American Medical Systems Announces Strong Third Quarter 2009 Performance

http://www.businesswire.com/news/home/20091104006191/en

* Non-GAAP adjusted EPS of $0.27 grows 50% over prior year; GAAP EPS of $0.38
exceeds prior year by $0.33
* Full year 2009 revenue and earnings guidance increased
* Record $49 million debt reduction in the third quarter

MINNEAPOLIS--(Business Wire)--
American Medical Systems Holdings, Inc. (NASDAQ: AMMD) reported revenue of
$123.2 million for the third quarter of 2009, a 4.9 percent increase from
revenue of $117.5 million in the comparable quarter of 2008. The strengthening
of the U.S. dollar had a negative impact on revenue of $2.1 million in the third
quarter compared to the prior year. Excluding the impact of foreign currency
fluctuations, third quarter revenue grew 6.7 percent over the same period last
year. On a GAAP basis, the Company reported 2009 third quarter net income of
$28.6 million, or $0.38 per share, compared to net income in the same period
last year of $3.5 million, or $0.05 per share. Included in the third quarter
2009 net income was a $17.4 million pre-tax gain on the sale of the Ovion
technology as well as a $5.6 million pre-tax gain on the exchange of the
majority of the Company`s 3.25% Convertible Senior Subordinated Notes due 2036,
completed during the quarter. Third quarter 2008 net income was reduced for a
$7.5 million pre-tax in-process research and development (IPRD) charge on a
milestone payment related to a prior acquisition.

The Company also reported very strong non-GAAP adjusted EPS performance in the
third quarter of 2009 of $0.27 per share compared to $0.18 per share in the
comparable period last year. This exceeds the Company`s non-GAAP adjusted EPS
guidance of $0.17 to $0.21 per share for the third quarter. Non-GAAP adjusted
EPS excludes the impact of the amortization of intangible assets and
amortization of financing costs, both significant non-cash items affecting
comparability to other companies. The non-GAAP adjusted net income for the third
quarter of 2009 also excludes the gain on sale of the Ovion technology and the
gain on exchange of the majority of its convertible notes during the quarter.
Non-GAAP adjusted EPS for the third quarter of 2008 excludes the IPRD charge on
a milestone payment related to a prior acquisition. A reconciliation of reported
net income to non-GAAP adjusted net income is provided in the attached
schedules.

Men`s Health led the third quarter revenue growth, which at $54.7 million was up
6.6 percent on a reported basis compared to the same quarter last year and grew
8.7 percent on a constant currency basis. Erectile restoration revenue growth
continued its strong performance, while third quarter male continence revenue
growth improved over the muted growth we experienced in the second quarter. Our
BPH therapy business was up 3.1 percent on a reported basis and grew 4.9 percent
on a constant currency basis to $27.7 million during the quarter, driven by
strong sales of laser fibers, particularly in our United States market. The
Women`s Health business increased 4.0 percent on a reported basis and 5.4
percent on a constant currency basis to $40.9 million in the third quarter.
Highlighting the quarter was very strong performance from our pelvic floor
repair products, benefiting from the recent launch of our new Elevate anterior
product. Third quarter revenue growth rates from our female continence products
improved over second quarter growth rates and, as anticipated, sales from
uterine health declined this quarter.

"We are very pleased with the strong financial performance in the third quarter
of 2009, demonstrated by accelerated growth rates across all three business
units. Particularly notable, we returned to a growth position in our BPH
business, despite continued softness in capital sales," stated Tony Bihl, Chief
Executive Officer. "In addition, we completed two very strategic transactions in
the quarter: the sale of the Ovion technology and the $250 million exchange of
our convertible notes. Operationally, we continued with our disciplined approach
to spending and working capital management, which combined with the cash we
received from the sale of the Ovion technology allowed us to make cash payments
at a record quarterly amount of $49 million on our debt. We delivered revenue
and earnings exceeding the high end of guidance and as a result, have increased
our expectations for full year 2009 revenue and earnings performance."

Outlook

The Company estimates fourth quarter revenue in the range of $136 to $142
million, resulting in full year 2009 revenue guidance of $509 to $515 million;
an increase from previous 2009 revenue guidance of $495 to $510 million. This
guidance assumes foreign currency exchange rates remain constant with current
rates.

