American Medical Systems (AMMD) 8-K American Medical Systems Reports Global Revenue Growth of 26 Percent for 2005

DATE: February 16, 2006

FOR IMMEDIATE RELEASE

AMERICAN MEDICAL SYSTEMS REPORTS GLOBAL REVENUE GROWTH OF 26 PERCENT FOR 2005

Balanced Fourth Quarter Revenue Growth Drives 43 Percent Operating Income Increase

MINNEAPOLIS, February 16, 2006 — American Medical Systems Holdings, Inc. (NASDAQ: AMMD) reported record sales of $73.1 million for the fourth quarter of 2005, a 21.7 percent increase over sales of $60.0 million in the comparable quarter of 2004.

The Company reported fourth quarter 2005 net income of $14.6 million, or $0.20 per share. The prior year’s fourth quarter earnings were reported at $6.7 million, or $0.09 per share. These prior year earnings include a $4.5 million investment impairment charge, with no associated tax benefit. Net income for fourth quarter 2004, adjusted for this charge, was $11.2 million, or $0.16 per share. Net income growth, as adjusted, was 30.1 percent. A reconciliation of GAAP earnings to these adjusted results is included in the attached financial tables.

Sales for the full year 2005 were $262.6 million, up 25.8 percent from sales of $208.8 million during 2004. TherMatrx, Inc, the Company’s July 2004 acquisition, contributed 5.9 percentage points to that annual growth rate for the 2005 period for which no comparable year sales were reported.

The net income reported for the year 2005 was $39.3 million, or $0.55 per share. This reported net income includes the third quarter impact of a $9.2 million in-process research and development (IPR&D) charge related to the Ovion Inc. acquisition. The reported net loss for 2004 was $3.1 million, or $0.05 per share, including the $35.0 million IPR&D charge related to the TherMatrx, Inc. acquisition and the previously mentioned investment impairment charge. As adjusted for these charges in both years, net income for 2005 was $48.5 million, or $0.68 per share, up 33.3 percent from $36.4 million, or $0.52 per share, in 2004. A reconciliation of GAAP earnings to these adjusted results is included in the attached financial tables.

Martin J. Emerson, President and Chief Executive Officer, commented, “This past year was one of significant achievement at AMS. In our fourth quarter, we established ourselves as the market leader in minimally-invasive prostate therapies. Our pelvic organ prolapse repair systems fundamentally changed how surgeons around the world think about solutions for their patients. Our male continence products reached a broader pool of patients than ever before. Our uterine health growth, after obtaining January 2005 reimbursement, reinforced our focus on meeting the need for therapies appropriate to the office. We are now more diversified than ever before as we closed 2005 with nearly 40 percent of our revenues from our women’s pelvic health business.”

Emerson continued, “Gross margins exceeding 82 percent for the year are a testament to our supply chain focus and manufacturing improvement initiatives. These margins, combined with leverage in general and administrative spending, afforded us the opportunity to invest a full 8 percent of sales in research and development while reporting higher operating margins. Our balance sheet was further strengthened with inventory at its lowest level in 18 months and accounts receivable management improved around the world, driving us to a record level of operating cash flow. These performance measures position us to deliver on our commitment to developing solutions for use by urologists, gynecologists and urogynecologists in meeting the pelvic health needs of men and women globally.”

Outlook

Looking forward to 2006, Mr. Emerson said the Company expects revenue to be in the range of $304 to $314 million. Revenue projected for the first quarter of 2006 ranges from $71 to $74 million.

Earnings per share on these revenues for 2006, on a non-GAAP basis before the impact of the stock-based compensation expensing per FAS 123(R), are anticipated in the range of $0.78 to $0.82 per share. In the first quarter of 2006, the Company expects non-GAAP earnings of $0.18 to $0.19 per share.

Earnings per share for 2006 as reported in accordance with GAAP, and thereby including the effect of stock option expensing as required under FAS 123(R), are expected in the range of $0.65 to $0.69. First quarter GAAP earnings per share are anticipated in the range of $0.14 to $0.15, including the effect of the Company’s implementation of stock option expensing in the quarter.

A reconciliation of GAAP to non-GAAP earnings per share projections is as follows:

	Project First		Projected Year
	Quarter 2006		2006
Projected GAAP earnings per share	$	0.14 - $0.15	$	0.65 - $0.69
Add: Projected stock-based compensation expense, net of tax		$0.04		$0.13
Equals: Projected non-GAAP earnings per share	$	0.18 - $0.19	$	0.78 - $0.82

Earnings Call Information

American Medical Systems will host a conference call today at 5:00 p.m. (EST) to discuss its fourth quarter and fiscal year 2005 results. Those without internet access may join the call from within the U.S. by dialing 800-886-7217; outside the U.S., dial 706-679-3821. A live webcast of the call will be available through the Company’s corporate website at www.AmericanMedicalSystems.com and available for replay two hours after the completion of the call.

