##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 29, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000  (Registrants telephone number, including area code)
 þ o
  þ o o o
  o þ




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##### 



INDEX
 PagePART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for
the three month periods ended March 29,
2008 and March 31, 2007
    
    
    3Consolidated Balance Sheets as of
March 29, 2008 and December 29, 2007
    
    
    4Consolidated Statements of Cash Flow for
the three month periods ended March 29,
2008 and March 31, 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    23ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 4. CONTROLS AND PROCEDURES
    
    
    34PART II OTHER INFORMATIONITEM 6. EXHIBITS
    
    
    35SIGNATURES
    
    
    36EXHIBIT INDEX
    
    
    372008 Executive Officer Compensation SummaryCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
   Three Months EndedMarch 29, 2008
    
    
    March 31, 2007Net sales
    
    $
    120,362
    
    
    $
    108,385Cost of sales
    
    
    28,990
    
    
    
    26,355Gross profit
    
    
    91,372
    
    
    
    82,030Operating expensesMarketing and selling
    
    
    45,081
    
    
    
    39,430Research and development
    
    
    11,300
    
    
    
    11,150General and administrative
    
    
    10,155
    
    
    
    10,989Integration costs
    
    
    
    
    
    
    1,011Amortization of intangibles
    
    
    4,347
    
    
    
    4,704Total operating expenses
    
    
    70,883
    
    
    
    67,284Operating income
    
    
    20,489
    
    
    
    14,746Other (expense) incomeRoyalty income
    
    
    355
    
    
    
    679Interest income
    
    
    195
    
    
    
    336Interest expense
    
    
    (8,057
    )
    
    
    (9,633
    )Amortization of financing costs
    
    
    (710
    )
    
    
    (782
    )Other income
    
    
    1,345
    
    
    
    1,623Total other (expense) income
    
    
    (6,872
    )
    
    
    (7,777
    )Income from continuing operations before income taxes
    
    
    13,617
    
    
    
    6,969Provision for income taxes
    
    
    5,406
    
    
    
    2,586Net income from continuing operations
    
    
    8,211
    
    
    
    4,383Loss from discontinued operations, net of tax benefit of $0.4 million
    
    
    
    
    
    
    (691
    )Net income
    
    $
    8,211
    
    
    $
    3,692Net income (loss) per shareBasic net earnings from continuing operations
    
    $
    0.11
    
    
    $
    0.06Discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )Basic net earnings
    
    $
    0.11
    
    
    $
    0.05Diluted net earnings from continuing operations
    
    $
    0.11
    
    
    $
    0.06Discontinued operations, net of tax
    
    
    
    
    
    
    (0.01
    )Diluted net earnings
    
    $
    0.11
    
    
    $
    0.05Weighted average common shares used in calculationBasic
    
    
    72,477
    
    
    
    71,775Diluted
    
    
    73,588
    
    
    
    74,337
 The accompanying notes are an integral part of the consolidated financial statements.
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American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 March 29, 2008
    
    
    December 29, 2007(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    37,159
    
    
    $
    34,044Short term investments
    
    
    1,010
    
    
    
    1,137Accounts receivable, net
    
    
    107,480
    
    
    
    106,457Inventories, net
    
    
    55,194
    
    
    
    60,707Deferred income taxes
    
    
    12,345
    
    
    
    13,105Other current assets
    
    
    5,985
    
    
    
    9,935Total current assets
    
    
    219,173
    
    
    
    225,385Property, plant and equipment, net
    
    
    51,877
    
    
    
    53,126Goodwill
    
    
    691,610
    
    
    
    690,478Developed and core technology, net
    
    
    90,698
    
    
    
    94,452Other intangibles, net
    
    
    48,784
    
    
    
    49,337Other long-term assets, net
    
    
    2,768
    
    
    
    3,655Total assets
    
    $
    1,104,910
    
    
    $
    1,116,433Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    11,338
    
    
    $
    13,364Accrued compensation expenses
    
    
    18,539
    
    
    
    19,258Accrued warranty expense
    
    
    3,554
    
    
    
    3,001Other accrued expenses
    
    
    24,594
    
    
    
    46,464Total current liabilities
    
    
    58,025
    
    
    
    82,087Long-term debt
    
    
    661,081
    
    
    