In May 2008, the Financial Accounting Standards Board (FASB) issued new guidance
related to accounting for convertible debt instruments, which the Company
adopted in the first quarter 2009 (and applied retrospectively to prior
periods). This new guidance changed the balance sheet classification of a
component of the Company`s convertible notes between equity and debt, and
resulted in additional non-cash interest charges being reflected in the
statement of operations. The Company estimates that the adoption of this new
accounting guidance will reduce net income for fiscal year 2009 by approximately
$0.11 per share.

Given the significant impact of the amortization of financing costs resulting
from the implementation of the new FASB guidance in 2009, combined with the
amortization of intangible assets, the Company has two significant non-cash
charges in GAAP earnings that create inconsistencies in comparisons to many
other companies. Accordingly the Company now guides to non-GAAP adjusted
earnings per share, which the Company defines as GAAP earnings per share
excluding the impact of amortization of intangible assets and amortization of
financing costs. This guidance also excludes the impact of any unusual
non-recurring items that could occur in 2009, such as the gain on early debt
extinguishment, the gain on sale of non-strategic assets, or IPRD charges on
milestone payments related to prior acquisitions.

Reflecting the strong earnings performance experienced in the first three
quarters, the Company estimates fourth quarter 2009 non-GAAP adjusted earnings
per share will be in the range of $0.29 to $0.33 and full year 2009 non-GAAP
adjusted earnings per share in the range of $1.10 to $1.14. This is an increase
from previous guidance for the full year 2009 in the range of $1.00 to $1.10.
This guidance excludes the impact of amortization of intangible assets which is
approximately $0.03 and $0.11 for the fourth quarter and full year 2009,
respectively, and amortization of financing costs which is approximately $0.04
and $0.14 for the fourth quarter and full year 2009, respectively. Guidance for
both periods excludes the impact of any unusual non-recurring items that could
occur, such as gain or loss on early debt extinguishments, sale of non-strategic
assets or IPRD charges on milestone payments related to prior acquisitions.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted
accounting principles (GAAP), management provides non-GAAP adjusted net income,
non-GAAP adjusted earnings per share and constant currency revenue growth rates
because management believes that in order to properly understand the Company`s
short-term and long-term financial trends and for purposes of comparability to
other companies, investors may wish to consider the impact of certain
adjustments (such as gain on extinguishment of debt, gain on sale of
non-strategic assets, IPRD charges, amortization of intangible assets,
amortization of financing costs and related income tax adjustments and the
impact of foreign currency translation on reported revenue). These adjustments
result from facts and circumstances (such as acquisition and business
development activities and other non-recurring items) that vary in frequency and
impact on the Company`s results of operations, represent significant items,
which when excluded provide a useful measure to determine the health of the
business and earnings by the business before significant non-cash charges or in
the case of foreign currency translation, are highly variable and difficult to
predict. Management uses non-GAAP adjusted net income, non-GAAP adjusted
earnings per share and constant currency revenue growth rates to forecast and
evaluate the operational performance of the Company as well as to compare
results of current periods to prior periods on a consistent basis.

A reconciliation of net income from continuing operations and revenue growth
rate percentages, the GAAP measures most directly comparable to non-GAAP
adjusted earnings per share and constant currency revenue growth rates,
respectively, are provided on the attached schedules.

Non-GAAP financial measures used by the Company may be calculated differently
from, and therefore may not be directly comparable to, similarly titled measures
used by other companies. Investors should consider non-GAAP measures in addition
to, and not as a substitute for, or superior to, financial performance measures
prepared in accordance with GAAP.

Earnings Call Information

American Medical Systems will host a conference call on Wednesday, November 4,
2009 at 5:00 p.m. eastern time to discuss its 2009 third quarter results. Those
without internet access may join the call from within the U.S. by dialing
888-263-1724; outside the U.S., dial 706-679-3821.

A live web cast of the call will be available through the Company`s corporate
website at www.AmericanMedicalSystems.com and will be available for replay
within three hours after the completion of the call.

About American Medical Systems

American Medical Systems, headquartered in Minnetonka, Minnesota, is a
diversified supplier of medical devices and procedures to cure incontinence,
erectile dysfunction, benign prostate hyperplasia (BPH), pelvic floor repair and
other pelvic disorders in men and women. These disorders can significantly
diminish one's quality of life and profoundly affect social relationships. In
recent years, the number of people seeking treatment has increased markedly as a
result of longer lives, higher-quality-of-life expectations and greater
awareness of new treatment alternatives. American Medical Systems' products
reduce or eliminate the incapacitating effects of these diseases, often through
minimally invasive therapies. The Company's products were used to treat
approximately 320,000 patients in 2008.