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About American Medical Systems

American Medical Systems, headquartered in Minnetonka, Minnesota is a diversified supplier of medical devices and procedures to cure erectile dysfunction, benign prostatic hyperplasia, incontinence, menorrhagia, 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 provide approximately 170,000 patient cures in 56 countries during 2005.

Forward-Looking Statements

Statements about the Company’s market opportunities, future products, sales and financial results are forward-looking statements subject to risks and uncertainties such as the timing and success of new product introductions; physician acceptance, endorsement, and use of the Company’s products; regulatory matters; competitor activities; changes in and adoption of reimbursement rates; potential product recalls and other risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended January 1, 2005 and its other SEC filings. Actual results may differ materially from anticipated results.

More information about the Company and its products can be found at its websitewww.AmericanMedicalSystems.com and in the Company’s Annual Report on Form 10-K for 2004 and its other SEC filings.

Contact:	Carmen Diersen
	Executive Vice President and Chief Financial Officer
	952-930-6495
	Carmen.Diersen@AmericanMedicalSystems.com
	Marty Emerson
	President and Chief Executive Officer
	952-930-6334
	Marty.Emerson@AmericanMedicalSystems.com

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

	Three Months Ended						Twelve Months Ended
	December 31, 2005			January 1, 2005			December 31, 2005			January 1, 2005
Net sales	$	73,071		$	60,040		$	262,591		$	208,772
Cost of sales		11,981			10,846			46,111			38,331
Gross profit		61,090			49,194			216,480			170,441
Operating expenses
Marketing and selling		24,510			20,818			92,001			72,910
Research and development		6,467			4,320			20,966			15,786
In-process research and development		—			—			9,220			35,000
General and administrative		5,500			6,411			21,713			21,617
Amortization of intangibles		1,946			1,739			7,884			5,708
Total operating expenses		38,423			33,288			151,784			151,021
Operating income		22,667			15,906			64,696			19,420
Other income (expense)
Royalty income		438			531			1,929			2,079
Interest income		313			(24	)		1,246			517
Interest expense		(77	)		23			(217	)		(783	)
Investment impairment		—			(4,500	)		—			(4,500	)
Other (expense) income		(325	)		354			(1,429	)		170
Total other income (expense)		349			(3,616	)		1,529			(2,517	)
Income before income taxes		23,016			12,290			66,225			16,903
Provision for income taxes		8,406			5,564			26,950			20,023
Net income (loss)	$	14,610		$	6,726		$	39,275		$	(3,120	)
Net income (loss) per share
Basic	$	0.21		$	0.10		$	0.57		$	(0.05	)
Diluted	$	0.20		$	0.09		$	0.55		$	(0.05	)
Weighted average common shares outstanding
Basic		69,489			67,444	(A)		68,926			67,006	(A)
Diluted		71,762			71,072	(A)		71,682			67,006	(A)

Note

(A) January 1, 2005 average common shares have been adjusted for the stock split effective March 21, 2005.

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

	December 31, 2005		January 1, 2005
Assets
Current assets
Cash and short-term investments	$	46,390	$	51,168
Accounts receivable, net		51,058		46,984
Inventories		18,191		21,719
Deferred taxes and other current assets		7,269		7,956
Total current assets		122,908		127,827
Property, plant and equipment, net		21,371		22,065
Goodwill and intangibles, net		210,278		147,157
Deferred taxes and other assets		4,769		3,501
Total assets	$	359,326	$	300,550
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	3,688	$	4,237
Accrued liabilities and taxes		49,687		44,015
Total current liabilities		53,375		48,252
Other long term liabilities		3,072		3,126
Total liabilities		56,447		51,378
Stockholders’ equity		302,879		249,172
Total liabilities and stockholders’ equity	$	359,326	$	300,550

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

	Twelve Months Ended
	December 31, 2005			January 1, 2005
Cash flows from operating activities
Net income (loss)	$	39,275		$	(3,120	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		5,135			7,052
Loss on asset disposals		601			243
Amortization of intangibles, including deferred financing costs		7,884			6,158
Non-cash in-process research and development charge		9,220			35,000
Non-cash investment impairment		—			4,500
Non-cash deferred compensation		188			77
Income tax benefit related to stock options		5,416			2,047
Change in net deferred taxes		882			2,529
Changes in operating assets and liabilities
Accounts receivable		(5,745	)		(7,009	)
Inventories		3,130			(369	)
Accounts payable and accrued expenses		7,045			1,835
Other assets		(1,449	)		250
Net cash provided by operating activities		71,582			49,193
Cash flows from investing activities
Purchase of property, plant and equipment		(5,110	)		(3,686	)
Purchase of business, net of cash acquired		(81,516	)		(39,418	)
Purchase of investments in technology		(1,620	)		(2,500	)
Purchase of short-term investments		(33,774	)		(19,633	)
Sale of short-term investments		33,743			4,154
Net cash used in investing activities		(88,277	)		(61,083	)
Cash flows from financing activities
Issuance of common stock		11,537			6,066
Payments on long-term debt		—			(16,364	)
Net cash provided by (used in) financing activities		11,537			(10,298	)
Effect of currency exchange rates on cash		354			(1,076	)
Net decrease in cash and cash equivalents		(4,804	)		(23,264	)
Cash and cash equivalents at beginning of period		35,689			58,953
Cash and cash equivalents at end of period	$	30,885		$	35,689
Supplemental disclosure
Cash paid for interest	$	0		$	358
Cash paid for taxes	$	15,036		$	14,807

