AGA Medical Reports 2010 Third Quarter Financial Results

MINNEAPOLIS--([ BUSINESS WIRE ])--AGA Medical Holdings, Inc. (AGA Medical) (NASDAQ: AGAM), a leading developer of interventional medical devices for the minimally invasive treatment of structural heart defects and vascular abnormalities, today reported financial results for the third quarter ended September 30, 2010.

"Reconciliation of Reported Results to Non-GAAP Financial Measures"

Highlights of the Third Quarter of 2010 include:

The addition of left atrial appendage closure to an existing G-DRG (German Diagnosis Related Group) reimbursement code in the 2011 G-DRG Catalog which will be applicable to the companya�s Amplatzer^� Cardiac Plug; and
Continued enrollment in its U.S. RESPECT clinical trial, designed to evaluate the link between a patent foramen ovale (PFO) and cryptogenic stroke, with 807 patients enrolled in the study and 1,639 patient follow-up years as of October 31, 2010.

Financial Results for Third Quarter 2010 vs. Third Quarter 2009

Net sales for the third quarter of 2010 were $50.5 million, a 0.6% increase over $50.2 million for the third quarter of 2009. On a constant currency basis, net sales grew 4.3% year over year. Sales growth from the prior year quarter was negatively impacted by several items including the significant impact of currency, the delay in receiving FDA clearance for our Amplatzer Vascular Plug 4 and the temporary inability to import and sell products into India. This was resolved in early October and the company has since resumed shipments. The company also experienced a continued delay in the issuance of a significant government tender in a Latin American country.

Gross margins for the third quarter of 2010 were 86.6% (86.9% on a constant currency basis) compared to 86.8% in the prior year period.

Total operating expenses for the third quarter of 2010 were $39.6 million as compared to $38.6 million in the third quarter of 2009. Total operating expenses for the third quarter of 2010 were lower than in the second quarter of 2010, at $39.6 million versus $40.6 million, respectively.

Selling, general and administrative expenses totaled $23.5 million in the third quarter of 2010 versus $25.4 million in the prior year period, a decrease of $1.9 million, primarily as a result of lower legal expenses and the effects of the appreciation of the U.S. dollar against foreign currencies, partially offset by an expansion of the companya�s direct sales force in Europe and North America. Research and development spending totaled $12.0 million in the third quarter of 2010, an increase of $3.6 million from the third quarter of 2009, primarily due to increased spending as a result of strong patient enrollment in the companya�s clinical trials.

Operating income for the third quarter of 2010 was $4.1 million versus $5.0 million in the prior year period.

EBITDA (net income/(loss) before interest income, interest expense, provision/(benefit) for income tax, depreciation and amortization) was $10.1 million in the third quarter 2010 versus $11.8 million in the prior year period. EBITDA margin was 20.1% for the third quarter 2010, compared to 23.4% for the third quarter 2009.

Net income for the third quarter was $1.5 million versus $2.2 million in the prior year period. Including dividends for Series A and Series B preferred and Class A common stock accrued in the third quarter of 2009, the company reported net income/(loss) applicable to common stockholders of $1.5 million, or $0.03 per fully diluted and basic share, for the quarter ended September 30, 2010, compared to ($2.4) million, or ($0.11) per fully diluted and basic share, for the prior year period. The accrued dividends on these securities and the securities associated with these dividends were converted into common stock in connection with the companya�s initial public offering in the fourth quarter of 2009.

Non-GAAP adjusted net income for the quarter ended September 30, 2010 was $4.5 million versus $7.9 million in the prior year period. Non-GAAP adjusted net income per fully diluted share was $0.09 for the quarter ended September 30, 2010 versus $0.19 for the prior year period calculated using fully diluted shares outstanding of approximately 51.2 million and 41.0 million respectively. The significant increase in fully diluted weighted average shares outstanding was primarily due to the companya�s initial public offering in the fourth quarter of 2009.

Cash and cash equivalents were $19.3 million as of September 30, 2010, representing a $4.6 million increase from cash and cash equivalents of $14.7 million as of June 30, 2010. This increase is net of a $5.0 million voluntary prepayment made on the companya�s 10% senior subordinated note, reducing the outstanding principal balance to $10.0 million. In conjunction with the voluntary prepayment, the company recorded a non-cash charge of $0.4 million representing the related portion of the unamortized debt discount.

