F-33

---

claims
asserted against 3M in lawsuits involving breast implants manufactured by Inamed's McGhan Medical subsidiary. The 3M agreement provides for release of 3M's indemnity claim upon achievement of
an agreed minimum number of conditional releases for 3M.

Under
the terms of the 3M agreement, as later amended in January 1999, Inamed paid $3.0 million to 3M in February 1999. Also under the terms of the 3M agreement,
Inamed assumed limited indemnification obligations to 3M beginning in the year 2000, subject to a cap of $1.0 million annually and $3.0 million to $3.9 million in total. For 2000,
the total obligation under the 3M agreement, as amended, was $0.3 million, which the Company paid. In March 2002, 3M made a demand under the 3M agreement for $0.2 million relating
to 2001. Inamed has not received a further request for indemnification under this agreement.

Brown Litigation

InBrown v. Mentor Corporation, et al., Case NO CIV 00-534-T, U.S. District Court for the
Western District of Oklahoma, five plaintiffs, including one woman implanted with shaped saline breast implants manufactured by a subsidiary of Inamed (McGhan) sought to represent a nationwide class
of women who received shaped saline breast implants manufactured either by McGhan or by Mentor Corporation (Mentor), an unrelated company The complaint alleged that shaped saline implants manufactured
and promoted by Inamed's subsidiary and Mentor unexpectedly spun or rotated, causing cosmetic anomalies, physical pain and emotional distress. In addition, the complaint alleges that each plaintiff
needs or has undergone replacement surgery to remove the implants. The complaint sought compensatory and punitive damages on behalf of the individual plaintiffs and the putative class members in an
amount allegedly totaling "billions" of dollars, and also seeks an injunction against continued sale of the allegedly defective implants. The only defendants in this action were McGhan and Mentor.

As
of March 3, 2004, we entered into a settlement agreement with the named plaintiffs in this litigation. We made a payment to the named plaintiffs of an immaterial amount to
settle the matter, and the claims of such plaintiffs were dismissed with prejudice.

Sager Litigation

Inamed and its Inamed Medical Products Corporation subsidiary are defendants inVickie Sager and Elizabeth Weichsel v. Inamed Corporation,
et al., Case No. 01043771, Superior Court of the State of California for the County of Santa Barbara. In this putative class action, plaintiffs allege that they and
other women who received McGhan's shaped, saline breast implants overpaid for them as a result of Inamed's allegedly false and misleading promotions, advertising, and/or representations about this
product. Specifically, plaintiffs allege that, from approximately 1994 to the summer of 2000, Inamed falsely and wrongfully represented that the shaped breast implant was a superior product to round
implants offered at a lower cost. Plaintiffs allege the advertisements and promotions represented falsely that the shaped implants have a more natural and superior appearance after implantation than
round implants when, according to plaintiffs, this is not the case. For reasons unrelated to the allegations made by the plaintiffs, Inamed changed its marketing, advertising, and promotional program
for the shaped breast implants before this lawsuit was filed.

F-34

---

Plaintiffs
allege that Inamed's allegedly unlawful representations and promotions induced them and others to choose shaped implants at a cost of up to five hundred dollars more than the
cost of round breast implants. The complaint alleges that but for Inamed's allegedly false and misleading advertising
and promotional campaigns, plaintiffs and the putative class members would have paid approximately five hundred dollars less for their implants than they actually did.

The
operative complaint alleges that Inamed engaged in fraud, negligent misrepresentation, breach of express and implied warranties, breach of contract, unlawful, unfair, and fraudulent
business practices in violation of California Business & Professions Code §17200,et seq.,false and deceptive advertising in
violation of California Business & Professions Code §17500et seq.,and analogous deceptive practices made unlawful by the California
Consumers Legal Remedies Act, California Civil Code §1750et seq.Plaintiffs purport to represent a class of all women residing in the U.S.
who received shaped implants from the date of that product's introduction (alleged to be in 1994) to a yet-to-be-ascertained date in the summer of 2000. Plaintiffs
seek compensatory and punitive damages. Plaintiffs also seek equitable and restitutionary relief that would generally require Inamed to disgorge and refund to the plaintiff class the alleged
difference in price between the shaped implants and less expensive round breast implants. In addition, plaintiffs seek equitable and injunctive relief barring Inamed and its subsidiaries from engaging
in further unlawful, deceptive, or misleading advertising or promotion of McGhan's shaped, saline breast implants. Plaintiffs also seek an award of attorney fees.