    666,234Deferred income taxes
    
    
    24,918
    
    
    
    23,333Long-term income taxes payable
    
    
    13,566
    
    
    
    13,414Long-term employee benefit obligations
    
    
    3,175
    
    
    
    3,175Total liabilities
    
    
    760,765
    
    
    
    788,243Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 72,679,071 shares at March 29, 2008 and
72,258,512 shares at December 29, 2007
    
    
    727
    
    
    
    723Additional paid-in capital
    
    
    290,291
    
    
    
    284,751Accumulated other comprehensive income
    
    
    9,110
    
    
    
    6,910Retained earnings
    
    
    44,017
    
    
    
    35,806Total stockholders equity
    
    
    344,145
    
    
    
    328,190Total liabilities and stockholders equity
    
    $
    1,104,910
    
    
    $
    1,116,433
 The accompanying notes are an integral part of the consolidated financial statements.
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American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
 Three Months EndedMarch 29, 2008
    
    
    March 31, 2007Cash flows from operating activitiesNet income
    
    $
    8,211
    
    
    $
    3,692Loss from discontinued operations
    
    
    
    
    
    
    (691
    )Income from continuing operations
    
    
    8,211
    
    
    
    4,383Adjustments to reconcile net income from continuing operations to net cash
provided by operating activitiesDepreciation
    
    
    2,428
    
    
    
    1,884(Gain) loss on asset disposals
    
    
    38
    
    
    
    (5
    )Amortization of intangibles
    
    
    4,347
    
    
    
    4,704Amortization of deferred financing costs
    
    
    710
    
    
    
    782Non-cash impairment of available-for-sale securities
    
    
    843
    
    
    
    Excess tax benefit from excercise of stock options
    
    
    (855
    )
    
    
    (133
    )Tax benefit on exercised stock option arrangements
    
    
    867
    
    
    
    490Change in net deferred income taxes
    
    
    2,971
    
    
    
    361Stock based compensation
    
    
    2,125
    
    
    
    3,036Changes in operating assets and liabilities:Accounts receivable
    
    
    (493
    )
    
    
    (2,782
    )Inventories
    
    
    5,743
    
    
    
    (7,551
    )Accounts payable and accrued expenses
    
    
    (23,125
    )
    
    
    (15,799
    )Other assets
    
    
    3,598
    
    
    
    19,060Net cash provided by operating activities
    
    
    7,408
    
    
    
    8,430Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (1,122
    )
    
    
    (6,459
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    1,610
    
    
    
    21,675Purchase of other intangibles
    
    
    (1,052
    )
    
    
    (85
    )Purchase of short-term investments
    
    
    (28
    )
    
    
    (18
    )Sale of short-term investments
    
    
    34
    
    
    
    10Net cash (used in) provided by investing activities
    
    
    (558
    )
    
    
    14,342Cash flows from financing activitiesIssuance of common stock
    
    
    2,425
    
    
    
    7,740Excess tax benefit from exercise of stock options
    
    
    855
    
    
    
    133Payments on long-term debt
    
    
    (5,793
    )
    
    
    (21,377
    )Proceeds from short-term borrowings
    
    
    12,000
    
    
    
    Repayments of short-term borrowings
    
    
    (12,000
    )
    
    
    Net cash used in financing activities
    
    
    (2,513
    )
    
    
    (13,504
    )Cash provided by continuing operations
    
    
    4,337
    
    
    
    9,268Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )Cash used in discontinued operations
    
    
    
    
    
    
    (691
    )Effect of currency exchange rates on cash
    
    
    (1,222
    )
    
    
    71Net increase in cash and cash equivalents
    
    
    3,115
    
    
    
    8,648Cash and cash equivalents at beginning of period
    
    
    34,044
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    37,159
    
    
    $
    37,699Supplemental disclosureCash paid for interest
    
    $
    13,684
    
    
    $
    13,533Cash paid (refunded) for taxes
    
    $
    839
    
    
    $
    (11,998
    )Stock issued to settle contingent liabilities under InnovaQuartz purchase agreement
    
    $
    
    
    
