AVO Aveon Group LP Com USD0.01

Advanced Medical Optics Announces Third-Quarter 2004 Results * Revenue Up 31.2% vs. One Year Ago SANTA ANA, Calif., Oct. 21 /PRNewswire-FirstCall/ -- Advanced Medical Optics, Inc. (AMO) (NYSE:AVO), a global leader in ophthalmic surgical devices and eye care products, today announced financial results for the third quarter of 2004. Net revenue rose 31.2 percent to $198.4 million compared with last year's third quarter, reflecting continued growth in the company's core ophthalmic surgical and eye care businesses, and the benefits of the Pfizer acquisition. Excluding the effect of currency, revenue grew 25.3 percent for the third quarter, compared to the same period in 2003. Pro forma net income for the third quarter of 2004 grew 64.7 percent to $11.3 million, or $0.29 per diluted share, compared to $6.9 million, or $0.23 per diluted share, in the year-ago quarter. Under Generally Accepted Accounting Principles (GAAP), the company reported a net loss of $31.7 million, or a net loss of $0.89 per diluted share, compared to a net loss of $3.7 million, or $0.13 per diluted share, in the same period one year ago. The loss in the third quarter of 2004 is attributed to a $49.2 million charge. The charge included purchase-accounting adjustments, which included $28.1 million for in-process R&D and $14.1 million for the step-up in inventory and other charges related to the June 2004 acquisition of the Pfizer surgical ophthalmic business, as well as costs associated with the early retirement of debt (as outlined in the attached financial tables). The loss in the third quarter of 2003 is attributed primarily to costs associated with the company's mid-2003 recapitalization. The Pfizer acquisition fortified AMO's surgical franchise through the addition of the Healon(R) family of viscoelastics, the CeeOn(R) and Tecnis(R) lines of intraocular lenses (IOL) and the Baerveldt(R) glaucoma shunt, as well as related manufacturing and R&D facilities. Excluding the $32.3 million in revenue related to the acquisition during the quarter, the company's net revenue rose 9.9 percent to $166.1 million, compared to the same period last year, or 4.9 percent on a constant-currency basis. "We continue to transform AMO into an increasingly strong global enterprise capable of delivering sustained growth and profitability to shareholders," said James V. Mazzo, president and chief executive officer. "During the quarter, we achieved strong performance across all geographic regions while moving aggressively to integrate the Pfizer acquisition. We have leading positions in the markets we serve, a host of scientifically significant products to meet the needs of practitioners and patients, the technological expertise to seize new market opportunities and a scalable global infrastructure and distribution network." For the first nine months of 2004, net revenue was $517.4 million, compared to $434.5 million for the first nine months of 2003, an increase of 19.1 percent. Excluding the impact of currency, net revenue grew 12.5 percent. Excluding the $32.3 million in revenue related to the Pfizer acquisition in the third quarter, revenue for the first nine months grew 11.7 percent, or 5.4 percent on a constant-currency basis. Pro forma net income for the first nine months of 2004 was $24.4 million, or $0.70 per diluted share, compared to $13.6 million, or $0.46 per diluted share, in the year-ago period. On a GAAP basis, the company reported a net loss for the first nine months of 2004 of $139.5 million, or a loss of $4.36 per diluted share, compared to reported net income of $612,000, or $0.02 per diluted share, in the first nine months of 2003. The loss in the first nine months of 2004 is attributed to purchase-accounting adjustments and other charges related to the June 2004 acquisition of the Pfizer surgical ophthalmic business, as well as costs associated with the early retirement of debt (as outlined in the attached financial tables). Reported net income for the first nine months of 2003 included charges associated with the 2003 recapitalization. "With the Pfizer acquisition completed, the integration process well ahead of schedule and our global reorganization beginning to yield benefits, we are on track to achieve our previous 2004 revenue guidance in the range of $715 million to $725 million, with pro forma diluted EPS for 2004 in the range of $1.20 to $1.25," said Richard A. Meier, executive vice president of operations and finance and chief financial officer. "In light of our rapid integration success, the greater visibility we now have into the near-term potential of the Pfizer assets and the productivity and efficiency