American Medical Systems (AMMD) 8-K/A Financial Statements and Exhibits

EXHIBIT 99.3

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that actually would have been realized had American Medical Systems Holdings, Inc. and TherMatrx, Inc. been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements, including the related notes, are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements and related notes of American Medical Systems Holdings, Inc., included in its Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on March 17, 2004, and August 12, 2004, respectively, and the historical audited financial statements and related notes of TherMatrx, Inc., included in the Form 8-K/A filed September 28, 2004.

The following unaudited pro forma condensed financial statements are accounted for in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”. The pro forma adjustments are based upon preliminary estimates and available information. Final purchase accounting adjustments may differ from the pro forma adjustments presented. The pro forma condensed combined financial statements are based on the respective historical financial statements of American Medical Systems Holdings, Inc. and TherMatrx, Inc. and assumes the acquisition took place on January 4, 2004, and December 29, 2002, for the statements of operations, and July 3, 2004, for the balance sheet. The pro forma adjustments are based on the estimates and assumptions set forth in the notes to such pro forma financial statements.

American Medical Systems Holdings, Inc.
Pro Forma Condensed Balance Sheet
(Unaudited)

	AMS		TherMatrx			Pro Forma			Pro Forma
	July 3, 2004		June 30, 2004			Adjustments			Combined
Assets
Current assets
Cash and cash equivalents	$	65,891	$	273		$	(42,676	)	$	23,488
Short term investments		11,349		3,761						15,110
Accounts receivable, net		36,922		3,092			—			40,014
Inventories, net		17,600		2,542			31			20,173
Deferred income taxes				6,126			78			6,204
Other current assets		1,904		174			(25	)		2,053
Total current assets		139,792		9,842			(42,592	)		107,042
Property, plant and equipment, net		23,471		222			(29	)		23,664
Goodwill, net		98,989								98,989
Intangibles, net		15,215		1,850			29,150			46,215
Deferred income taxes		12,783					(7,242	)		5,541
Investment in technology and other assets		5,260		18			—			5,278
Total assets	$	295,510	$	11,932		$	(20,713	)	$	286,729
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,648	$	247		$	—		$	3,895
Accrued compensation expenses		10,290		916			—			11,206
Accrued warranty expense		1,319					—			1,319
Other accrued expenses		5,459		1,127			—			6,586
Current portion of notes payable		7,363					—			7,363
Total current liabilities		28,079		2,290			—			30,369
Long-term notes payable		5,523		—			—			5,523
Contingent liability on acquisition							10,630			10,630
Stockholders’ equity Common stock		336		6,553			(6,553	)		336
Preferred stock		—		6,500			(6,500	)		—
Additional paid-in capital		208,201					—			208,201
Accumulated other comprehensive income		584					—			584
Retained earnings (accumulated deficit)		52,787		(3,411	)		(18,290	)		31,086
Total stockholders’ equity		261,908		9,642			(31,343	)		240,207
Total liabilities and stockholders’ equity	$	295,510	$	11,932		$	(20,713	)	$	286,729

See accompanying notes to unaudited pro forma combined financial statements.

American Medical Systems Holdings, Inc.
Pro Forma Condensed Statement of Operations
(Unaudited)

	AMS			TherMatrx
	Six Months Ended					Pro Forma			Pro Form
	July 3, 2004			June 30, 2004		Adjustments			Combined
Net sales	$	96,406		$	9,706	$	—		$	106,112
Operating expenses
Cost of goods sold		17,977			2,160		—			20,137
Marketing and selling		33,743			3,501		—			37,244
Research and development		7,161			290		—			7,451
General and administrative		10,086			1,426		—			11,512
Amortization of intangibles		2,119					1,550			3,669
Total operating expenses		71,086			7,377		1,550			80,013
Operating income		25,320			2,329		(1,550	)		26,099
Other income (expense)
Royalty income		921					—			921
Interest income		310			9		(424	)		(105	)
Interest expense		(449	)				—			(449	)
Other income (expense)		(187	)		360		—			173
Total other income (expense)		595			369		(424	)		540
Income before income taxes		25,915			2,698		(1,974	)		26,639
Provision for income taxes		9,459			—		(720	)		8,739
Net income	$	16,456		$	2,698	$	(1,254	)	$	17,900
Net income per share
Basic	$	0.49		$	—	$	—		$	0.54
Diluted	$	0.47		$	—	$	—		$	0.51
Weighted average common shares used in calculation
Basic		33,313			—		—			33,313
Diluted		35,004			—		—			35,004

See accompanying notes to unaudited pro forma combined financial statements.