    $
    7,371
 The accompanying notes are an integral part of the consolidated financial statements.
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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. Basis of Presentation
     NOTE 2. Discontinued Operations and Sale of Aesthetics Business
    Accounting for Certain Investments in Debt and Equity Securities,
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Accounting for the Impairment or Disposal of Long-Lived Assets
 Period fromDecember 31, 2006(in thousands)
    
    to January 16, 2007Net sales
    
    $
    515Loss from discontinued operations before income taxes
    
    
    (1,075
    )Income tax benefit
    
    
    384Loss from discontinued operations, net of taxes
    
    $
    (691
    )
 Allocation of Interest to Discontinued Operations
 Applying the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to
Report Discontinued Operations
 NOTE 3. Restructuring Costs
   7




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Recognition
of Liabilities in Connection with a Purchase Business Combination
  Restructuring
    
    
    
    
    
    
    RestructuringLiability as of
    
    
    Cash Payments /
    
    
    Liability as of(in thousands)
    
    December 29, 2007
    
    
    Settlements
    
    
    March 29, 2008Severance and benefits
    
    $
    216
    
    
    $
    (155
    )
    
    $
    61Contract terminations and other
    
    
    3,904
    
    
    
    (1,222
    )
    
    
    2,682Total restructuring
    
    $
    4,120
    
    
    $
    (1,377
    )
    
    $
    2,743
 Integration Costs
  NOTE 4. Stock-Based Compensation
  Three Months Ended(in thousands)
    
    March 29, 2008
    
    
    March 31, 2007Cost of sales
    
    $
    357
    
    
    $
    664Marketing and selling
    
    
    844
    
    
    
    1,148Research and development
    
    
    558
    
    
    
    787General and administrative
    
    
    366
    
    
    
    437Total stock-based compensation expense
    
    $
    2,125
    
    
    $
    3,036
    Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at December 29, 2007
    
    
    7,587,892
    
    
    $
    14.82Granted
    
    
    574,825
    
    
    
    14.40Exercised
    
    
    (321,293
    )
    
    
    5.36Cancelled or expired
    
    
    (335,454
    )
    
    
    19.54Balance at March 29, 2008
    
    
    7,505,970
    
    
    $
    14.98
    
    
    $
    14,934Options exercisable at March 29, 2008
    
    
    4,703,527
    
    
    $
    13.34
    
    
    $
    14,703
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NOTE 5. Earnings per Share
  Three Months Ended(in thousands, except per share data)
    
    March 29, 2008
    
    
    March 31, 2007Net income from continuing operations
    
    $
    8,211
    
    
    $
    4,383Weighted-average shares outstanding for basic net income per share
    
    
    72,477
    
    
    
    71,775Dilutive effect of stock options and restricted shares
    
    
    1,111
    
    
    
    1,688Dilutive effect of Convertible Notes
    
    
    
    
    
    
    874Adjusted weighted-average shares outstanding for diluted net income per share
    
    
    73,588
    
    
    
    74,337Net income per shareBasic net earnings from continuing operations
    
    $
    0.11
    
    
    $
    0.06Diluted net earnings from continuing operations
    
    $
    0.11
    
    
    $
    0.06
  NOTE 6. Inventories
  (in thousands)
    
    March 29, 2008
    
    December 29, 2007Raw materials
    
    $
    16,970
    
    
    $
    21,335Work in process
    
    
    7,014
    
    
    
    7,587Finished goods
    
    
    34,991
    
    
    
    34,673Obsolescence reserve
    
    
    (3,781
    )
    
    
    (2,888
    )Net inventories
    
    $
    55,194
    
    
    $
    60,707
 NOTE 7. Warranties
   Three Months Ended(in thousands)
    
    March 29, 2008
    
    
    March 31, 2007Balance, beginning of period
    
    $
    3,001
    
    
    $
    2,715Provisions for warranty
    
    
    2,137
    
    
    
    873Claims processed
    
    
    (1,584
    )
    
    
    (689
    )Balance, end of period
    
    $
    3,554
    
    
    $
    2,899
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NOTE 8. Comprehensive Income
  Three Months Ended(in thousands)
    
    March 29, 2008
    
    March 31, 2007Net income
    
    $
    8,211
    
    
    $
    3,692Foreign currency translation gain, net of taxes
    
    
    1,984
    
    
    
    628Recognition of previously unrealized losses on
available-for-sale securities, net of taxes
    