Forward-Looking Statements

This press release contains forward-looking statements relating to the market
opportunities, future products, sales and financial results of American Medical
Systems. These statements and other statements contained in this press release
that are not purely historical fact are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, that are based
on management's beliefs, certain assumptions and current expectations. These
forward-looking statements are subject to risks and uncertainties such as
successfully competing against competitors; physician acceptance, endorsement,
and use of AMS products; potential product recalls or technological
obsolescence; successfully managing debt leverage and related credit facility
financial covenants; current worldwide economic conditions and the impact on
operations of the disruption in global financial markets; factors impacting the
stock market and share price and its impact on the dilution of convertible
securities; potential obligations to make significant contingent payments under
prior acquisitions; ability of the Company's manufacturing facilities to meet
customer demand; reliance on single or sole-sourced suppliers; loss or
impairment of a principal manufacturing facility; clinical and regulatory
matters; timing and success of new product introductions; patient acceptance of
the Company's products and therapies; changes in and adoption of reimbursement
rates; adequate protection of the Company's intellectual property rights;
product liability claims; currency and other economic risks inherent in selling
our products internationally and other risks and uncertainties described in the
Company's Annual Report on Form 10-K for the year ended January 3, 2009, and its
other SEC filings. Actual results may differ materially from anticipated
results. The forward-looking statements contained in this press release are made
as of the date hereof, and AMS undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date on
which any such statement is made or to reflect the occurrence of unanticipated
events.

More information about the Company and its products can be found at its website
www.AmericanMedicalSystems.com and in the Company's Annual Report on Form 10-K
for 2008 and its other SEC filings.

American Medical Systems Holdings, Inc.
Statements of Operations
(Unaudited)
(In thousands, except per share data)

Three Months Ended Nine Months Ended
October 3, 2009 September 27, 2008 October 3, 2009 September 27, 2008

Net sales $ 123,231 $ 117,468 $ 373,257 $ 367,627
Cost of sales 21,284 24,863 66,234 83,038
Gross profit 101,947 92,605 307,023 284,589

Operating expenses
Marketing and selling 42,489 42,226 128,690 133,608
Research and development 12,434 11,260 38,411 33,926
In-process research and development - 7,500 - 7,500
General and administrative 10,459 9,728 32,898 30,435
Amortization of intangibles 3,358 4,334 10,024 12,981
Total operating expenses 68,740 75,048 210,023 218,450

Operating income 33,207 17,557 97,000 66,139

Other (expense) income
Royalty income 961 745 2,768 3,576
Interest income 17 203 163 555
Interest expense (4,674 ) (6,168 ) (15,050 ) (21,044 )
Amortization of financing costs (4,395 ) (4,935 ) (12,350 ) (13,976 )
Gain on extinguishment of debt 5,563 - 10,125 -
Gain on sale of non-strategic asset 17,446 - 17,446 -
Other (expense) income (341 ) (957 ) 935 973
Total other income (expense) 14,577 (11,112 ) 4,037 (29,916 )

Income before income taxes 47,784 6,445 101,037 36,223

Provision for income taxes 19,163 2,940 38,471 14,813

Net income $ 28,621 $ 3,505 (a) $ 62,566 $ 21,410 (a)

Net income per share
Basic net income $ 0.39 $ 0.05 (a) $ 0.85 $ 0.29 (a)
Diluted net income 0.38 0.05 (a) 0.84 0.29 (a)

Weighted average common shares used in calculation
Basic 74,278 73,095 73,939 72,796
Diluted 74,998 74,209 74,456 73,945

(a) Third quarter 2008 net income and basic and diluted net income per share were reduced by $2,229 and $0.03 per share, respectively, and year-to-date 2008 net income and basic and diluted net income per share were reduced by $6,529 and $0.09 per share, respectively, due to the impact of retroactively adjusting the historical financial statements, as required by U.S. GAAP, for the change in accounting related to the Company's 2036 Convertible Notes.

