American Medical Systems (AMMD) 8-K Financial statements and exhibits

DATE: February 12, 2004

American Medical Systems Reports
Record Sales and Income for
Fourth Quarter and Full Year

Company Expects
Continued Strong
Growth in 2004

     MINNEAPOLIS, February 12 — American Medical Systems Holdings Inc. (Nasdaq: AMMD) reported sales in the fourth quarter of 2003 of $47.2 million, a 24.6 percent increase over sales of $37.8 million in the comparable quarter of 2002 (21.3 percent before gain from foreign currency changes). Net income in the quarter was $10.3 million, or $0.30 per share, compared to $8.3 million, or $0.24 per share in the comparable quarter of 2002. Net income in 2002 benefited from a reduction in the Company’s warranty allowance which increased operating income by $2.9 million and increased net income by $1.8 million or $0.05 per share. Net income in 2003 benefited from a further reduction in the Company’s warranty allowance which increased operating income by $3.1 million and increased net income by $2.0 million or $0.06 per share. Without these warranty adjustments, net income for the quarter would have been $8.4 million, or $0.24 per share, compared to $6.5 million, or $0.19 per share in 2002. The reduction in the warranty allowance resulted from lower expected warranty claims. The changes in this allowance will be more fully discussed in the Company’s annual report on Form 10-K to be filed on or before March 19, 2004.

     Net sales for the full year 2003 were $168.3 million, a 19 percent increase over sales of $141.6 million in 2002 (16 percent before foreign currency changes). Net income for the full year 2003 was $29.1 million, or $0.85 per share, compared to $24.9 million, or $0.73 per share, in 2002. Net income for the full years 2002 and 2003 benefited from the above-referenced warranty allowance reductions; full year 2002 also benefited from an after-tax gain of $0.4 million from reversing an accrued pension liability in connection with the 2002 pension fund termination. Without these adjustments, operating income for the full year 2003 would have been $38.5 million, and net income would have been $27.1 million, or $0.79 per share, compared to 2002 operating income of $35.2 million and net income of $22.6 million, or $0.66 per share. A summary of the effect of the warranty and pension adjustments for the fourth quarter and full year is attached.

     Douglas W. Kohrs, president and CEO, commented, “We are proud of our fourth-quarter and full year performance. Revenues from our major product groups continue to show growth, with women’s health revenue again leading the way and growing 80 percent for the quarter and 67 percent for the full year; erectile restoration revenues growing 7 percent in the quarter and 4 percent for the full year; and men’s bladder control revenues growing 14 percent in the quarter and 13 percent for the full year. We are also pleased that the Company’s tight control of operating expenses allowed us to increase operating margins above 25 percent in the fourth quarter.”

     The Company also announced it had completed its previously announced move of the CryoGen operations into its Minnesota facility, at a one-time cost in the quarter of $0.7 million, and it is no longer reporting operating or net losses for CryoGen separately.

American Medical Systems
February 12, 2004
Page 2 of 7

Outlook

     Looking forward, Mr. Kohrs said the Company expects 2004 full year sales to increase 16 to 19 percent over 2003 sales, with growth in all major product groups, and earnings per share of $0.94 to $0.98. In the first quarter of 2004, the Company expects total revenues to be in the range of $46 million to $48 million, and earnings per share of $0.22 to $0.24.

Earnings Call Information

     American Medical Systems will host a conference call today at 5:00 p.m. eastern time to discuss its fourth quarter and fiscal year 2003 results. A live web cast of the call is available through the Company’s corporate website at www.AmericanMedicalSystems.com; the replay will be available beginning two hours after completion of the call.

About American Medical Systems

     American Medical Systems, headquartered in Minnetonka, Minnesota, is a world leader in medical devices and procedures to treat incontinence, erectile dysfunction (ED), urinary obstructions (caused primarily by enlarged prostate or surgery to treat prostate disease), menorrhagia, and other pelvic floor defects. Although not life-threatening, 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 life expectancy, 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 surgery. The company believes its products were used to treat over 100,000 patients in 54 countries during the last 12 months. More information about the company and its products may be found at: www.AmericanMedicalSystems.com.

Forward-Looking Statements

     Statements about the Company’s future sales, warranty claims, and financial results are forward-looking statements subject to risks and uncertainties including the timing and success of new product introductions, continued physician endorsement and use of the company’s products, competitor activities, changes in reimbursement rates, and potential product recalls. These risks and uncertainties are more fully described in the company’s Annual Report on Form 10-K for the year ended December 28, 2002, and its other, more recent, filings. Actual results may differ materially from anticipated results.

Contact:	Doug Kohrs
	President and Chief Executive Officer
	952-930-6118
	Doug.Kohrs@AmericanMedicalSystems.com
	Jim Call
	Executive Vice President
	and Chief Financial Officer
	952-930-6238
	Jim.Call@AmericanMedicalSystems.com

American Medical Systems
February 12, 2004
Page 3 of 7

Statements Of Operations (In thousands, except per share data)
			Three months						Twelve months
			through December						through December
			2002			2003			2002			2003
Net sales			$	37,832		$	47,153		$	141,648		$	168,283
Operating expenses
	Cost of sales
		Recurring		7033			9,034			27,518			30,468
		Change in warranty allowance		(2,913	)		(3,115	)		(2,913	)		(3,115	)
		Total cost of sales		4,120			5,919			24,605			27,353
	Marketing and sales			12,957			16,298			50,152			63,324
	Research and development			3,131			3,911			11,858			14,924
	General and administrative			3,372			4,857			13,186			16,882
	Amortization of intangibles			958			906			3,775			4,160
	Total operating expenses			24,538			31,891			103,576			126,643
Operating income				13,294			15,262			38,072			41,640
Other income (expense)
	Royalty income			750			622			3,032			2,797
	Other income			181			570			1,140			1,004
	Interest expense, net			(776	)		(42	)		(1,628	)		(1,352	)
	Total other income			155			1,150			2,544			2,449
Income before income taxes				13,449			16,412			40,616			44,089
Provision for income taxes				5,118			6,093			15,730			15,039
Net income			$	8,331		$	10,319		$	24,886		$	29,050
Net income per share
	Basic		$	0.26		$	0.31		$	0.77		$	0.88
	Diluted		$	0.24		$	0.30		$	0.73		$	0.85
Weighted average shares
	Basic			32,466			33,079			32,232			32,854
	Diluted			34,054			34,626			34,176			34,313