    
    433
    
    
    
    Unrecognized loss on interest rate swap, net of taxes
    
    
    (217
    )
    
    
    Comprehensive income
    
    $
    10,411
    
    
    $
    4,320
 NOTE 9. Goodwill and Intangible Assets
  Three Months Ended(in thousands)
    
    March 29, 2008Goodwill, beginning of the period
    
    $
    690,478Effect of currency translation
    
    
    1,132Goodwill, end of the period
    
    $
    691,610
  March 29, 2008
    
    
    December 29, 2007Gross carrying
    
    
    Accumulated
    
    
    Net book
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Net book(in thousands)
    
    amount
    
    
    amortization
    
    
    value
    
    
    amount
    
    
    amortization
    
    
    valueDeveloped and core technology
    
    $
    137,553
    
    
    $
    (46,855
    )
    
    $
    90,698
    
    
    $
    137,553
    
    
    $
    (43,101
    )
    
    $
    94,452Other intangiblesAmortizedPatents
    
    
    11,325
    
    
    
    (9,045
    )
    
    
    2,280
    
    
    
    11,325
    
    
    
    (8,964
    )
    
    
    2,361Licenses
    
    
    9,198
    
    
    
    (6,813
    )
    
    
    2,385
    
    
    
    9,158
    
    
    
    (6,507
    )
    
    
    2,651Royalty agreement
    
    
    2,970
    
    
    
    (862
    )
    
    
    2,108
    
    
    
    2,970
    
    
    
    (767
    )
    
    
    2,203Trademarks
    
    
    2,208
    
    
    
    (997
    )
    
    
    1,211
    
    
    
    2,208
    
    
    
    (886
    )
    
    
    1,322Total amortized other
intangible assets
    
    
    25,701
    
    
    
    (17,717
    )
    
    
    7,984
    
    
    
    25,661
    
    
    
    (17,124
    )
    
    
    8,537UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    66,501
    
    
    
    (17,717
    )
    
    
    48,784
    
    
    
    66,461
    
    
    
    (17,124
    )
    
    
    49,337Total intangible assets
    
    $
    204,054
    
    
    $
    (64,572
    )
    
    $
    139,482
    
    
    $
    204,014
    
    
    $
    (60,225
    )
    
    $
    143,789
 Three Months Ended(in thousands)
    
    March 29, 2008
    
    March 31, 2007Amortization expense
    
    $
    4,347
    
    
    $
    4,704
  NOTE 10. Litigation Settlements
  10




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Her Option
 NOTE 11. Debt
 Senior Secured Credit Facility
  Note 10,
Litigation Settlements
    11




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Amendment of Credit Facility
  Convertible Senior Subordinated Notes; Supplemental Guarantor Information
    12




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American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended March 29, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    109,792
    
    
    $
    27,738
    
    
    $
    (17,168
    )
    
    $
    120,362Cost of sales
    
    
    
    
    
    
    28,696
    
    
    
    17,000
    
    
    
    (16,706
    )
    
    
    28,990Gross profit
    
    
    
    
    
    
    81,096
    
    
    
    10,738
    
    
    
    (462
    )
    
    
    91,372Operating expensesMarketing and selling
    
    
    
    
    
    
    33,947
    
    
    
    11,134
    
    
    
    
    
    
    
    45,081Research and development
    
    
    
    
    
    
    11,300
    
    
    
    
    
    
    
    
    
    
    
    11,300General and administrative
    
    
    
    
    
    
    10,154
    
    
    
    1
    
    
    
    
    
    
    
    10,155Amortization of intangibles
    
    
    
    
    
    
    3,477
    
    
    
    870
    
    
    
    
    
    
    
    4,347Total operating expenses
    
    
    
    
    
    
    58,878
    
    
    
    12,005
    
    
    
    
    
    
    
    70,883Operating income
    
    
    
    
    
    
    22,218
    
    
    
    (1,267
    )
    
    
    (462
    )
    
    
    20,489Other (expense) incomeRoyalty income
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355Interest income
    
    
    
    
    
    
    809
    
    
    
    12
    
    
    
    (626
    )
    
    
    195Interest expense
    
    
    (3,037
    )
    
    
    (5,015
    )
    
    
    (631
    )
    