gains of our reorganization, we are adjusting our previous guidance for 2005 revenue to a range of $820 million to $840 million, and increasing our pro forma diluted EPS estimate for 2005 by $0.05 to a range of $1.65 to $1.75." Ophthalmic Surgical Ophthalmic surgical revenue grew 53.0 percent in the third quarter to $113.5 million, compared to $74.2 million in the year-ago quarter. Excluding the effect of currency, ophthalmic surgical revenue grew 46.7 percent. Growth in the third quarter included $32.3 million in revenue associated with the Pfizer acquisition. Excluding this revenue, the company's base ophthalmic surgical business grew 9.5 percent in the third quarter, or 5.1 percent on a constant-currency basis. Other quarterly ophthalmic surgical highlights included: * Total IOL revenue rose 16.5 percent to $58.8 million, compared to $50.4 million in the third quarter of 2003. The increase reflected strong performance of the proprietary OptiEdge(R) series of acrylic and silicone IOLs, and addition of the Tecnis(R) and CeeOn(R) family of IOLs acquired from Pfizer. Excluding sales related to the Pfizer acquisition, the company's total IOL revenue rose 3.0 percent, compared to the same period last year. As part of a new global product positioning strategy, AMO has begun to discontinue some of its older IOL and viscoelastic products and transition customers to newer, more technologically advanced offerings. This planned transition and repositioning is reflected in the quarterly growth rates of the base IOL and viscoelastic categories. * Sales of viscoelastics rose dramatically during the quarter to $28.4 million, compared to $3.6 million one year ago. This rise reflected the addition of the Healon(R) family of viscoelastics. * Sales of phacoemulsification products demonstrated continued gains during the quarter, climbing 11.0 percent to $16.9 million, compared to $15.2 million one year ago. The increase reflects continued penetration of the company's Sovereign(R) and Sovereign(R) Compact(TM) systems with WhiteStar(TM) technology, as well as recurring revenue from the consumable surgical packs used during every phacoemulsification procedure performed with an AMO machine. For the first nine months of 2004, ophthalmic surgical revenue grew 26.6 percent to $278.4 million, compared to $220.0 million in the first nine months of 2003. Excluding the effect of currency, growth was 20.2 percent. Excluding the revenue related to the Pfizer acquisition in the third quarter, ophthalmic surgical sales for the first nine months of 2004 were $246.1 million, up 11.9 percent versus the year-ago period, or up 6.1 percent on a constant currency basis. Eye Care Revenue growth in AMO's eye care business continued to perform at a high level during the quarter, rising 10.2 percent to $84.9 million, compared to $77.0 million in 2003's third quarter. Excluding the effect of currency, eye care growth was 4.7 percent. Additional quarterly highlights in the eye care business included: * Sales of the company's flagship COMPLETE(R) branded product line remained strong, growing 19.1 percent compared to the same period last year. AMO's COMPLETE(R) MoisturePLUS(TM), the first multipurpose solution with two artificial tear ingredients, is designed to alleviate discomfort and dryness for contact lens wearers. * The company's multipurpose products generated $41.0 million in revenue during the quarter, up 20.1 percent compared to the same period in 2003. * Sales of hydrogen-peroxide solutions also rose during the quarter to $25.8 million, compared to $24.6 million one year ago. This growth was directly related to the company's strategy to serve customer- specific needs in the Japan and Asia Pacific regions. For the first nine months of 2004, eye care revenue grew 11.4 percent to $239.0 million, compared to $214.5 million in the first nine months of 2003. Excluding the effect of currency, growth was 4.6 percent for the period. Financial Highlights The following are additional earnings highlights for the third quarter of 2004. * Pro forma gross profit for the third quarter of 2004 was $123.5 million, up 31.3 percent from $94.1 million a year ago. The pro forma gross margin for the period was 62.3 percent, the same as in the third quarter of 2003. This reflects continued execution of a global eye care manufacturing strategy that should allow AMO to exit its manufacturing agreement with its former parent by the mid 2005 expiration date, as well as progress in integrating the Pfizer manufacturing assets. Reported gross profit for the quarter was $109.5 million. * Pro forma research and development expenses in the third quarter of 2004 were $11.8 million, up 