Proposed Transaction with St. Jude Medical

On October 15, 2010, St. Jude Medical, Inc. (St. Jude Medical) (NYSE: STJ) and AGA Medical entered into a definitive agreement calling for the acquisition by St. Jude Medical of all of the outstanding shares of AGA Medical for $20.80 per share in a cash and stock transaction valued at approximately $1.3 billion, including the assumption of approximately $225 million in outstanding debt. In connection with the proposed transaction, St. Jude Medical commenced an exchange offer on October 20, 2010, which is expected to be followed by a merger and to close by the end of the year.

In connection with the exchange offer, St. Jude Medical has filed with the SEC a Registration Statement on Form S-4 and a Tender Offer Statement on Schedule TO, and AGA Medical has filed a Solicitation/Recommendation Statement on Schedule 14D-9. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THESE DOCUMENTS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT ST. JUDE MEDICAL, AGA MEDICAL AND THE PROPOSED TRANSACTION. This news release is for informational purposes only and does not constitute an offer to purchase, or a solicitation of an offer to sell shares of common stock of AGA Medical in any jurisdiction where such activities would be unlawful under the relevant laws in that jurisdiction, nor is it a substitute for the Registration Statement, Schedule TO, and Schedule 14D-9.

Investors and stockholders may obtain free copies of the Registration Statement on Form S-4, the Schedule TO and Schedule 14D-9 as well as other filings containing information about St. Jude Medical and AGA Medical without charge at the SECa�s website ([ www.sec.gov ]).

A free copy of the exchange offer materials are also available on St. Jude Medicala�s website at [ www.sjm.com ] and a copy of the Schedule 14D-9 is available on AGA Medicala�s website at [ www.amplatzer.com ]. Copies of the exchange offer materials may also be obtained free of charge from Georgeson, Inc., the information agent for the exchange offer, by calling toll-free at (877) 278-4774 (brokers and bankers call, (212) 440-9800).

Statement regarding Non-GAAP Financial Measures

The following provides information regarding non-GAAP financial measures used in this earnings release:

To supplement the companya�s consolidated statement of operations presented in accordance with accounting principles generally accepted in the United States, or GAAP, the company has disclosed EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, non-GAAP adjusted net income and non-GAAP adjusted earnings per share, which are non-GAAP measures. EBITDA represents net income (loss) before interest income, interest expense, provision (benefit) for income tax, and depreciation and amortization. EBITDA margin represents EBITDA divided by total net sales. Adjusted EBITDA and adjusted EBITDA margin represent EBITDA and EBITDA margin excluding the impact of the one-time litigation settlement expense. The company presents EBITDA and EBITDA margin because it believes these measures are useful indicators of its operating performance and adjusted EBITDA and adjusted EBITDA margin to present this operating performance measure without the impact of the one-time litigation settlement expense. Non-GAAP adjusted net income and adjusted earnings per share reflects certain non-cash and non-recurring items that are itemized in the aReconciliation of Reported Results to Non-GAAP Financial Measuresa. While the company believes that these financial measures are useful in evaluating the companya�s business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, this non-GAAP financial measure may not be the same as similarly entitled measures reported by other companies. See aConsolidated Statements of Operationsa for the quarters ended September 30, 2010 and 2009 included with this release for a reconciliation of EBITDA to net income and for a presentation of net income to non-GAAP adjusted net income and non-GAAP adjusted net income per diluted share.

Use of Constant Currency

As exchange rates are an important factor in understanding period-to-period comparisons, the company believes the presentation of results on a constant currency basis in addition to reported results helps improve investorsa� ability to understand the companya�s operating results and evaluate its performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The company uses results on a constant currency basis as one measure to evaluate its performance. In this release, the company calculates constant currency by calculating current-year results using prior year foreign currency exchange rates. The company generally refers to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as presented by the company, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.

About AGA Medical

AGA Medical, based in Plymouth, Minnesota, is a leading innovator and manufacturer of medical devices for the treatment of structural heart defects and vascular abnormalities. AGA Medicala�s AMPLATZER^� occlusion devices offer minimally invasive, transcatheter treatments that have been clinically shown to be safe and highly effective in defect closure. AGA Medical is the only manufacturer with occlusion devices approved to close seven different structural heart defects, with leading market positions for each of its devices. More than 1,650 articles supporting the benefits of AMPLATZER products have been published in medical literature. AGA Medical markets its AMPLATZER products in 112 countries worldwide to interventional cardiologists, electrophysiologists, interventional radiologists and vascular surgeons. More information about the company and its products can be found at [ http://www.amplatzer.com ].