    
    626
    
    
    
    (8,057
    )Amortization of financing costs
    
    
    (104
    )
    
    
    (606
    )
    
    
    
    
    
    
    
    
    
    
    (710
    )Other income (expense)
    
    
    
    
    
    
    1,297
    
    
    
    14
    
    
    
    34
    
    
    
    1,345Total other (expense) income
    
    
    (3,141
    )
    
    
    (3,160
    )
    
    
    (605
    )
    
    
    34
    
    
    
    (6,872
    )(Loss) income before income taxes
    
    
    (3,141
    )
    
    
    19,058
    
    
    
    (1,872
    )
    
    
    (428
    )
    
    
    13,617Provision for income taxes
    
    
    (1,147
    )
    
    
    7,393
    
    
    
    (684
    )
    
    
    (156
    )
    
    
    5,406Equity in earnings of subsidiary
    
    
    10,477
    
    
    
    (1,188
    )
    
    
    
    
    
    
    (9,289
    )
    
    
    Net income (loss)
    
    $
    8,483
    
    
    $
    10,477
    
    
    $
    (1,188
    )
    
    $
    (9,561
    )
    
    $
    8,211
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American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended March 31, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    99,276
    
    
    $
    22,612
    
    
    $
    (13,503
    )
    
    $
    108,385Cost of sales
    
    
    
    
    
    
    25,202
    
    
    
    14,030
    
    
    
    (12,877
    )
    
    
    26,355Gross profit
    
    
    
    
    
    
    74,074
    
    
    
    8,582
    
    
    
    (626
    )
    
    
    82,030Operating expensesMarketing and selling
    
    
    
    
    
    
    31,447
    
    
    
    7,983
    
    
    
    
    
    
    
    39,430Research and development
    
    
    
    
    
    
    11,150
    
    
    
    
    
    
    
    
    
    
    
    11,150General and administrative
    
    
    
    
    
    
    10,950
    
    
    
    39
    
    
    
    
    
    
    
    10,989Integration costs
    
    
    
    
    
    
    1,011
    
    
    
    
    
    
    
    
    
    
    
    1,011Amortization of intangibles
    
    
    
    
    
    
    3,834
    
    
    
    870
    
    
    
    
    
    
    
    4,704Total operating expenses
    
    
    
    
    
    
    58,392
    
    
    
    8,892
    
    
    
    
    
    
    
    67,284Operating income (loss)
    
    
    
    
    
    
    15,682
    
    
    
    (310
    )
    
    
    (626
    )
    
    
    14,746Other (expense) incomeRoyalty income
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    679Interest income
    
    
    
    
    
    
    326
    
    
    
    10
    
    
    
    
    
    
    
    336Interest expense
    
    
    (3,022
    )
    
    
    (6,464
    )
    
    
    (147
    )
    
    
    
    
    
    
    (9,633
    )Amortization of financing costs
    
    
    (103
    )
    
    
    (679
    )
    
    
    
    
    
    
    
    
    
    
    (782
    )Other income (expense)
    
    
    
    
    
    
    1,714
    
    
    
    (83
    )
    
    
    (8
    )
    
    
    1,623Total other (expense) income
    
    
    (3,125
    )
    
    
    (4,424
    )
    
    
    (220
    )
    
    
    (8
    )
    
    
    (7,777
    )(Loss) income from continuing operations
before income taxes
    
    
    (3,125
    )
    
    
    11,258
    
    
    
    (530
    )
    
    
    (634
    )
    
    
    6,969Provision for income taxes
    
    
    (1,159
    )
    
    
    4,177
    
    
    
    (197
    )
    
    
    (235
    )
    
    
    2,586Net (loss) income from continuing operations
    
    
    (1,966
    )
    
    
    7,081
    
    
    
    (333
    )
    
    
    (399
    )
    
    
    4,383Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Equity in earnings (loss) of subsidiary
    
    
    6,057
    
    
    
    (333
    )
    
    
    
    
    
    
    (5,724
    )
    
    
    Net income (loss)
    
    $
    4,091
    
    
    $
    6,057
    
    
    $
    (333
    )
    
    $
    (6,123
    )
    
    $
    3,692
 15




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of March 29, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    32
    
    
    $
    29,149
    
    
    $
    7,978
    
    
    $
    
    
    