27.8 percent from $9.3 million in the same period last year. Pro forma R&D expenses represented approximately 6 percent of sales in the third quarters of 2004 and 2003. Reported R&D expenses for the third quarter were $39.9 million. * Pro forma SG&A expenses for the third quarter were $86.2 million, or 43.5 percent of sales, and included approximately $4.6 million in non-recurring expenses related to the integration of the Pfizer ophthalmic surgical business. Excluding these integration-related costs, pro forma SG&A as a percent of sales would have been approximately 41 percent. Reported SG&A expenses for the third quarter of 2004 were $88.5 million, compared to reported SG&A expenses of $67.6 million in the same period last year. * Pro forma operating income for the quarter rose to $25.5 million from $17.3 million in the same quarter last year. The pro forma operating margin for the third quarter of 2004 was 12.9 percent, compared to 11.4 percent in the third quarter of 2003. Excluding non-recurring integration-related costs in the third quarter of 2004, the pro forma operating margin would have been approximately 15 percent. Under GAAP, the company reported an operating loss of $19.0 million for the third quarter of 2004 due primarily to purchase-accounting adjustments and other charges associated with the Pfizer acquisition. * The effective tax rate in the third quarter was 35.0 percent, compared to 42.9 percent in the same period one year ago. The decline reflects continuing implementation of the company's long-term tax strategies, the changes in its capital structure and ongoing improvements in its global supply chain. * During the quarter, AMO reduced its total debt outstanding to $568.4 million, from $631.4 million at the end of the second quarter. This reduction reflects the repayment of a portion of its $250 million Term B loan and the exchange of approximately $18 million principal amount of its 3.5 percent convertible bonds during the quarter. Pro Forma Explanation & Guidance The company provides its earnings per share, net income, gross profit, gross margin, research and development, SG&A and non-operating expenses in two formats. The first format represents reported, or GAAP, results and the second format presents pro forma, or comparable, results. The pro forma results exclude the unrealized gain or loss on derivative instruments, purchase-accounting adjustments and other charges related to the Pfizer acquisition, as well as cash and non-cash charges associated with the company's debt repayment and recapitalization. A reconciliation of reported and pro forma earnings per share, net income, gross profit, gross margin, research and development, SG&A and non-operating expenses for the quarter and year to date is provided in the attachments to this press release and is available on the company's Web site at http://www.amo-inc.com/ under the section entitled "Investors/Media." The company's management uses pro forma results to measure and compare its regional and global performance absent the impact of foreign currency fluctuations on currency derivatives, acquisition-related charges, debt extinguishment costs and other costs associated with the recapitalization. Additionally, management believes this format is useful for investors to perform more meaningful comparisons of operating results. AMO's guidance for the full-year 2004 and 2005 earnings per share is provided on a pro forma basis. Earnings-per-share guidance for the full year 2004 excludes the effect of $131.4 million of debt extinguishment costs and other costs associated with the 2004 recapitalization, as well as $44.5 million of purchase-accounting adjustments and other acquisition-related charges. Guidance for 2004 and 2005 also excludes unrealized gains or losses on derivative instruments due to the unpredictability of foreign currency fluctuations and future one-time costs associated with the Pfizer acquisition, including an additional adjustment to gross profit in the fourth quarter related to the step-up in inventory. AMO does not provide a reconciliation of projected pro forma earnings per share to expected reported results due to the unknown effect and potential significance of foreign currency fluctuations on the fair value of its currency derivatives. Live Webcast & Audio Replay Mr. Mazzo and Mr. Meier will host a live Web cast to discuss third quarter results and future expectations today at 10:00 a.m. EDT. To participate, visit the company's Investors/Media site at http://www.amo-inc.com/. Audio replay will be available at approximately noon EDT today and will continue through midnight EDT on Friday, October 29, at 800-642-1687 (Passcode 1517015) or by visiting http://www.amo-inc.com/. About Advanced Medical Optics Advanced Medical Optics, Inc. (AMO) is a global leader in the development, manufacturing and marketing of ophthalmic surgical and contact lens care products. The company focuses on developing a broad suite of innovative technologies and devices to address a wide range of eye disorders. Products in the ophthalmic surgical line include foldable intraocular lenses, phacoemulsification systems, viscoelastics and related products used in cataract and refractive surgery, and microkeratomes used in LASIK procedures for refractive error correction. AMO owns or has the rights to such well- known ophthalmic surgical product brands such as Phacoflex(R), Clariflex(R), Array(R), Sensar(R), Tecnis(R), CeeOn(R) and Verisyse(R) intraocular lenses, the Sovereign(R) and Sovereign(R) Compact(TM) phacoemulsification systems with WhiteStar(TM) technology, the Healon(R) family of viscoelastics, the Baerveldt(R) glaucoma shunt and the Amadeus(TM) microkeratome. Products in the contact lens care line include disinfecting solutions, daily cleaners, enzymatic cleaners and lens rewetting drops. Among the well-known contact lens care product brands the company possesses are COMPLETE(R), COMPLETE(R) Blink-N-Clean(R), COMPLETE(R) Moisture PLUS(TM), Consept(R)F, Consept(R) 1 Step, Oxysept(R) 1 Step, UltraCare(R), Ultrazyme(R), Total Care(R) and blink(TM) branded products. Amadeus is a licensed product of, and a trademark of SIS, Ltd. OptiEdge is a trademark of Ocular Sciences, Inc. Advanced Medical Optics, Inc. is based in Santa Ana, California, and employs approximately 2,800 worldwide. The company has direct operations in about 20 countries and markets products in approximately 60 countries. For more information, visit http://www.amo-inc.com/. Forward-Looking Statements This press release contains forward-looking statements and forecasts about AMO and its businesses, such as management's revenue and earnings guidance for the full years of 2004 and 2005. Because forecasts are inherently estimates that cannot be made with precision, the company's performance may at times differ from its estimates and targets, and the company often does not know what the actual results will be until after a quarter's end. Therefore, the company will not report or comment on its progress during the quarter. Any statement made by others with respect to progress mid-quarter cannot be attributed to the company. Statements in this press release regarding financial guidance for 2004 and 2005, Mr. Mazzo's and Mr. Meier's statements and any other statements in this press release that refer to AMO's estimated or anticipated future results, are forward-looking statements. All forward-looking statements in this press release reflect AMO's current analysis of existing trends and information and represent AMO's judgment only as of the date of this press release. Actual results may differ from current expectations based on a number of factors affecting AMO's businesses including but not limited to risks associated with the integration and operation of the acquired business, and changing competitive, regulatory and market conditions; the performance of new products and the continued acceptance of current products; the execution of strategic initiatives and alliances; AMO's ability to maintain a sufficient supply of products and successfully transition its manufacturing of eye care products; product liability claims or quality issues; litigation; and the uncertainties associated with intellectual property protection for the company's products. In addition, matters generally affecting the domestic and global economy, such as changes in interest and currency exchange rates, can affect AMO's results. Therefore, the reader is cautioned not to rely on these forward-looking statements. AMO disclaims any intent or obligation to update these forward- looking statements. Additional information concerning these and other risk factors may be found in previous financial press releases issued by AMO. AMO's public periodic filings with the Securities and Exchange Commission, including the discussion under the heading "Certain Factors and Trends Affecting AMO and its Businesses" in AMO's 2003 Form 10-K and Form 10-Q filed in August 2004 include information concerning these and other risk factors. Copies of press releases and additional information about AMO are available at http://www.amo-inc.com/, or you can contact the AMO Investor Relations Department by calling 714-247-8348. For further information please contact: Investors, Sheree Aronson, +1-714-247-8290, , or Media, Steve Chesterman, +1-714-247-8711, , both