Forward-Looking Statements

This news release and any attachments may include aforward-looking statements,a within the meaning of Section27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, earnings guidance, statements regarding enrollment rates in our clinical trials, statements regarding operating performance, and any statements about the companya�s plans, strategies and prospects.These statements are based on the beliefs of our management as well as assumptions made by, and information currently available to, the company. These statements reflect the company's current views with respect to future events, are not guarantees of future performance and involve risks and uncertaintiesthat could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These factors include, among other things: failure to implement the companya�s business strategy; failure to capitalize on the companya�s expected market opportunities; lack of regulatory approval and market acceptance of the companya�s new products, product enhancements or new applications for existing products; regulatory developments in key markets for the companya�s AMPLATZER occlusion devices; failure to complete the companya�s clinical trials or failure to achieve the desired results in our clinical trials; inability to successfully commercialize the companya�s existing and future research and development programs; failure to protect the companya�s intellectual property; decreased demand for the companya�s products; product liability claims exposure; failure to otherwise comply with laws and regulations; changes in general economic and business conditions; changes in currency exchange rates and interest rates; costs and diversion of managementa�s attention relating to our proposed transaction with St. Jude Medical and unexpected delays or obstacles to completing the proposed transaction within the contemplated timeframe or at all; and other risks and uncertainties, including those detailed in the companya�s most recent Annual Report on Form 10-K, as may be updated from time to time in the companya�s periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the companya�s results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the company's filings with the Securities and Exchange Commission (which are available from the SEC's EDGAR database at [ www.sec.gov ], at various SEC reference facilities in the United States and via the company's website at [ www.amplatzer.com ]).

For more information, visit [ www.amplatzer.com ].


AGA Medical Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009


Net sales	$50,481		$50,158		$155,507		$144,540
Cost of goods sold	6,776		6,599		21,763		23,603
Gross profit	43,705		43,559		133,744		120,937

Operating expenses:
Selling, general, and administrative	23,527		25,441		73,370		71,897
Research and development	12,028		8,428		33,648		24,905
Litigation settlement	a"		a"		31,859		a"
Amortization of intangible assets	4,954		5,077		14,925		14,972
Change in purchase consideration	(937	)	(353	)	(1,090	)	(1,051	)
Loss on disposal of property and equipment	1		2		-		(23	)
Total operating expenses	39,573		38,595		152,712		110,700
Operating income (loss)	4,132		4,964		(18,968	)	10,237

Investment loss	a"		a"		a"		(2,352	)
Interest income	17		20		77		80
Interest expense	(2,768	)	(3,994	)	(7,219	)	(12,143	)
Other income (expense), net	(450	)	320		(713	)	1,595
Income (loss) before income taxes	931		1,310		(26,823	)	(2,583	)

Income tax benefit	(571	)	(879	)	(10,739	)	(573	)

Net income (loss)	1,502		2,189		(16,084	)	(2,010	)

Less Series A and B preferred stock and Class A common stock dividends	-		(4,569	)	-		(13,040	)

Net Income (loss) applicable to common stockholders	$1,502		($2,380	)	($16,084	)	($15,050	)

Net income (loss) per common share-basic	$0.03		($0.11	)	($0.32	)	($0.70	)

Net income (loss) per common share-diluted	$0.03		($0.11	)	($0.32	)	($0.70	)

Weighted average common shares-basic	50,244		21,483		50,168		21,483

Weighted average common shares- diluted	51,189		21,483		50,168		21,483

Operating Statistics:
EBITDA	$10,126		$11,747		($401	)	$28,165
EBITDA Margin	20.1	%	23.4	%	-0.3	%	19.5	%

Adjusted EBITDA	$10,126		$11,747		$31,458		$28,165
Adjusted EBITDA Margin	20.1	%	23.4	%	20.2	%	19.5	%

The following is a reconciliation of EBITDA to net income (loss) for the periods represented (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009
Net income (loss)	$1,502		$2,189		($16,084	)	($2,010	)
Interest income	(17	)	(20	)	(77	)	(80	)
Interest expense	2,768		3,994		7,219		12,143
Depreciation/amortization	6,444		6,463		19,280		18,685
Income taxes	(571	)	(879	)	(10,739	)	(573	)

