Advanced Medical Optics (EYE)

Eye Care Recall

In May 2007, we initiated a global recall of our MoisturePlus multipurpose formulation (“MoisturePlus Recall”) after being informed by the U.S. Food and Drug Administration of a higher association with Acanthamoeba keratitis. We re-entered the multipurpose market with an existing formulation and began shipping in August 2007. The recall negatively impacted sales in the third quarter due to returns of $6.3 million. We incurred approximately $24.8 million in recall-related costs, of which approximately $15.4 million was recorded in cost of goods sold, $9.3 million was recorded in selling, general and administrative expenses and $0.1 million was recorded in research and development. During the nine months ended September 28, 2007, sales returns from the recall were $37.7 million. We incurred approximately $51.8 million in recall-related costs, of which approximately $34.9 million was recorded in cost of goods sold, $16.8 million was recorded in selling, general and administrative expenses and $0.1 million was recorded in research and development.

In the fourth quarter of 2007, we expect to incur approximately $18 million in costs in connection with the MoisturePlus Recall. These costs are due to manufacturing start-up related expenses and unabsorbed overhead as production continues to ramp up in the fourth quarter of 2007, ongoing incremental administrative costs and spending on marketing programs to re-launch products and recapture market share.

In November 2006, we voluntarily recalled certain eye care product lots caused by a production-line issue at our manufacturing plant in China (“China Recall”). The China Recall negatively impacted sales in the first quarter of 2007 due to returns of $0.2 million. We also estimated approximately $16.9 million in lost sales during the first quarter as a result of the China Recall. We incurred approximately $4.5 million in China Recall costs in the first quarter of 2007, of which approximately $2.1 million was recorded in cost of goods sold, $2.1 million was recorded in selling, general and administrative expenses and $0.3 million was included in non-operating expenses.

Eye Care Recall

In May 2007, we initiated a global recall of our MoisturePlus multipurpose formulation (“MoisturePlus Recall”) after being informed by the U.S. Food and Drug Administration of a higher association with Acanthamoeba keratitis. We re-entered the multipurpose market with an existing formulation and began shipping in August 2007. The recall negatively impacted sales in the third quarter due to returns of $6.3 million. We incurred approximately $24.8 million in recall-related costs, of which approximately $15.4 million was recorded in cost of goods sold, $9.3 million was recorded in selling, general and administrative expenses and $0.1 million was recorded in research and development. During the nine months ended September 28, 2007, sales returns from the recall were $37.7 million. We incurred approximately $51.8 million in recall-related costs, of which approximately $34.9 million was recorded in cost of goods sold, $16.8 million was recorded in selling, general and administrative expenses and $0.1 million was recorded in research and development.

In the fourth quarter of 2007, we expect to incur approximately $18 million in costs in connection with the MoisturePlus Recall. These costs are due to manufacturing start-up related expenses and unabsorbed overhead as production continues to ramp up in the fourth quarter of 2007, ongoing incremental administrative costs and spending on marketing programs to re-launch products and recapture market share.

In November 2006, we voluntarily recalled certain eye care product lots caused by a production-line issue at our manufacturing plant in China (“China Recall”). The China Recall negatively impacted sales in the first quarter of 2007 due to returns of $0.2 million. We also estimated approximately $16.9 million in lost sales during the first quarter as a result of the China Recall. We incurred approximately $4.5 million in China Recall costs in the first quarter of 2007, of which approximately $2.1 million was recorded in cost of goods sold, $2.1 million was recorded in selling, general and administrative expenses and $0.3 million was included in non-operating expenses.