    $
    37,159Short term investments
    
    
    
    
    
    
    638
    
    
    
    372
    
    
    
    
    
    
    
    1,010Accounts receivable, net
    
    
    637,618
    
    
    
    70,496
    
    
    
    36,860
    
    
    
    (637,494
    )
    
    
    107,480Inventories, net
    
    
    
    
    
    
    53,027
    
    
    
    7,884
    
    
    
    (5,717
    )
    
    
    55,194Deferred income taxes
    
    
    
    
    
    
    11,671
    
    
    
    674
    
    
    
    
    
    
    
    12,345Other current assets
    
    
    
    
    
    
    4,637
    
    
    
    1,348
    
    
    
    
    
    
    
    5,985Total current assets
    
    
    637,650
    
    
    
    169,618
    
    
    
    55,116
    
    
    
    (643,211
    )
    
    
    219,173Property, plant and equipment, net
    
    
    
    
    
    
    50,370
    
    
    
    1,507
    
    
    
    
    
    
    
    51,877Goodwill
    
    
    
    
    
    
    627,813
    
    
    
    87,818
    
    
    
    (24,021
    )
    
    
    691,610Developed and core technology, net
    
    
    
    
    
    
    71,194
    
    
    
    19,504
    
    
    
    
    
    
    
    90,698Other intangibles, net
    
    
    
    
    
    
    46,676
    
    
    
    2,108
    
    
    
    
    
    
    
    48,784Investment in subsidiaries
    
    
    91,712
    
    
    
    19,175
    
    
    
    
    
    
    
    (110,887
    )
    
    
    Other long-term assets, net
    
    
    1,335
    
    
    
    1,320
    
    
    
    113
    
    
    
    
    
    
    
    2,768Total assets
    
    $
    730,697
    
    
    $
    986,166
    
    
    $
    166,166
    
    
    $
    (778,119
    )
    
    $
    1,104,910Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    20,386
    
    
    $
    524,173
    
    
    $
    112,200
    
    
    $
    (645,421
    )
    
    $
    11,338Accrued compensation expenses
    
    
    
    
    
    
    16,006
    
    
    
    2,533
    
    
    
    
    
    
    
    18,539Accrued warranty expense
    
    
    
    
    
    
    3,583
    
    
    
    (29
    )
    
    
    
    
    
    
    3,554Other accrued expenses
    
    
    2,969
    
    
    
    18,702
    
    
    
    2,923
    
    
    
    
    
    
    
    24,594Total current liabilities
    
    
    23,355
    
    
    
    562,464
    
    
    
    117,627
    
    
    
    (645,421
    )
    
    
    58,025Non-current liabilitiesLong-term debt
    
    
    363,197
    
    
    
    297,884
    
    
    
    
    
    
    
    
    
    
    
    661,081Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    21,811
    
    
    
    (21,811
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    17,365
    
    
    
    7,553
    
    
    
    
    
    
    
    24,918Long-term income taxes payable
    
    
    
    
    
    
    13,566
    
    
    
    
    
    
    
    
    
    
    
    13,566Long-term employee benefit obligations
    
    
    
    
    
    
    3,175
    
    
    
    
    
    
    
    
    
    
    
    3,175Total non-current liabilities
    
    
    363,197
    
    
    
    331,990
    
    
    
    29,364
    
    
    
    (21,811
    )
    
    
    702,740Total liabilities
    
    
    386,552
    
    
    
    894,454
    
    
    
    146,991
    
    
    
    (667,232
    )
    
    
    760,765Stockholders equityCommon stock
    
    
    727
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    727Additional paid-in capital
    
    
    290,291
    
    
    
    3,424
    
    
    
    67,349
    
    
    
    (70,773
    )
    
    
    290,291Accumulated other comprehensive income
    
    
    9,110
    
    
    
    1,159
    
    
    
    8,847
    
    
    
    (10,006
    )
    
    
    9,110Retained earnings (deficit)
    
    
    44,017
    
    
    
    87,129
    
    
    
    (57,030
    )
    
    
    (30,099
    )
    
    
    44,017Total stockholders equity
    
    
    344,145
    
    
    
    91,712
    
    
    
    19,175
    
    
    
    (110,887
    )
    