American Medical Systems Holdings, Inc.
Condensed Balance Sheets
(In thousands)

October 3, 2009 January 3, 2009
(Unaudited) (a)
Assets
Current assets
Cash and short-term investments $ 49,511 $ 42,965
Accounts receivable, net 88,198 93,078
Inventories, net 33,629 38,500
Other current assets 18,469 19,766
Total current assets 189,807 194,309

Property, plant and equipment, net 44,777 48,280
Goodwill and intangibles, net 795,040 799,761
Other long-term assets 6,499 2,147
Total assets $ 1,036,123 $ 1,044,497

Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 7,848 $ 7,830
Accrued liabilities and taxes 60,149 55,480
Total current liabilities 67,997 63,310

Debt and other long term liabilities 452,460 553,705
Total liabilities 520,457 617,015

Stockholders' equity 515,666 427,482

Total liabilities and stockholders' equity $ 1,036,123 $ 1,044,497

(a) Retroactively adjusted as of January 3, 2009, as required by U.S. GAAP, for the change in accounting related to the Company's Convertible Notes.

American Medical Systems Holdings, Inc.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)

Nine Months Ended
October 3, 2009 September 27, 2008

Cash flows from operating activities
Net income $ 62,566 $ 21,410 (a)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, including deferred financing costs 29,664 34,487 (a)
In-process research and development - 7,500
Gain on extinguishment of debt (10,125 ) -
Gain on sale of non-strategic assets (17,446 ) -
Stock based compensation 6,649 7,135
Other adjustments, including changes in operating assets and liabilities 25,877 8,095
Net cash provided by operating activities 97,185 78,627

Cash flows from investing activities
Purchase of property, plant and equipment (3,688 ) (4,139 )
Disposal of business - 4,690
Sale of non-strategic assets, net 18,982 -
Purchase of investments in technology - (7,500 )
Purchase of other intangibles (5,392 ) (1,262 )
Purchase of short term investments, net of redemptions 11,895 (21,660 )
Other cash flows from investing activities (171 ) 560
Net cash provided by (used in) investing activities 21,626 (29,311 )

Cash flows from financing activities
Payments on senior secured credit facility (78,173 ) (79,018 )
Repurchase of convertible senior subordinated notes (21,125 ) -
Debt issuance costs (7,697 ) -
Other cash flows from financing activities 6,902 8,623
Net cash used in financing activities (100,093 ) (70,395 )

Effect of currency exchange rates on cash (614 ) (152 )

Net increase in cash and cash equivalents 18,104 (21,231 )

Cash and cash equivalents at beginning of period 11,642 34,044

Cash and cash equivalents at end of period $ 29,746 $ 12,813

(a) Year-to-date 2008 net income was reduced by $6,529 and amortization of financing costs was increased by $10,479, due to the impact of retroactively adjusting the historical financial statements, as required by U.S. GAAP, for the change in accounting related to the Company's 2036 Convertible Notes. This change in accounting has no impact on cash used for interest on the 2036 Convertible Notes.

American Medical Systems Holdings, Inc.
Selected Sales Information and Constant Currency Growth Reconciliation
(Unaudited)
(In thousands)

Three Months Ended Constant Currency Growth Reconciliation (a)
Percent Growth
Currency at Constant
October 3, 2009 September 27, 2008 Percent Growth Impact Currency

Sales
Men's health $ 54,666 $ 51,303 6.6 % $ (1,090 ) 8.7 %
BPH therapy 27,686 26,862 3.1 % (486 ) 4.9 %
Women's health 40,879 39,303 4.0 % (557 ) 5.4 %

Total $ 123,231 $ 117,468 4.9 % $ (2,133 ) 6.7 %

Geography
United States $ 92,262 $ 84,489 9.2 % $ - 9.2 %
International 30,969 32,979 -6.1 % (2,133 ) 0.4 %

Total $ 123,231 $ 117,468 4.9 % $ (2,133 ) 6.7 %

Percent of total sales
Men's health 44 % 44 %
BPH therapy 23 % 23 %
Women's health 33 % 33 %

Total 100 % 100 %

Geography
United States 75 % 72 %
International 25 % 28 %

Total 100 % 100 %

(a) To calculate the currency impact on revenue growth rates, the Company compares each period's sales, assuming no fluctuation in foreign currency exchange rates between periods. The generally accepted accounting principle (GAAP) measure most comparable to this non-GAAP measure is growth rate percentages based on GAAP revenue.