Eye Care Recall

In May 2007, we initiated a global recall of our MoisturePlus multipurpose formulation (“MoisturePlus Recall”) after being informed by the U.S. Food and Drug Administration of a higher association with Acanthamoeba keratitis. We plan to re-enter the multipurpose market with an existing formulation and began shipping in August 2007. The recall negatively impacted sales in the second quarter due to returns of $31.4 million. We also estimated approximately $22.5 million in lost sales during the current quarter as a result of the MoisturePlus Recall and expect to lose approximately $45 million to $65 million in sales in the remainder of 2007 based on our full year estimate of $100 million to $120 million negative impact on net sales. We incurred approximately $27.0 million in recall-related costs, of which approximately $19.5 million was recorded in cost of goods sold and $7.5 million was recorded in selling, general and administrative expenses. In the remainder of 2007, we expect to incur approximately $40 million to $45 million in costs. These costs are due to manufacturing start-up related expenses and unabsorbed overhead as production continues to ramp up in the third quarter of 2007, ongoing incremental

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administrative costs and spending on marketing programs to re-launch products and recapture market share. We expect the MoisturePlus Recall to have a negative impact of $150 million to $160 million on full year 2007 operating income.

In November 2006, we voluntarily recalled certain eye care product lots caused by a production-line issue at our manufacturing plant in China (“China Recall”). The China Recall negatively impacted sales in the first quarter of 2007 due to returns of $0.2 million. We also estimated approximately $16.9 million in lost sales during the first quarter as a result of the China Recall. We incurred approximately $4.5 million in China Recall costs in the first quarter of 2007, of which approximately $2.1 million was recorded in cost of goods sold, $2.1 million was recorded in selling, general and administrative expenses and $0.3 million was included in non-operating expenses.

Eye Care Recall

In November 2006, we announced the anticipated financial impact associated with the voluntary recall of certain eye care product lots and the related manufacturing capacity constraints caused by a production-line issue at our manufacturing plant in China. The recall negatively impacted sales in the first quarter of 2007 due to sales returns of $0.2 million. We also estimated approximately $16.9 million in lost sales during the current quarter as a result of the recall and expect to lose approximately $3 million to $7 million in sales in the remainder of 2007. We incurred approximately $4.5 million in recall-related costs, of which approximately $2.1 million was recorded in cost of goods sold, $2.1 million was recorded in selling, general and administrative expenses and $0.3 million was included in non-operating expenses. In the remainder of 2007, we expect to incur approximately $15 to $20 million in costs. These costs are due to manufacturing start-up related expenses and unabsorbed overhead as production continues to ramp up in the second quarter of 2007 and to spending on marketing programs to re-launch products and recapture market share.

Eye Care Recall

In November 2006, we announced the anticipated financial impact associated with the voluntary recall of certain eye care product lots and the related manufacturing capacity constraints caused by a production-line issue at our manufacturing plant in China.  The recall negatively impacted sales in the fourth quarter of 2006 due to sales returns of $9.5 million.  We also estimated approximately $15.0 million in lost sales in 2006 as a result of the recall.  The total of $24.5 million was slightly higher than our original estimate due to higher returns.  We incurred approximately $15.4 million in recall-related costs, of which  approximately $9.5 million was recorded in cost of goods sold and $5.9 million was recorded in selling, general and administrative expenses.  In 2007, we expect to lose approximately $20 million to $25 million in sales and incur about $20 million to $25 million in costs.  The costs are due to start-up related expenses and unabsorbed overhead as production ramps up in the first and second quarters of 2007 and to spending on marketing programs to re-launch products and recapture market share.

We commenced the voluntary recall as a result of a production-line issue at our manufacturing plant in China, which could affect the sterility of the product.  This issue was limited to two of the four production lines in the China facility.  In all, we recalled 2.9 million units, most from Asia Pacific, with about 360,000 units retrieved from Japan and the U.S.  In addition, we destroyed about 5 million units that were still in our control.

To correct the sterility issue, we temporarily closed the China plant to conduct a special cleaning and sanitization, and complete an already-planned expansion.  We began production on two of the plant’s four lines in January 2007 and expect the third also to be operational in the first quarter of 2007.  We have commenced product shipments to Japan distribution centers, and are scheduled to begin shipping to the Asia Pacific markets before the end of the first quarter of 2007.  The remaining line has been completely replaced and is being expanded to provide automated packaging capabilities that are expected to provide greater flexibility.  As per our original schedule, the fourth line is expected to be operational in the late May/early June 2007 timeframe.  Our Spain facility supplies the Americas and European markets so there have been no supply disruptions to these regions as a result of the recall.

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