    
    344,145Total liabilities and stockholders equity
    
    $
    730,697
    
    
    $
    986,166
    
    
    $
    166,166
    
    
    $
    (778,119
    )
    
    $
    1,104,910
 16




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    32
    
    
    $
    21,671
    
    
    $
    12,341
    
    
    $
    
    
    
    $
    34,044Short term investments
    
    
    
    
    
    
    792
    
    
    
    345
    
    
    
    
    
    
    
    1,137Accounts receivable, net
    
    
    637,000
    
    
    
    72,207
    
    
    
    34,094
    
    
    
    (636,844
    )
    
    
    106,457Inventories, net
    
    
    
    
    
    
    58,545
    
    
    
    7,314
    
    
    
    (5,152
    )
    
    
    60,707Deferred income taxes
    
    
    
    
    
    
    12,522
    
    
    
    583
    
    
    
    
    
    
    
    13,105Other current assets
    
    
    
    
    
    
    8,062
    
    
    
    1,873
    
    
    
    
    
    
    
    9,935Total current assets
    
    
    637,032
    
    
    
    173,799
    
    
    
    56,550
    
    
    
    (641,996
    )
    
    
    225,385Property, plant and equipment, net
    
    
    
    
    
    
    51,623
    
    
    
    1,503
    
    
    
    
    
    
    
    53,126Goodwill
    
    
    
    
    
    
    627,813
    
    
    
    86,686
    
    
    
    (24,021
    )
    
    
    690,478Developed and core technology, net
    
    
    
    
    
    
    74,173
    
    
    
    20,279
    
    
    
    
    
    
    
    94,452Other intangibles, net
    
    
    
    
    
    
    47,134
    
    
    
    2,203
    
    
    
    
    
    
    
    49,337Investment in subsidiaries
    
    
    80,318
    
    
    
    27,312
    
    
    
    
    
    
    
    (107,630
    )
    
    
    Other long-term assets, net
    
    
    1,346
    
    
    
    2,199
    
    
    
    110
    
    
    
    
    
    
    
    3,655Total assets
    
    $
    718,696
    
    
    $
    1,004,053
    
    
    $
    167,331
    
    
    $
    (773,647
    )
    
    $
    1,116,433Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    21,397
    
    
    $
    531,104
    
    
    $
    106,050
    
    
    $
    (645,187
    )
    
    $
    13,364Accrued compensation expenses
    
    
    
    
    
    
    16,419
    
    
    
    2,839
    
    
    
    
    
    
    
    19,258Accrued warranty expense
    
    
    
    
    
    
    3,001
    
    
    
    
    
    
    
    
    
    
    
    3,001Other accrued expenses
    
    
    6,005
    
    
    
    37,677
    
    
    
    2,782
    
    
    
    
    
    
    
    46,464Total current liabilities
    
    
    27,402
    
    
    
    588,201
    
    
    
    111,671
    
    
    
    (645,187
    )
    
    
    82,087Non-current liabilitiesLong term debt
    
    
    363,104
    
    
    
    303,130
    
    
    
    
    
    
    
    
    
    
    
    666,234Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    20,830
    
    
    
    (20,830
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    15,815
    
    
    
    7,518
    
    
    
    
    
    
    
    23,333Long-term income taxes payable
    
    
    
    
    
    
    13,414
    
    
    
    
    
    
    
    
    
    
    
    13,414Long-term employee benefit obligations
    
    
    
    
    
    
    3,175
    
    
    
    
    
    
    
    
    
    
    
    3,175Total non-current liabilities
    
    
    363,104
    
    
    
    335,534
    
    
    
    28,348
    
    
    
    (20,830
    )
    
    
    706,156Total liabilities
    
    
    390,506
    
    
    
    923,735
    
    
    
    140,019
    
    
    
    (666,017
    )
    
    
    788,243Stockholders equityCommon stock
    
    
    723
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    723Additional paid-in capital
    
    
    284,751
    
    
    
    3,424
    
    
    
    75,683
    
    
    
    (79,107
    )
    
    
    284,751Accumulated other comprehensive income
    
    
    6,910
    
    
    
    242
    
    
    
    7,462
    
    
    
    (7,704
    )
    
    
    6,910Retained earnings (deficit)
    
