American Medical Systems Holdings, Inc. (NASDAQ: AMMD) reported revenue of $140.8 million for the first quarter of 2011, a 4.3 percent increase over sales of $134.9 million in the comparable quarter of 2010. Adjusting revenue for the impact of currency fluctuation and the impact of the Her Option® uterine health product line, which was sold during the first quarter of 2010, results in constant currency revenue growth of 5.4 percent.

Men’s Health sales of $67.4 million in the first quarter represented an increase of 4.5 percent on a reported basis compared to the same quarter last year, and grew 4.3 percent on a constant currency basis, with growth primarily driven by the Male Continence product line. The BPH Therapy business increased 8.3 percent on a reported basis and 7.8 percent on a constant currency basis to $28.1 million for the quarter. BPH Therapy sales were led by continued enthusiasm surrounding the new GreenLight™ XPS console and the MoXy™ Liquid Cooled Fiber. The Women’s Health business increased 6.0 percent on a reported basis and 5.7 percent on a constant currency basis to $45.3 million in the first quarter. The Women’s Health growth is primarily driven by the pelvic floor repair product line which continues to benefit from both the Elevate® anterior and posterior systems.

The Company reported first quarter net income of $21.6 million, or $0.27 per share. This compares to net income in the same quarter last year of $20.7 million, also $0.27 per share. Non-GAAP adjusted earnings per share of $0.33 compares to $0.29 per share in the same quarter last year, an increase of 13.8 percent. Non-GAAP adjusted earnings per share excludes the impact of the amortization of intangible assets and amortization of financing costs, both significant non-cash items affecting comparability to other companies. First quarter 2011 non-GAAP adjusted earnings per share also excludes the start-up costs related to the transition of certain manufacturing operations to a new facility in Ireland and first quarter 2010 non-GAAP adjusted earnings per share excludes the gain on the sale of the Her Option® Uterine Health product line. A reconciliation of reported net income to non-GAAP adjusted net income for all periods is provided in the attached schedules.

Proposed Transaction with Endo Pharmaceuticals

On April 10, 2011, Endo Pharmaceuticals (Endo) (NASDAQ: ENDP) and American Medical Systems entered into a definitive agreement under which Endo will acquire AMS for $30 per share, or $2.9 billion in cash, which includes the assumption and repayment of $312 million of AMS debt. The transaction is expected to close in the third quarter of 2011, subject to approval by AMS stockholders, clearance by the relevant antitrust authorities and the satisfaction of other customary conditions.

A special meeting of the stockholders of AMS will be announced in due course to obtain stockholder approval of the proposed transaction. AMS has filed with the Securities and Exchange Commission (SEC) a preliminary proxy statement and intends to file with the SEC and distribute to its stockholders a definitive proxy statement and other relevant documents in connection with the proposed transaction. Investors of AMS are urged to read the definitive proxy statement and other relevant materials when they become available because they will contain important information about AMS, Endo and the proposed transaction. Investors may obtain a free copy of these materials (when they are available) and other documents filed by AMS with the SEC at the SEC’s website at www.sec.gov, at AMS’s website at www.AmericanMedicalSystems.com or by sending a written request to American Medical Systems Holdings, Inc., 10700 Bren Road West, Minnetonka, Minnesota, 55343, attention: Corporate Secretary.

AMS and its directors, executive officers and certain other members of management and employees may be deemed to be participants in soliciting proxies from its stockholders in favor of the proposed merger. Information regarding the persons who may, under the rules of the SEC, be considered to be participants in the solicitation of AMS’s stockholders in connection with the proposed transaction will be set forth in AMS’s definitive proxy statement for its special meeting. Additional information regarding these individuals and any interest they have in the proposed transaction will be set forth in the definitive proxy statement to be filed with the SEC.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with U.S. 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 or loss on extinguishment of debt, gain or loss on sale of non-strategic assets, in-process research and development charges (IPRD), amortization of intangible assets, amortization of financing costs, start-up costs of global manufacturing expansion 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, business development and expansion 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 and costs of a start-up nature 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 and revenue growth rate percentages, the GAAP measure 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.

About American Medical Systems

American Medical Systems, headquartered in Minnetonka, Minnesota, is a diversified supplier of medical devices and procedures to treat incontinence, erectile dysfunction, benign prostatic hyperplasia (BPH), pelvic floor prolapse 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 340,000 patients in 2010.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the market opportunities, future products, sales, financial results of American Medical Systems and the proposed merger between AMS and Endo. 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; timing and success of new product introductions; clinical and regulatory matters; product liability claims; potential product recalls or technological obsolescence; changes in and adoption of reimbursement rates; global healthcare reform; patient acceptance of the Company's products and therapies; current worldwide economic conditions; reliance on single or sole-sourced suppliers; loss or impairment of a principal manufacturing facility; factors impacting the stock market and share price and its impact on the dilution of convertible securities; adequate protection of the Company's intellectual property rights; successfully managing debt leverage and related credit facility financial covenants; currency and other economic risks inherent in selling our products internationally; whether the merger with Endo will be consummated; and other risks and uncertainties described in the Company's Annual Report on Form 10-K for the year ended January 1, 2011, 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 2010 and its other SEC filings.