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American Medical Systems Holdings, Inc.
Selected Sales Information
(In thousands)
(Unaudited)

	Three Months Ended				Twelve Months Ended
	December 31, 2005		January 1, 2005		December 31, 2005		January 1, 2005
Sales
Product Line
Men’s pelvic health
Erectile restoration	$	20,777	$	20,066	$	80,917	$	74,070
Continence		15,023		12,667		53,912		48,242
Prostate treatment		8,154		6,928		28,255		14,697
Total men’s pelvic health		43,954		39,661		163,084		137,009
Women’s pelvic health		29,117		20,379		99,507		71,763
Total	$	73,071	$	60,040	$	262,591	$	208,772
Geography
United States	$	56,753	$	47,628	$	205,463	$	165,140
Outside United States		16,318		12,412		57,128		43,632
Total	$	73,071	$	60,040	$	262,591	$	208,772

	Three Months Ended						Twelve Months Ended
	December 31, 2005			January 1, 2005			December 31, 2005			January 1, 2005
Percent of total sales
Product Line
Men’s pelvic health
Erectile restoration		28	%		33	%		31	%		35	%
Continence		21	%		21	%		21	%		23	%
Prostate treatment		11	%		12	%		11	%		7	%
Total men’s pelvic health		60	%		66	%		62	%		66	%
Women’s pelvic health		40	%		34	%		38	%		34	%
Total		100	%		100	%		100	%		100	%
Geography
United States		78	%		79	%		78	%		79	%
Outside United States		22	%		21	%		22	%		21	%
Total		100	%		100	%		100	%		100	%

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American Medical Systems Holdings, Inc.
Adjustments to Operating Income, Pre-Tax Income, Net Income and Earnings per Share for Consistent Presentation
(In thousands, except per share data)

	Three Months Ended						Twelve Months Ended
	December 31, 2005			January 1, 2005			December 31, 2005			January 1, 2005
Reported (GAAP) operating income	$	22,667		$	15,906		$	64,696		$	19,420
Adjust for in-process research and development charge		—			—			9,220	(C)		35,000	(D)
Adjusted operating income	$	22,667		$	15,906		$	73,916		$	54,420
Reported (GAAP) income before income taxes	$	23,016		$	12,290		$	66,225		$	16,903
Adjust for in-process research and development charge		—			—			9,220	(C)		35,000	(D)
Adjust for investment impairment		—			4,500	(A)		—			4,500	(A)
Adjusted income (loss) before income taxes	$	23,016		$	16,790		$	75,445		$	56,403
Reported (GAAP) provision for income taxes	$	8,406		$	5,564		$	26,950		$	20,023
Adjusted effective tax rate		36.5	%		33.1	%		35.7	%		35.5	%
Reported (GAAP) net income (loss)	$	14,610		$	6,726		$	39,275		$	(3,120	)
Adjust for in-process research and development charge		—			—			9,220	(C)		35,000	(D)
Adjust for investment impairment		—			4,500	(A)		—			4,500	(A)
Adjusted net income	$	14,610		$	11,226		$	48,495		$	36,380
Weighted average common shares used in calculation:
Basic		69,489			67,444	(B)		68,926			67,006	(B)
Reported (GAAP) diluted shares		71,762			71,072	(B)		71,682			67,006	(B)
Adjust for net income position		—			—			—			3,408	(E)
Adjusted diluted shares		71,762			71,072			71,682			70,414
Adjusted net income per share:
Basic	$	0.21		$	0.17		$	0.70		$	0.54
Diluted	$	0.20		$	0.16		$	0.68		$	0.52

Note

(A)	This charge is a $4.5 million investment impairment charge related to InjecTx, a company focused on the development of prostate treatment systems.
(B)	January 1, 2005 average common shares have been adjusted for the stock split effective March 21, 2005.
(C)	This charge was for $9.2 million of IPR&D recorded as part of the Ovion Inc. acquisition.
(D)	This charge was for $35.0 million of IPR&D recorded as part of the TherMatrx, Inc. acquisition.
(E)	Our GAAP reported diluted shares exclude the impact of outstanding options since their inclusion would be anti-dilutive given our GAAP net loss position. The 3.4 million increase to diluted shares is to recognize our non-GAAP net income position.

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