EBITDA	10,126		11,747		(401	)	28,165

Litigation settlement	-		-		31,859		-
Adjusted EBITDA	$10,126		$11,747		$31,458		$28,165


AGA Medical Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

	September 30,		December 31,
	2010		2009
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$19,338		$24,470
Accounts receivable, less allowance for doubtful accounts
of $809 and $481 and discounts of $225 and $395 at
September 30, 2010 and December 31, 2009, respectively	48,888		48,730
Inventory	11,893		12,408
Prepaid expenses	1,806		1,408
Income tax receivable	7,815		2,762
Other tax receivable	-		799
Deferred tax assets, net	7,670		8,339
Total current assets	97,410		98,916
Property and equipment, net	36,581		38,669
Goodwill	84,246		85,381
Intangible assets, net	95,237		111,655
Restricted cash	8,278		3,304
Other assets, net	403		379
Deferred tax assets, net	504		-
Deferred financing costs, net	2,167		2,276
Total assets	$324,826		$340,580

Liabilities and stockholdersa� equity
Current liabilities:
Reserve for customer returns	$8,814		$9,335
Trade accounts payable	8,625		8,643
Accrued royalties	2,292		2,299
Accrued interest	1,137		1,462
Accrued wages	11,789		10,549
Short-term obligations to former distributors, less discount	3,341		7,880
Accrued expenses	4,481		5,391
Income taxes payable	297		2,913
Total current liabilities	40,776		48,472
Long-term debt, less current portion	196,963		196,963
Senior subordinated note payable, less discount of $663 and
$1,383 at September 30, 2010 and December 31, 2009,
respectively	9,337		13,617
Long-term obligations to former distributors, less discount	4,738		9,382
Deferred gain contingency	2,879		-
Long-term litigation settlement, less discount	24,914		-
Deferred tax liabilities	19,152		32,984
Accrued income taxes	2,915		2,705
Stockholdersa� equity:
Common stock, $0.01 par value:
Authorized sharesa"400,000
Issued and outstanding sharesa"50,268 at September 30, 2010
and 50,094 at December 31, 2009	503		501
Additional paid-in capital	278,654		273,309
Excess purchase price over Predecessor basis	(63,500	)	(63,500	)
Accumulated other comprehensive income	(3,057	)	(489	)
Accumulated deficit	(189,448	)	(173,364	)
Total stockholdersa� equity	23,152		36,457
Total liabilities and stockholdersa� equity	$324,826		$340,580


AGA Medical Holdings, Inc.
Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency
(dollars in thousands - unaudited)

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2010	2009	2010	2009
Net sales, as reported	$50,481	$50,158	$155,507	$144,540
Currency impact as compared to prior period	1,825	-	1,427	-
Net sales, excluding the impact of foreign currency	$52,306	$50,158	$156,934	$144,540


AGA Medical Holdings, Inc.
Reconciliation of Reported Results to Non-GAAP Financial Measures
(dollars in thousands - unaudited)

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009

Net income (loss), as reported	$1,502		$2,189		($16,084	)	($2,010	)
Pre-tax impact of reconciling items:
Amortization	4,954		5,077		14,925		14,972
Distributor inventory conversion costs	--		--		--		3,744
Litigation settlement	--		--		31,859		--
Interest accretion for litigation settlement	263		--		555		--
Litigation/non-recurring legal costs	--		4,038		--		10,514
Change in purchase consideration	(937	)	(353	)	(1,177	)	(1,051	)
Investment loss/write-off of early stage investment	--		--		--		2,352
Write-off of discount on sub-debt	356		--		356		--
Total	4,636		8,762		46,518		30,531

Total tax effect on non-GAAP adjustments¹	(1,623	)	(3,067	)	(14,897	)	(9,862	)

Net income, as adjusted	$4,515		$7,884		$15,537		$18,659

Net income, as adjusted, per
diluted share	$0.09		$0.19		$0.30		$0.46

Weighted average common shares-diluted²	51,189		40,956		51,171		40,963

Notes:
(1) The total tax effect on non-GAAP adjustments for the quarter ended September 30, 2010 was calculated using a 35% effective tax rate for all items.
(2) Weighted average common shares on a fully diluted basis for the three and nine months ended September 30, 2009 and for the nine months ended September 30, 2010 were recalculated to reflect what they would have been had the company been in a net income position.

Contributing Sources

Market Wire

N@N

AGA Medical Reports 2010 Third Quarter Financial Results