Advanced Medical Optics (EYE)

Rationalization & Repositioning Initiative

AMO announced in late 2005 a plan to accelerate the scope and timing of a broad rationalization and repositioning strategy. Under this plan, AMO adopted a more aggressive timeline for discontinuing a variety of non-strategic cataract and eye care products, while eliminating or redeploying the resources to areas of greater opportunity. Concurrently, AMO began increasing its investment in higher-growth, higher-margin product lines.

The rationalization and repositioning initiative, which is now virtually complete, reduced sales in the first six months of 2006 by $21.1 million, consistent with the company’s original estimate. The company expects these lost sales to be offset by growth of its new and technologically advanced products throughout 2006.

As part of the rationalization and repositioning, the company made organization changes, including implementing initiatives designed to enhance its global manufacturing capacity, consolidate certain operations, refine R&D skills and priorities and better allocate sales and marketing resources. As a result, AMO incurred pre-tax charges in the fourth quarter of 2005 and first half of 2006 totaling approximately $100 million, including the impacts of the expanded eye care rationalization and repositioning. The company expects to incur the remaining $5 million in the second half of 2006, related primarily to the consolidation of manufacturing capabilities, and remaining eye care rationalization. In all, charges should be consistent with the company’s previous estimate of approximately $105 million.