 
 
American Medical Systems Holdings, Inc.
Statements of Operations
(In thousands, except per share data)
       
Three Months Ended
April 2, 2011 April 3, 2010
(Unaudited) (Unaudited)
 
Net sales $ 140,786 $ 134,926
Cost of sales   22,133     21,027  
Gross profit 118,653 113,899
 
Operating expenses
Sellling, general and administrative 60,286 60,887
Research and development 14,418 13,509
Global manufacturing start-up costs 197 -
Amortization of intangibles   2,948     3,047  
Total operating expenses   77,849     77,443  
 
Operating income 40,804 36,456
 
Other (expense) income
Royalty income 82 308
Interest expense (3,101 ) (3,954 )
Amortization of financing costs (3,163 ) (3,693 )
Gain on sale of non-strategic assets - 7,719
Other expense   (827 )   (516 )
Total other (expense) income   (7,009 )   (136 )
 
Income before income taxes 33,795 36,320
 
Provision for income taxes   12,234     15,662  
 
Net income $ 21,561   $ 20,658  
 
Net income per share
Basic net income $ 0.28 $ 0.28
Diluted net income $ 0.27 $ 0.27
 
Weighted average common shares used in calculation
Basic 76,866 75,117
Diluted 78,691 76,270
 
 
American Medical Systems Holdings, Inc.
Condensed Balance Sheets
(In thousands)
       
April 2, 2011 January 1, 2011
(Unaudited)
Assets
Current assets
Cash and short-term investments $ 110,015 $ 77,815
Accounts receivable, net 96,442 98,518
Inventories, net 35,492 33,789
Other current assets   24,220   22,305
Total current assets 266,169 232,427
 
Property, plant and equipment, net 40,820 41,405
Goodwill and intangibles, net 772,642 774,501
Other long-term assets   8,768   5,101
Total assets $ 1,088,399 $ 1,053,434
 
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 9,500 $ 8,833
Accrued liabilities and taxes   58,802   60,719
Total current liabilities 68,302 69,552
 
Debt and other long-term liabilities   320,618   315,321
Total liabilities 388,920 384,873
 
Stockholders' equity 699,479 668,561
   
Total liabilities and stockholders' equity $ 1,088,399 $ 1,053,434
 
 
American Medical Systems Holdings, Inc.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
       
Three Months Ended
April 2, 2011 April 3, 2010
 
 
Cash flows from operating activities
Net income $ 21,561 $ 20,658
 
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, including financing costs 8,552 9,264
Gain on sale of non-strategic assets - (7,719)
Stock-based compensation 2,190 1,829
Other adjustments, including changes in operating assets
and liabilities   874   2,576
Net cash provided by operating activities 33,177 26,608
 
Cash flows from investing activities
Purchase of property, plant and equipment (1,802) (1,314)
Purchase of intangibles (508) (693)
Purchase of investments (34,468) (25,041)
Sale of investments 8,571 7,337
Sale of non-strategic asset - 20,186
Other cash flows from investing activities   (425)   783
Net cash provided by investing activities (28,632) 1,258
 
Cash flows from financing activities
Payments on senior secured credit facility - (45,719)
Other cash flows from financing activities   6,298   9,560
Net cash used in financing activities 6,298 (36,159)
 
Effect of currency exchange rates on cash   (329)   (165)
 
Net (decrease) increase in cash and cash equivalents 10,514 (8,458)
 
Cash and cash equivalents at beginning of period   16,481   30,670
 
Cash and cash equivalents at end of period $ 26,995 $ 22,212
 
 
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
Percent Currency at Constant
April 2, 2011 April 3, 2010 Growth Impact Currency
 
Sales
Men's health $ 67,407 $ 64,480 4.5 % $ 175 4.3 %
BPH therapy 28,054 25,911 8.3 % 132 7.8 %
Women's health   45,325     42,748   6.0 %   137 5.7 %
 
Sub-total 140,786 133,139 5.7 % 444 5.4 %
 
Uterine health (b)   -     1,787   -100.0 %   - -100.0 %
 
Total $ 140,786   $ 134,926   4.3 % $ 444 4.0 %
 
Geography
United States $ 99,675 $ 96,523 3.3 % $ - 3.3 %
International   41,111     36,616   12.3 %   444 11.1 %
 
Sub-total 140,786 133,139 5.7 % 444 5.4 %
 
United States-Uterine health (b)   -     1,787   -100.0 %   - -100.0 %
 
Total $ 140,786   $ 134,926   4.3 % $ 444 4.0 %
 
Percent of total sales
Men's health 48 % 48 %
BPH therapy 20 % 19 %
Women's health   32 %   32 %
 
Sub-total 100 % 99 %
 
Uterine health (b) 0 % 1 %
   
Total   100 %   100 %
 
Geography
United States 71 % 73 %
International   29 %   27 %
 
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.

 
(b)  

The uterine health product line, Her Option® was sold in February, 2010. Revenues for 2010 consist of end-customer revenue earned prior to the date of sale, in addition to revenue earned as part of the product supply agreement with CooperSurgical, Inc., which continued through the fourth quarter of 2010.

 
 
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
April 2, 2011 April 3, 2010
 
Net income, as reported $ 21,561 $ 20,658
 
Adjustments to net income:
Amortization of intangibles (a) 2,948 3,047
Amortization of financing costs (b) 3,163 3,693
Global manufacturing start-up costs (c) 197 -
Gain on sale of non-strategic assets (d) - (7,719 )
Tax effect of adjustments to net income (e)   (2,147 )   2,533  
 
Non-GAAP adjusted net income $ 25,722   $ 22,212  
 
Net income per share
Basic $ 0.28 $ 0.28
Diluted $ 0.27 $ 0.27
 
Non-GAAP adjusted earnings per share
Basic $ 0.33 $ 0.30
Diluted $ 0.33 $ 0.29
 
Weighted average common shares used in calculation:
Basic 76,866 75,117
Diluted 78,691 76,270
 
(a)   Consists of amortization of intangible assets, primarily developed and core technology.
 
(b)

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

Consists of start-up costs in connection with the expansion of manufacturing capacity internationally, which are incremental to on-going operations.
 
(d) Relates to the gain on the sale of the Her Option® Global Endometrial Ablation product line.
 
(e) Includes the tax effect of each of the above items in each of the periods.

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