of Advanced Medical Optics, Inc. Advanced Medical Optics, Inc. Condensed Consolidated Statements of Operations (Unaudited) (in thousands, Three Months Ended Nine Months Ended except per September 24, September 26, September 24, September 26, share amounts) 2004 2003 2004 2003 Net sales: Ophthalmic surgical $113,496 $74,157 $278,431 $219,982 Eye care 84,870 76,995 238,983 214,482 198,366 151,152 517,414 434,464 Cost of sales 88,894 57,045 212,577 163,763 Gross profit 109,472 94,107 304,837 270,701 Selling, general and administrative 88,533 67,600 236,620 205,106 Research and development 39,930 9,256 59,143 26,996 Operating income (loss) (18,991) 17,251 9,074 38,599 Non-operating expense (income): Interest expense 8,377 5,888 19,327 20,442 Unrealized gain on derivative instruments (304) (341) (830) (59) Other, net 4,708 17,896 127,977 17,161 12,781 23,443 146,474 37,544 Earnings (loss) before income taxes (31,772) (6,192) (137,400) 1,055 Provision (benefit) for income taxes (64) (2,528) 2,103 443 Net earnings (loss) $(31,708) $(3,664) $(139,503) $612 Net basic earnings (loss) per share $(0.89) $(0.13) $(4.36) $0.02 Net diluted earnings (loss) per share $(0.89) $(0.13) $(4.36) $0.02 Weighted average number of shares outstanding: Basic 35,711 29,110 31,977 28,962 Diluted 35,711 29,110 31,977 29,274 Advanced Medical Optics, Inc. Global Sales (Unaudited) (USD in thousands) Three Months Ended Nine Months Ended September 24, September 26, September 24, September 26, 2004 2003 2004 2003 Geographic sales: Americas $58,712 $46,203 $152,978 $131,179 Europe/Africa/ Middle East 66,131 49,731 181,334 151,482 Japan 54,552 42,498 134,871 119,095 Asia Pacific 18,971 12,720 48,231 32,708 $198,366 $151,152 $517,414 $434,464 Product sales: Ophthalmic surgical: Intraocular lenses (1) $58,767 $50,432 $166,153 $148,268 Viscoelastics (2) 28,374 3,628 37,137 11,228 Phacoemulsification products 16,931 15,248 54,284 45,423 Other (3) 9,424 4,849 20,857 15,063 Total Ophthalmic surgical 113,496 74,157 278,431 219,982 Eye care: Multi-purpose solutions 40,979 34,118 111,967 100,403 Hydrogen-peroxide solutions 25,797 24,582 75,562 67,578 Other 18,094 18,295 51,454 46,501 Total Eye care 84,870 76,995 238,983 214,482 $198,366 $151,152 $517,414 $434,464 (1) Includes acquired Pfizer IOL sales of $6,833 in the three and nine months ended September 24, 2004. (2) Includes Healon sales of $24,435 in the three and nine months ended September 24, 2004. (3) Includes Baerveldt shunt sales of $1,004 in the three and nine months ended September 24, 2004. Three Months Ended September 24, September 26, % Constant % Exchange 2004 2003 % Growth Currency Impact Net sales: Ophthalmic surgical $113,496 $74,157 53.0% 46.7% 6.3% Eye care 84,870 76,995 10.2% 4.7% 5.5% $198,366 $151,152 31.2% 25.3% 5.9% Nine Months Ended September 24, September 26, % Constant % Exchange 2004 2003 % Growth Currency Impact Net sales: Ophthalmic surgical $278,431 $219,982 26.6% 20.2% 6.4% Eye care 238,983 214,482 11.4% 4.6% 6.8% $517,414 $434,464 19.1% 12.5% 6.6% Advanced Medical Optics, Inc. Pro Forma Condensed Consolidated Statements of Operations (1) Reconciliation of GAAP to Non-GAAP Information (Unaudited) Three Months Ended September 24, 2004 (in thousands, except per share amounts) GAAP Adjustments Pro Forma Net sales: Ophthalmic surgical $113,496 $-- $113,496 Eye care 84,870 84,870 198,366 198,366 Cost of sales 88,894 (14,064) (3) 74,830 Gross profit 109,472 14,064 123,536 Selling, general and administrative 88,533 (2,319) (4) 86,214 Research and development 39,930 (28,100) (5) 11,830 Operating income (loss) (18,991) 44,483 25,492 Non-operating expense (income): Interest expense 8,377 (1,534) (6) 6,843 Unrealized gain on derivative instruments (304) 304 (2) -- Other, net 4,708 (3,489) (7) 1,219 12,781 (4,719) 8,062 Earnings (loss) before income taxes (31,772) 49,202 17,430 Provision (benefit) for income taxes (64) 6,165 (10) 6,101 Net earnings (loss) $(31,708) $43,037 $11,329 Net basic earnings (loss) per share $(0.89) $0.32 Net diluted earnings (loss) per share $(0.89) $0.29 (11) Weighted average number of shares outstanding: Basic 35,711 35,711 Diluted 35,711 39,455 (12) Advanced Medical Optics, Inc. Pro Forma Condensed Consolidated Statements of Operations (1) Reconciliation of GAAP to Non-GAAP Information (Unaudited) Three Months Ended September 26, 2003 (in thousands, except per share amounts) GAAP Adjustments Pro Forma Net sales: Ophthalmic surgical $74,157 $-- $74,157 Eye care 76,995 76,995 151,152 151,152 Cost of sales 57,045 57,045 Gross profit 94,107 94,107 Selling, general and administrative 67,600 67,600 Research and development 9,256 9,256 Operating income (loss) 17,251 17,251 Non-operating expense (income): Interest expense 5,888 (1,165) (8) 4,723 Unrealized gain on derivative instruments (341) 341 (2) -- Other, net 17,896 (17,424) (9) 472 23,443 (18,248) 5,195 Earnings (loss) before income taxes (6,192) 18,248 12,056 Provision (benefit) for income taxes (2,528) 7,706 (10) 5,178 Net earnings (loss) $(3,664) $10,542 $6,878 Net basic earnings (loss) per share $(0.13) $0.24 Net diluted earnings (loss) per share $(0.13) $0.23 Weighted average number of shares outstanding: Basic 29,110 29,110 Diluted 29,110 30,361 (1) The Pro Forma Condensed Consolidated Statements of Operations exclude certain costs resulting from the acquisition of the Pfizer surgical ophthalmic business (Acquisition), debt refinancing and recapitalization items and the unrealized gain on derivative instruments. See below for additional detail. (2) To exclude the unrealized gain on derivative instruments. (3) To exclude $14,064 of manufacturing profit capitalized in inventory and expensed in the quarter as a result of the application of purchase accounting to the Acquisition. (4) To exclude a distributor contract termination charge of $1,585 resulting from the Company's decision to move to a direct sales model in Belgium due to the higher sales volume of acquired Pfizer products and severance of $734 paid to AMO employees terminated as a result of the Acquisition. (5) To exclude the $28,100 charge to in-process research and development resulting from the application of purchase accounting to the Acquisition. Certain debt refinancing and recapitalization costs associated with the exchange of approximately 1.0 million shares of common stock for approximately $18.0 million in aggregate principal amount of 3.50% convertible senior subordinated notes (Convertible Notes) and repayment of $45.0 million of the term loan were incurred during the quarter ended September 24, 2004 and are excluded from pro forma amounts as follows: (6) Pro-rata write-off of debt issuance costs of $1,534; and (7) A non-cash charge of $3,489 related to the convertible note exchanges. (8) To exclude the write-off of debt issuance costs and original issue discount of $5,386 and recognition of net realized gains on interest swaps of ($4,221) resulting from the tender offer and repurchase of 9.25% senior subordinated notes during the quarter ended September 26, 2003. (9) To exclude the aggregate premium of $19,429 paid for the tender offer and repurchase of 9.25% senior subordinated notes and a foreign currency gain of ($2,005) resulting from settlement of certain intercompany notes and related transfer of cash utilized to repurchase the notes during the quarter ended September 26, 2003. (10) Related tax effect of adjustments above. No tax benefit for the quarter ended September 24, 2004 has been assumed for the $28,100 in-process research and development charge nor the $3,489 non-cash charge related to the convertible note exchanges. (11) Includes the after-tax impact of $182 of interest expense on the Convertible Notes. (12) Includes the dilutive effect of approximately 3.7 million shares for stock options and the Convertible Notes. Advanced Medical Optics, Inc. Pro Forma Condensed Consolidated Statements of Operations (1) Reconciliation of GAAP to Non-GAAP Information (Unaudited) Nine Months Ended September 24, 2004 (in thousands, except per share amounts) GAAP Adjustments Pro Forma Net sales: Ophthalmic surgical $278,431 $-- $278,431 Eye care 238,983 238,983 517,414 517,414 Cost of sales 212,577 (14,064) (3) 198,513 Gross profit 304,837 14,064 318,901 Selling, general and administrative 236,620 (2,319) (4) 234,301 Research and development 59,143 (28,100) (5) 31,043 Operating income 9,074 44,483 53,557 Non-operating expense (income): Interest expense 19,327 (5,155) (6) 14,172 Unrealized gain on derivative instruments (830) 830 (2) -- Other, net 127,977 (126,202) (7) 1,775 146,474 (130,527) 15,947 Earnings (loss) before income taxes (137,400) 175,010 37,610 Provision for income taxes 2,103 11,061 (10) 13,164 Net earnings (loss) $(139,503) $163,949 $24,446 Net basic earnings (loss) per share $(4.36) $0.76 Net diluted earnings (loss) per share $(4.36) $0.70 (11) Weighted average number of shares outstanding: Basic 31,977 31,977 Diluted 31,977 36,316 (12) Advanced Medical Optics, Inc. Pro Forma Condensed Consolidated Statements of Operations (1) Reconciliation of GAAP to Non-GAAP Information (Unaudited) Nine Months Ended September 26, 2003 (in thousands, except per share amounts) GAAP Adjustments Pro Forma Net sales: Ophthalmic surgical $219,982 $-- $219,982 Eye care 214,482 214,482 434,464 434,464 Cost of sales 163,763 163,763 Gross profit 