Inamed
answered the complaint, denying all material factual allegations and asserting various affirmative defenses. In August, 2002, the Superior Court decided plaintiffs' motion to
certify this action as a class action and denied that motion in its entirety. Plaintiffs have taken an appeal from that decision. In December, 2002, the Superior Court decided Inamed's motion for
summary judgment or in the alternative for summary adjudication and, in general, denied that motion, finding that triable issues exist as to plaintiffs' reliance on the alleged misrepresentations, as
to the actionability of the alleged misrepresentations, and as to whether the named plaintiffs may proceed in a representative capacity under California Business & Professions Code
§17204. The parties unsuccessfully attempted to mediate a settlement of the case in May 2003. Since then, however, the parties were able to reach an agreement in principle on a
settlement of the action on a class wide basis. Without admitting any fault or liability, and to avoid the substantial cost of further complex litigation, Inamed will pay $2.1 million into a
settlement fund for the costs of notice, claims administration, the payment of verified claims, court-approved reasonable attorney fees, and related matters. The Court has vacated all dates in the
case, including a trial date, pending Court approval of the final settlement agreement. On November 5, 2003, the court preliminarily approved the settlement agreement in this case. Under a
scheduling order entered into by the court, a hearing on the parties' application for final approval of the settlement is to be held on March 30, 2004.

Breast Implant Class Action Settlement

Prior to a final settlement order issued by the U.S. District Court for the Northern District of Alabama, on February 1, 1999, Inamed was a defendant in
many thousands of state and federal court lawsuits involving breast implants. As part of that final order, all of those cases arising from breast implants (both silicone gel-filled and
saline-filled) that were implanted before June 1, 1993 were

F-35

---

consolidated
into a mandatory class action settlement and dismissed. The settlement order became final and non-appealable on March 3, 1999. In May 1999, the Company made the
final payment in connection with this settlement from a $31.1 equity issuance.

PATENTS AND LICENSE LITIGATION

Kuzmak Matter

In February 1999, Inamed and certain of its subsidiaries were named as respondents in an arbitration commenced by Dr. Lubomyr I. Kuzmak in the
American Arbitration Association, No. 13 184 00102 99, referred to below as the AAA action. Dr. Kuzmak alleged that as of the date of filing of the AAA action, he was owed approximately
$0.4 million in unpaid royalties under a license agreement covering four U.S. patents in the field of gastric banding naming Dr. Kuzmak as an inventor. In the past, Inamed worked with
Dr. Kuzmak in the development and improvement of gastric banding technology.

Inamed
denied all of the material allegations raised by Dr. Kuzmak and asserted affirmative defenses and counterclaims, including non-infringement, invalidity and
unenforceability for inequitable conduct before the U.S. Patent and Trademark Office. In addition, in February 1999, the Company filed a civil action in the United States District Court for the
Central District of California against Dr. Kuzmak, No. CV 99-02160 MMM, referred to below as the California federal action, seeking a declaratory judgment of invalidity,
unenforceability, and non-infringement of the patents to which Dr. Kuzmak claims ownership. Dr. Kuzmak moved to dismiss the action for lack of personal jurisdiction.

On
January 24, 2000, shortly before hearings were set to begin in the AAA action, lawyers for Dr. Kuzmak and Inamed came to agreement on various terms and conditions of a
possible settlement of the California federal action, the AAA action, and a third action between BioEnterics Corporation and Dr. Kuzmak pending in the Superior Court of New Jersey, Chancery
Division, Essex County. The agreed-upon terms of the settlement were set forth in a letter agreement, the Letter Agreement, executed by the parties' respective counsel on
January 24, 2000. The Letter Agreement provided,inter alia, that Inamed would pay Dr. Kuzmak an agreed upon amount in two installments
and would pay royalties on each sale of a gastric band in the United States. The parties agreed that the first installment of $0.4 million was to be paid "immediately upon execution of a
settlement agreement, which the parties will use their best efforts to sign off on as soon as possible" and a second installment of $0.25 million was to be paid "within 90 days of
execution of the settlement agreement." The Letter Agreement also provided that Inamed would pay a royalty of $36 on each band sold in the United States and an advance against royalties of
$2.0 million within thirty days of FDA approval "following execution of the settlement agreement."