American Medical Systems Holdings, Inc.
Selected Sales Information and Constant Currency Growth Reconciliation
(Unaudited)
(In thousands)

Nine Months Ended Constant Currency Growth Reconciliation (a)
Percent Growth
Currency at Constant
October 3, 2009 September 27, 2008 Percent Growth Impact Currency

Sales
Men's health $ 171,090 $ 160,548 6.6 % $ (5,978 ) 10.3 %
BPH therapy 81,159 86,157 -5.8 % (2,817 ) -2.5 %
Women's health 121,008 120,922 0.1 % (3,276 ) 2.8 %

Total $ 373,257 $ 367,627 1.5 % $ (12,071 ) 4.8 %

Geography
United States $ 271,336 $ 258,700 4.9 % $ - 4.9 %
International 101,921 108,927 -6.4 % (12,071 ) 4.6 %

Total $ 373,257 $ 367,627 1.5 % $ (12,071 ) 4.8 %

Percent of total sales
Men's health 46 % 44 %
BPH therapy 22 % 23 %
Women's health 32 % 33 %

Total 100 % 100 %

Geography
United States 73 % 70 %
International 27 % 30 %

Total 100 % 100 %

(a) To calculate the currency impact on revenue growth rates, the Company compares each period's sales, assuming no fluctuation in foreign currency exchange rates between periods. The generally accepted accounting principle (GAAP) measure most comparable to this non-GAAP measure is growth rate percentages based on GAAP revenue.

American Medical Systems Holdings, Inc.
Reconciliation of Reported Net Income to Non-GAAP Adjusted Net Income
(Adjustments are presented on a pre-tax basis)
(Unaudited)
(In thousands, except per share data)

Three Months Ended Nine Months Ended
October 3, 2009 September 27, 2008 October 3, 2009 September 27, 2008

Net income, as reported $ 28,621 $ 3,505 (a) $ 62,566 $ 21,410 (a)

Adjustments to net income:
Amortization of intangibles (b) 3,358 4,334 10,024 12,981
Amortization of financing costs (c) 4,395 4,935 12,350 13,976
In-process research and development charge (d) - 7,500 - 7,500
Gain on extinguishment of debt (e) (5,563 ) - (10,125 ) -
Gain on sale of non-strategic asset (f) (17,446 ) - (17,446 ) -
Tax effect of adjustments to net income (g) 6,615 (6,583 ) 2,976 (13,444 )

Non-GAAP adjusted net income $ 19,980 $ 13,691 $ 60,345 $ 42,423

Net income per share
Basic $ 0.39 $ 0.05 $ 0.85 $ 0.29
Diluted $ 0.38 $ 0.05 $ 0.84 $ 0.29

Non-GAAP adjusted earnings per share
Basic $ 0.27 $ 0.19 $ 0.82 $ 0.58
Diluted $ 0.27 $ 0.18 $ 0.81 $ 0.57

Weighted average common shares used in calculation:
Basic 74,278 73,095 73,939 72,796
Diluted 74,998 74,209 74,456 73,945

(a) Third quarter 2008 net income was reduced by $2,229 and year-to-date 2008 net income was reduced by $6,529 to reflect the impact of retroactively adjusting the historical financial statements, as required by GAAP, for the change in accounting related to the Company's Convertible Notes.

(b) Consists of amortization of intangible assets, primarily developed and core technology.

(c) Consists of amortization of financing costs on our convertible senior subordinated notes and senior secured credit facility.

(d) Relates to a milestone payment made in the third quarter of 2008 on the 2006 acquisition of BioControl Medical, Ltd.

(e) Relates to the $5.6 million gain in the third quarter 2009 on exchanging $250.0 million of 2036 convertible senior subordinated notes for a like amount of 2041 convertible senior subordinated notes and year-to-date 2009 also includes the $4.6 million gain in the first quarter of 2009 on retiring approximately $27.3 million of 2036 convertible senior subordinated notes.

(f) Relates to the gain on sale of female sterilization and Ovion technology assets.

(g) Includes the tax effect of each of the above items in each of the periods.

American Medical Systems
Mark Heggestad, 952-930-6495
Executive Vice President and Chief Financial Officer
Mark.Heggestad@AmericanMedicalSystems.com
or
Anthony Bihl, 952-930-6334
President and Chief Executive Officer
Tony.Bihl@AmericanMedicalSystems.com

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