American Medical Systems Confirms Fourth Quarter Revenue and Finishes 2008 with Strong Operating Performance and Cash Flow Generation

Business Wire, Feb 17, 2009

* 2008 revenue surpasses $500 million milestone;

* Powerful cash management allows for $120 million pay down of debt in 2008;

* Strong fourth quarter operating results

MINNEAPOLIS -- American Medical Systems Holdings, Inc. (NASDAQ: AMMD) confirmed revenue of $134.0 million for the fourth quarter of 2008, a 3.0 percent increase over revenue of $130.0 million in the comparable quarter of 2007. Highlighting the quarter were very strong performances from the male continence, female continence and prolapse product lines, partially offset by declines in the capital product lines. The strengthening of the U.S. dollar negatively affected revenue for the quarter by $3.8 million compared to the fourth quarter of 2007. Adjusting for the negative impact of the stronger U.S. dollar, fourth quarter revenue grew 5.9 percent over the same period last year.

Full year 2008 revenue of $501.6 million grew 8.1 percent over 2007 revenue of $463.9 million. Tony Bihl, Chief Executive Officer, noted, "It is exciting to cross the half billion dollar mark, and to do so with a broad portfolio of well-positioned product lines. We now have four product lines at or exceeding $100.0 million in annual sales. We experienced continued strong performance in our implantable product lines, growing 9.4 percent (12.4 percent excluding unfavorable currency fluctuations) in the fourth quarter, and we are confident that the initiatives we are currently implementing will turn around our laser therapy business."

The Company reported net income for the fourth quarter of 2008 of $14.6 million, or $0.20 per share, compared to a net loss in the same period last year of $5.0 million, or $0.07 per share. Both quarters include significant unusual non-recurring charges that affect comparison between years. Included in fourth quarter 2008 net income is a $17.1 million charge for accelerated amortization of certain intangible assets related to our Thermatrx and Greenlight PV product lines and a $10.1 million gain related to early extinguishment of debt purchased at a discount to face value. The 2007 fourth quarter net loss includes an in-process research and development (IPRD) charge of $7.5 million related to a milestone payment to BioControl Medical, Ltd., and $14.3 million in litigation related charges. Excluding these items in both quarters results in a 46 percent increase in adjusted net income of $19.1 million, or $0.26 per share for the fourth quarter 2008, compared to adjusted net income of $13.1 million, or $0.18 per share for the fourth quarter 2007.

Mr. Bihl stated, "We set out in 2008 to leverage our infrastructure through continued integration and efficiencies. We have been very successful in achieving that goal and managing our balance sheet. Accordingly, we drove cash from operations of $115.8 million in 2008 and we were able to retire a meaningful portion of our debt. In fact, in the fourth quarter alone, we retired $40.7 million of debt, consisting of $6.2 million from the senior secured credit facility and $34.5 million of the convertible notes."

A reconciliation of reported net income (loss) from continuing operations to non-GAAP adjusted net income from continuing operations is presented below.

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Outlook

The Company estimates 2009 revenue will be in the range of $495 million to $515 million and first quarter 2009 revenue will be in the range of $117 million to $124 million.

In May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which is effective for the Company's fiscal year 2009 (and will be applied retrospectively to prior periods). This FSP will change the balance sheet classification of a component of the Company's Convertible Notes between equity and debt, and will result in additional non-cash interest charges being reflected in the statement of operations. The Company estimates that the adoption of this FSP, which will occur in the first quarter 2009, will reduce net income for fiscal year 2009 by approximately $0.12 per share.

Given the significant impact of the amortization of financing costs resulting from the implementation of FSP No. APB 14-1, combined with the amortization of intangibles, the Company now has two significant non-cash charges in GAAP earnings that create inconsistencies in comparisons to many other companies. Accordingly the company will guide to non-GAAP adjusted earnings per share, which the Company defines as GAAP earnings per share excluding the impact of amortization of intangibles and amortization of financing costs. The Company estimates 2009 non-GAAP adjusted earnings per share will be in the range of $0.86 to $0.99. This guidance excludes the impact of amortization of intangibles which is approximately $0.11 and amortization of financing costs which is approximately $0.15. The $0.15 adjustment for amortization of financing costs consists of approximately $0.12 related to the new accounting requirement for convertible debt referenced above and approximately $0.03 related to the ongoing run rate on amortization of financing costs recognized under previous accounting requirements. The Company estimates first quarter 2009 non-GAAP adjusted earnings per share will be in the range of $0.15 to $0.19. This guidance excludes the impact of amortization of intangibles which is approximately $0.03 and amortization of financing costs which is approximately $0.03. Guidance for both periods excludes the impact of any unusual non-recurring type charges that could occur in 2009, such as IPRD charges on milestone payments related to prior acquisitions.