On
February 16, 2000, the Company's attorneys sent the settlement agreement, for review and comment, to attorneys for Dr. Kuzmak. Despite repeated requests,
Dr. Kuzmak refused to execute the settlement agreement. On April 5, 2000, Inamed filed a civil action in the United States District Court for the District of New Jersey,
No. 00-CV-1610 (WHW) (the New Jersey federal action), seeking

F-36

---

specific
performance of the Letter Agreement or, in the alternative, relief from Dr. Kuzmak's breach of the Letter Agreement, as well as the relief sought in the California federal action.

On
March 1, 2001, the court hearing the California federal action entered judgment dismissing that action, without prejudice, for lack of personal jurisdiction. Inamed appealed
this decision and on May 15, 2001, the United States Court of Appeals for the Federal Circuit rendered an opinion and judgment reversing the district court's dismissal and remanding the case to
the district court for further proceedings. At a scheduling conference held October 2, 2001, the court in the California federal action ordered the parties to participate in a mediation
proceeding, and bifurcated the court proceedings so that the question of the enforceability of the settlement agreement is resolved before other patent-related issues are addressed.

On
November 27, 2001, Ethicon Endo-Surgery, Inc., or Ethicon, acquired all of Dr. Kuzmak's rights, title and interest in his patents and patent
applications in the field of gastric banding technology. Ethicon then filed a motion to substitute itself as the real party in interest in place of Dr. Kuzmak in the California federal action.
In March 2002, the court granted Ethicon's motion to be added as a real party in interest but did not dismiss Dr. Kuzmak.

On
or about December 7, 2001, the parties stipulated to dismiss the New Jersey federal action without prejudice in favor of the California federal action and the New Jersey
federal action was so dismissed.

On
February 15, 2002, Inamed filed a motion for partial summary judgment in the California federal action, seeking specific performance of the Letter Agreement or, in the
alternative, a determination that Dr. Kuzmak had breached the Letter Agreement. Ethicon and Kuzmak filed an opposition to the motion asking that summary judgment be granted in their favor
instead, determining that the Letter Agreement is unenforceable. On May 8, 2002, the court heard argument on that motion and, in an opinion dated May 28, 2002, denied that motion and
granted summary judgment on these claims to Ethicon and Kuzmak. Inamed took an appeal from the federal district court's May 28 rulings to the U.S. Court of Appeals for the Federal Circuit. That
appeal was fully briefed and, on April 9, 2003, argued. On May 15, 2003 the Federal Circuit affirmed the district court's grant of summary judgment on the basis that Inamed had not
proven a breach of the Letter Agreement by Dr. Kuzmak. In so doing, however, the Federal Circuit expressly overruled the district court's conclusion that a binding contract to settle this
litigation had never been formed. On the basis of certain language in the Federal Circuit's opinion that the Company believes renders the Letter Agreement currently enforceable, the Company moved the
district court for a stay of all proceedings. The district court held a conference call on June 10, 2003 and suggested the parties seek clarification from the Federal Circuit regarding the
implications of its opinion on the current enforceability of the Letter Agreement. The Company subsequently did so and the Federal Circuit denied the motion for clarification. It renewed its stay
request, which the district court denied on July 22, stating that its interpretation of the Federal Circuit's opinion was that the Letter Agreement was terminated. It is currently evaluating
its options with respect to enforcement of the Letter Agreement.

Following
its denial of the stay request, the district court held a "Markman" claim construction hearing on July 28, 2003 to construe certain disputed claim terms of the asserted
patents. The final

F-37

---

Claim
Construction Order was issued on November 7, 2003. The court held a telephonic scheduling conference on November 19, 2003 at which time it set a schedule for briefing on Inamed's
motions for summary judgment of invalidity and non-infringement as well as expert discovery. On January 29, 2004 the court held a hearing on Inamed's summary judgment motions for
invalidity of the "339, "176 and "429 patents and for non-infringement of the "339 and "176 patents. Following the hearing, the court issued an order noting that the previously scheduled
February 17, 2004 trial date was vacated and that the issues raised in Inamed's summary judgment motions remain under consideration and further directing the parties to submit a stipulation
regarding a preferred trial date. On February 2, 2004 the parties submitted a stipulation requesting a trial date in late June 2004. The court has not yet confirmed such or any other
date. Inamed will vigorously prosecute any remaining declaratory relief claims and defend any remaining infringement claims at trial.