American Medical Systems Holdings, Inc.
Pro Forma Condensed Statement of Operations
(Unaudited)

	AMS			TherMatrx
	Year Ended						Pro Forma				Pro Forma
	January 3, 2004			December 31, 2003			Adjustments			��	Combined
Net sales	$	168,283		$	12,982		$	—			$	181,265
Operating expenses
Cost of goods sold		27,353			3,432			—				30,785
Marketing and selling		63,324			5,526			—				68,850
Research and development		14,924			821			—				15,745
General and administrative		16,882			2,415			—				19,297
Amortization of intangibles		4,160						3,100				7,260
Total operating expenses		126,643			12,194			3,100				141,937
Operating income		41,640			788			(3,100	)			39,328
Other income (expense)
Royalty income		2,797						—				2,797
Interest income		476			867			(881	)			462
Interest expense		(1,828	)									(1,828	)
Other income (expense)		1,004			(44	)		—				960
Total other income (expense)		2,449			823			(881	)			2,391
Income before income taxes		44,089			1,611			(3,981	)			41,719
Provision for income taxes		15,039						(1,453	)			13,586
Net income	$	29,050		$	1,611		$	(2,528	)		$	28,133
Net income per share
Basic	$	0.88		$	—		$	—			$	0.86
Diluted	$	0.85		$	—		$	—			$	0.82
Weighted average common shares used in calculation
Basic		32,854										32,854
Diluted		34,313										34,313

See accompanying notes to unaudited pro forma combined financial statements.

American Medical Systems Holdings, Inc.
Notes to Unaudited Pro Forma Combined Financial Statements

1.	Allocation of purchase price
	For this presentation, the Company allocated the July 3, 2004, estimated purchase price of TherMatrx, Inc. as follows:

(Amounts in thousands)	Amount
Tangible assets acquired, net of liabilities assumed	$	606
In-process research and development, net of tax effect		21,700
Developed technology and other intangible assets		31,000
Contingent liability on acquisition		(10,630	)
Initial purchase price and acquisition costs	$	42,676

	The Company will make future cash payments to former Thermatrx, Inc. shareholders, based on the combined entity’s future sales of TherMatrx products. These payments are expected to be four times projected revenues during the earn-out period ending December 2005. The estimated value of future payments is $125.0 million.
	The purchase price allocation to develop technology and other intangible assets and in-process research and development assumed was based on an independent valuation study to determine the respective fair values. Tangible assets acquired, net of liabilities assumed were stated at fair market value at the date of acquisition, based on management’s assessment. In accordance with purchase accounting rules, the acquired in process research and development of $35.0 million, will be expensed at an after tax effect amount of $21.7 million.
2.	Key to Pro Forma Adjustments
	The unaudited pro forma condensed combined balance sheet and statements of operations include the adjustments necessary to give effect to the purchase and to reflect the allocation of the purchase price to the fair value of the assets acquired as noted above, including the elimination of Thermatrx, Inc.’s equity accounts. Summarized below are the pro forma adjustments necessary to reflect the acquisition of Thermatrx, Inc. based upon the purchase method of accounting in accordance with SFAS 141, “Business Combinations”.

(1)	To record cash used to consummate the acquisition, (including estimated closing costs of $2.2 million).
(2)	To adjust tangible assets to fair value at date of acquisition.
(3)	To record the value assigned to developed technology and other intangible assets.
(4)	To eliminate the equity accounts of TherMatrx, Inc. and to reflect a $35 million expense that would be recorded by the Company for acquired in-process research and development.
(5)	To record the excess of the estimated fair value of net assets acquired, over the initial purchase price.
(6)	To record amortization expense relating to value assigned to developed technology and other intangible assets to be amortized over 10 years.
(7)	To reflect decreased interest income resulting from a decrease in cash, for consideration paid.
(8)	To record tax effect of pro forma income statement adjustments.

3.	Other Information
	Gross margins, as corrected for the timing adjustment of this amendment, improved primarily due to a June ending quarter mix of console sales much lower than in the past or than is anticipated in the future.
	A non-recurring credit of $538,000 was realized by TherMatrx, Inc. in the quarter ended June 30, 2004 as part of a patent license fee related to its medical device product.