270,701 270,701 Selling, general and administrative 205,106 205,106 Research and development 26,996 26,996 Operating income 38,599 38,599 Non-operating expense (income): Interest expense 20,442 (5,752) (8) 14,690 Unrealized gain on derivative instruments (59) 59 (2) -- Other, net 17,161 (16,754) (9) 407 37,544 (22,447) 15,097 Earnings (loss) before income taxes 1,055 22,447 23,502 Provision for income taxes 443 9,428 (10) 9,871 Net earnings (loss) $612 $13,019 $13,631 Net basic earnings (loss) per share $0.02 $0.47 Net diluted earnings (loss) per share $0.02 $0.46 Weighted average number of shares outstanding: Basic 28,962 28,962 Diluted 29,274 29,935 (1) The Pro Forma Condensed Consolidated Statements of Operations exclude certain costs resulting from the acquisition of the Pfizer surgical ophthalmic business (Acquisition), debt refinancing and recapitalization items and the unrealized gain on derivative instruments. See below for additional detail. (2) To exclude the unrealized gain on derivative instruments. (3) To exclude $14,064 of manufacturing profit capitalized in inventory and expensed in the period as a result of the application of purchase accounting to the Acquisition. (4) To exclude a distributor contract termination charge of $1,585 resulting from the Company's decision to move to a direct sales model in Belgium due to the higher sales volume of acquired Pfizer products and severance of $734 paid to AMO employees terminated as a result of the Acquisition. (5) To exclude the $28,100 charge to in-process research and development resulting from the application of purchase accounting to the Acquisition. Certain debt refinancing and recapitalization costs associated with the prepayment of the Japan term loan, the exchange of approximately 6.8 million shares of common stock and approximately $4.6 million in cash for approximately $126.6 million in aggregate principal amount of 3.50% convertible senior subordinated notes (Convertible Notes), repayment of $45.0 million of the term loan and consummation of the tender offer to purchase the outstanding $70.0 million aggregate principal amount of 9.25% senior subordinated notes were incurred during the nine months ended September 24, 2004 and are excluded from pro forma amounts as follows: (6) Pro-rata write-off of debt issuance costs and one-time commitment fee of $7,607, write-off of original issue discount of $747 and recognition of net realized gains on interest rate swaps of ($3,199); and (7) A non-cash charge of approximately $110,729 and a cash charge of $4,580 related to the convertible note exchanges, an aggregate premium paid for the tender offer of $10,784 and early debt extinguishment costs and fees of $109. (8) To exclude the write-off of debt issuance costs and original issue discount of $7,797 and recognition of net realized gains on interest swaps of ($2,045) resulting from the tender offer and repurchase of 9.25% senior subordinated notes and prepayment of a term loan during the nine months ended September 26, 2003. (9) To exclude the aggregate premium of $19,429 paid for the tender offer and repurchase of 9.25% senior subordinated notes and a foreign currency gain of ($2,675) resulting from settlement of certain intercompany notes and related transfer of cash utilized to repurchase the notes and prepayment of a term loan during the nine months ended September 26, 2003. (10) Related tax effect of adjustments above. No tax benefit for the nine months ended September 24, 2004 has been assumed for the $28,100 in-process research and development charge nor the $115,309 charge related to the convertible note exchanges. (11) Includes the after-tax impact of $1,045 of interest expense on the Convertible Notes. (12) Includes the aggregate dilutive effect of approximately 4.3 million shares for stock options and the Convertible Notes. Advanced Medical Optics, Inc. Other Financial Information (Unaudited) (USD in thousands) September 24, December 31, 2004 2003 Cash and equivalents $34,098 $46,104 Trade receivables, net 180,919 130,423 Inventories 90,665 41,596 Working capital, excluding cash 139,753 91,087 Long-term debt, aggregate principal amount 568,442 233,283 Three Months Ended September 24, September 26, 2004 2003 Depreciation and amortization $7,562 $3,994 Capital expenditures 4,585 3,574 Nine Months Ended September 24, September 26, 2004 2003 Depreciation and amortization $14,970 $11,618 Capital expenditures 14,861 11,692 DATASOURCE: Advanced Medical Optics, Inc. CONTACT: Investors, Sheree Aronson, +1-714-247-8290, , or Media, Steve Chesterman, +1-714-247-8711, , both of Advanced Medical Optics, Inc. Web site: http://www.amo-inc.com/

Copyright