The
Company continues to believe that the Letter Agreement is an enforceable settlement agreement, that Kuzmak or Ethicon breached it, and that the Company did not breach it. If Inamed
is ultimately successful in enforcing the Letter Agreement, it would obtain an exclusive license to, or a covenant not to sue under, all of the patents at issue in the federal litigation through
June 2005, when the earliest patent containing the broadest claims expires. The Company would also be obligated to pay Ethicon a running royalty of thirty-six U.S. dollars per
BioEnterics® LAP-BAND® System sold in the U.S. through June 2005 and a nonrefundable advance on royalties of $2.0 million. In that event, the federal
district court need not
reach or decide Ethicon's claims for patent infringement or its claims for declarations of patent invalidity, unenforceability and/or non-infringement (together, the Patent Claims).
However, the Company does not expect that it will be able to enforce the Letter Agreement before it is required to litigate the Patent Claims.

If
Inamed loses at a trial of the Patent Claims, a judgment could be entered against the Company (i) for damages in the form of royalties payable to Ethicon from December, 1998,
and (ii) enjoining the Company from making or selling the BioEnterics® LAP-BAND® System in the U.S. until the expiration of the
last-to-expire patent at issue in the litigation found to be valid and enforceable and to be infringed by the BioEnterics® LAP-BAND® System.
Upon a finding that Inamed willfully infringed one or more of the patents at issue, the Court could also hold the Company liable to Ethicon for treble damages. In terminating a license agreement with
Dr. Kuzmak in 1998, the Company acted in reliance upon a written opinion issued by specialized patent counsel. This factor generally reduces the likelihood of a finding of willful infringement
in patent litigation.

Among
other relief, Ethicon seeks, and Inamed opposes, the entry of an injunction against Inamed enjoining it from infringement of its patents. While the earliest and broadest of the
patents at issue in this litigation expires in 2005, other patents-in-suit expire in 2011 and 2013. Therefore, if Ethicon prevails on the patent claims and its request for an
injunction is granted, Inamed could be enjoined until 2013. In opposing the entry of such an injunction, the Company would rely in part on a well-established exception to this rule under
which injunctions have been denied in the context of litigation over medical device patents on public health grounds. While the Company believes that such an opposition would be
well-grounded in law and in fact, no assurance can be given that such an application would in fact be granted.

F-38

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Dr. Kuzmak
has no continuing financial interest in this matter, as he assigned all such rights to Ethicon in November 2001.

Although
Inamed believes it has meritorious arguments in favor of its positions and continue to vigorously assert its rights and defenses in the litigation with Ethicon, if Inamed is
ultimately unable to enforce the Letter Agreement and if the Company loses at a trial of the Patent Claims, and depending on determinations as to which patents were found to be infringed, the
applicable royalty rate, whether the infringement was willful and whether a permanent injunction issues, an adverse judgment which is not appealed successfully could have a material adverse impact on
the Company's financial condition, results of operations and/or its prospects. Without prejudice to the Company's position on the enforceability of the Letter Agreement, Inamed has settled the AAA
action with Ethicon, and paid the settlement amount in full, resulting in the final dismissal of that matter. This settlement has no bearing on federal court litigation described above.

Manders Matter

Inamed is also a defendant in Ernest K. Manders, M.D. v. McGhan Medical Corporation, et al., pending in the U.S. District Court for the Western District of
Pennsylvania, Case No. 02-CV-1341. The Amended Complaint in the Manders case seeks damages for alleged infringement of a patent allegedly held by Manders in the field of
tissue expanders. Inamed does not believe it practiced the device claimed by Manders or that Inamed teaches the methods he claims. Accordingly, in February 2003, Inamed answered the complaint,
denying its material allegations, and counterclaimed against Manders for declarations of invalidity as well as noninfringement. The parties are proceeding with fact discovery, which will be completed
in March 2004. Manders has elected to limit his claim for infringement to twelve of the forty-six claims in his patent. The parties are in the process of drafting claim construction
papers for these twelve claims in preparation for the Markman proceedings, which will begin in April 2004. Inamed believes it has strong defenses to this lawsuit and intends to defend it
vigorously.