American Medical Systems
February 12, 2004
Page 4 of 7

Consolidated Balance Sheets (In thousands)
			December 28, 2002		January 3, 2004
Assets
	Current assets
		Cash and short-term investments	$	79,429	$	58,953
		Accounts receivable, net		27,208		33,458
		Inventories		13,475		18,402
		Deferred taxes and other current assets		5,697		8,533
		Total current assets		125,809		119,346
	Property, plant and equipment, net			21,328		25,489
	Goodwill and intangibles, net			96,298		118,279
	Deferred taxes and other assets			8,210		16,264
	Total assets		$	251,645	$	279,378
Liabilities and stockholders’ equity
	Current liabilities
	��	Accounts payable	$	3,000	$	4,621
		Accrued liabilities and taxes		19,523		18,097
		Current portion of notes payable		6,000		7,159
		Total current liabilities		28,523		29,877
	Long-term notes payable			18,000		9,205
	Other long-term liability			860		0
	Stockholder’s equity			204,262		240,296
	Total liabilities and stockholders’ equity		$	251,645	$	279,378

American Medical Systems
February 12, 2004
Page 5 of 7

Condensed Statements Of Cash Flows (In thousands)
			Twelve months through
			December 28, 2002			January 3, 2004
Cash flows from operating activities
	Net income		$	24,886		$	29,050
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation			3,971			5,382
	Amortization of intangibles, including deferred financing costs			4,195			4,391
	Noncash deferred compensation			176			135
	Income tax benefit related to stock option plans			1,043			1,670
	Noncash stock-based compensation			46			35
	Change in net deferred taxes			3,652			3,761
	Changes in operating assets and liabilities			(9,131	)		(11,261	)
		Net cash provided by operating activities		28,838			33,163
Cash flows from investing activities
	Purchase of property, plant and equipment			(1,695	)		(5,121	)
	Purchase of businesses, net of cash acquired			0			(43,803	)
	Purchase of investments in technology			(1,000	)		0
	Purchase of other intangibles			(1,010	)		0
	Sales of investments, net of purchases			27,796			0
	Net cash provided by (used in) investing activities			24,091			(48,924	)
Cash flows from financing activities
	Issuance of common stock			2,351			2,639
	Payments on long-term debt			(4,909	)		(8,228	)
	Net cash used in financing activities			(2,558	)		(5,589	)
Effect of exchange rates				303			874
Net increase (decrease) in cash and cash equivalents			$	50,674			($20,476	)

American Medical Systems
February 12, 2004
Page 6 of 7

Selected Sales Information (In thousands)
			Three months				Twelve months
			through December				through December
			2002		2003		2002		2003
Sales
	Product line
		Men’s health
		Erectile restoration	$	18,264	$	19,509	$	69,554	$	72,385
		Bladder control		9,366		10,694		35,316		39,758
		Prostate treatment		1,482		1,224		6,063		4,923
		Total		29,112		31,427		110,933		117,066
		Women's health		8,720		15,726		30,715		51,217
		Total	$	37,832	$	47,153	$	141,648	$	168,283
	Geography
		United States	$	30,320	$	37,476	$	116,523	$	136,765
		Outside United States
		Before currency		7,512		8,405		25,125		27,593
		Currency impact		0		1,272		0		3,925
		Total		7,512		9,677		25,125		31,518
		Total	$	37,832	$	47,153	$	141,648	$	168,283

American Medical Systems
February 12, 2004
Page 7 of 7

Adjustments to Operating Income, Net Income, And Earnings Per Share for Consistent Presentation from 2002 to 2003 (In thousands, except per share data)
				Three months						Twelve months
				through December						through December
				2002			2003			2002			2003
Adjustments in operating income
	Reported operating income			$	13,294		$	15,262		$	38,072		$	41,640
	Adjust for change in warranty allowance				(2,913	)		(3,115	)		(2,913	)		(3,115	)
	Adjusted operating income			$	10,381		$	12,147		$	35,159		$	38,525
Adjustments in net income
	Reported net income				8,331			10,319			24,886			29,050
	Decrease in net income
		Change in warranty allowance
			Decrease in operating income		(2,913	)		(3,115	)		(2,913	)		(3,115	)
			Tax impact		1,109			1,162			1,109			1,162
			Decrease in net income		(1,804	)		(1,953	)		(1,804	)		(1,953	)
		Adjust for 2002 pension fund termination
			Pension accrual reversal		0			0			(716	)		0
			Tax impact		0			0			272			0
			Decrease in net income		0			0			(444	)		0
		Total decrease in net income			(1,804	)		(1,953	)		(2,248	)		(1,953	)
	Adjusted net income			$	6,527		$	8,366		$	22,638		$	27,097
Net income per share
	Reported
		Basic		$	0.26		$	0.31		$	0.77		$	0.88
		Diluted		$	0.24		$	0.30		$	0.73		$	0.85
	Adjusted
		Basic		$	0.20		$	0.25		$	0.70		$	0.82
		Diluted		$	0.19		$	0.24		$	0.66		$	0.79