Other Matters

Inamed is involved in various other legal actions arising in the ordinary course of business, which may involve product liability claims for bodily injury and/or
financial loss arising from the use of the Company's products, and breach of contract claims. These claims have not had, and are not expected to have, a material adverse effect on the Company's
financial condition or results of operations.

F-39

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NOTE 21QUARTERLY SUMMARY OF OPERATIONS(Unaudited) (Per share data shown as actual, not millions)

The
following is a summary of selected quarterly financial data for 2003 and 2002:

Quarter1st

2nd

3rd

4thNet Sales:2003

$
75.5

$
85.8

$
80.1

$
91.22002

$
63.2

$
71.7

$
66.9

$
73.9Gross Profit:2003

$
54.1

$
61.7

$
57.3

$
66.72002

$
44.6

$
52.2

$
48.0

$
53.3Net Income:2003

$
12.0

$
12.8

$
12.5

$
15.72002

$
8.4

$
8.2

$
7.6

$
8.7Net Income per share:2003 Basic

$
0.36

$
0.38

$
0.36

$
0.442003 Diluted

$
0.35

$
0.37

$
0.35

$
0.442002 Basic

$
0.28

$
0.26

$
0.24

$
0.262002 Diluted

$
0.26

$
0.25

$
0.23

$
0.26


In the fourth quarter of 2003, Inamed recorded a $2.1 increase in the allowance for doubtful accounts. This increase was related to the Company's Italian facial
aesthetics business which had been operated through a sales agency arrangement that was terminated subsequent to year-end.

F-40

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SCHEDULE II

INAMED CORPORATION AND SUBSIDIARIES  VALUATION ACCOUNTS    Years ended December 31, 2003, 2002, and 2001  (In millions)

|                              |                                             | Beginning of Period Balance |     | Additions |       | Deductions |       | Ending of Period Balance
|----------------------------- | ------------------------------------------- | --------------------------- | --- | --------- | ----- | ---------- | ----- | ------------------------
|Year ended December 31, 2003: |                                             |                             |     |           |       |            |       |                         
|                              | Allowance for returns                       |                             | 7.0 |           | 115.9 |            | 113.6 |                         
|                              | Allowance for doubtful accounts             |                             | 3.9 |           | 7.3   |            | 1.8   |                         
|                              | Allowance for undelivered product           |                             | 0.6 |           | 0.9   |            | 0.5   |                         
|                              | Allowance for obsolescence                  |                             | 1.6 |           | 0.5   |            | 1.2   |                         
|                              | Valuation allowances for inventory          |                             | 5.3 |           | 4.0   |            | 8.9   |                         
|                              | Valuation allowance for deferred tax assets |                             | 2.0 |           |      |            | 0.9   |                         
|Year ended December 31, 2002: |                                             |                             |     |           |       |            |       |                         
|                              | Allowance for returns                       |                             | 7.6 |           | 90.8  |            | 91.4  |                         
|                              | Allowance for doubtful accounts             |                             | 3.5 |           | 2.1   |            | 1.6   |                         
|                              | Allowance for undelivered product           |                             | 0.4 |           | 1.3   |            | 1.1   |                         
|                              | Allowance for obsolescence                  |                             | 1.3 |           | 0.4   |            | 0.1   |                         
|                              | Valuation allowances for inventory          |                             | 4.9 |           | 4.0   |            | 3.6   |                         
|                              | Valuation allowance for deferred tax assets |                             | 2.0 |           |      |            |      |                         
|Year ended December 31, 2001: |                                             |                             |     |           |       |            |       |                         
|                              | Allowance for returns(1)                    |                             | 5.0 |           | 2.6   |            |      |                         
|                              | Allowance for doubtful accounts             |                             | 2.1 |           | 3.4   |            | 2.0   |                         
|                              | Allowance for undelivered product           |                             |    |           | 0.4   |            |      |                         
|                              | Allowance for obsolescence                  |                             | 1.4 |           | 0.6   |            | 0.7   |                         
|                              | Valuation allowances for inventory          |                             | 3.0 |           | 6.1   |            | 4.2   |                         
|                              | Valuation allowance for deferred tax assets |                             | 1.5 |           | 0.5   |            |      |                         

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