    
    35,806
    
    
    
    76,652
    
    
    
    (55,842
    )
    
    
    (20,810
    )
    
    
    35,806Total stockholders equity
    
    
    328,190
    
    
    
    80,318
    
    
    
    27,312
    
    
    
    (107,630
    )
    
    
    328,190Total liabilities and stockholders equity
    
    $
    718,696
    
    
    $
    1,004,053
    
    
    $
    167,331
    
    
    $
    (773,647
    )
    
    $
    1,116,433
 17




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended March 29, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (3,280
    )
    
    $
    5,933
    
    
    $
    4,755
    
    
    $
    
    
    
    $
    7,408Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (1,080
    )
    
    
    (42
    )
    
    
    
    
    
    
    (1,122
    )Disposal of business
    
    
    
    
    
    
    1,610
    
    
    
    
    
    
    
    
    
    
    
    1,610Purchase of other intangibles
    
    
    
    
    
    
    (1,052
    )
    
    
    
    
    
    
    
    
    
    
    (1,052
    )Purchase of short-term investments
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (28
    )Sale of short-term investments
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Net cash used in investing activities
    
    
    
    
    
    
    (516
    )
    
    
    (42
    )
    
    
    
    
    
    
    (558
    )Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    7,854
    
    
    
    (7,854
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    2,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,425Excess tax benefit from exercise of stock options
    
    
    855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    855Payments on long-term debt
    
    
    
    
    
    
    (5,793
    )
    
    
    
    
    
    
    
    
    
    
    (5,793
    )Proceeds from short-term borrowings
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    12,000Repayments of short-term borrowings
    
    
    
    
    
    
    (12,000
    )
    
    
    
    
    
    
    
    
    
    
    (12,000
    )Net cash provided by (used in) financing activities
    
    
    3,280
    
    
    
    2,061
    
    
    
    (7,854
    )
    
    
    
    
    
    
    (2,513
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    
    
    
    
    (1,222
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    7,478
    
    
    
    (4,363
    )
    
    
    
    
    
    
    3,115Cash and cash equivalents at beginning of period
    
    
    32
    
    
    
    21,671
    
    
    
    12,341
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    32
    
    
    $
    29,149
    
    
    $
    7,978
    
    
    $
    
    
    
    $
    37,159
 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended March 31, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating
activities
    
    $
    (7,661
    )
    
    $
    12,629
    
    
    $
    3,462
    
    
    $
    
    
    
    $
    8,430Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (6,015
    )
    
    
    (444
    )
    
    
    
    
    
    
    (6,459
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    
    
    
    
    21,675
    
    
    
    
    
    
    
    
    
    
    
    21,675Purchase of other intangibles
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    (85
    )Purchase of short-term investments
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    15,557
    
    
    
    (1,215
    )
    
    
    
    
    
    
    14,342Cash flows from financing activitiesIssuance of common stock
    
    
    7,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,740Excess tax benefit from exercise of stock options
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Payments on long-term debt
    
    
    
    
    
    
    (21,377
    )
    
    
    
    
    
    
    
    
    
    
    (21,377
    )Net cash provided by (used in) financing
activities
    
    
    7,873
    
    
    
    (21,377
    )
    
    
    
    
    
    
    
    
    
    
    (13,504
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Net increase in cash and cash equivalents
    
    
    212
    
    
    
    6,118
    
    
    
    2,318
    
    
    
    
    
    
    
    8,648Cash and cash equivalents at beginning of period
    
    
    1,138
    
    
    
    22,905
    
    
    
    5,008
    
    
    
    
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    1,350
    
    
    $
    29,023
    
    
    $
    7,326
    
    
    $
    
    
    
    $
    37,699
 19




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##### Table of Contents



NOTE 12. Fair Value Measurements and Derivative Financial Instruments
 Fair Value Measurements,
  Level 1
 Level 2
 
    
    Quoted prices for similar assets or liabilities in active markets;
    
    Quoted prices for identical or similar assets or liabilities in non-active markets;
    
    Inputs other than quoted prices that are observable for substantially the full term of
the asset or liability; and
    
    Inputs that are derived principally from or corroborated by observable market data for
substantially the full term of the asset or liability.
 Level 3
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDescription
    
    Identical Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)Assets:Available-for-sale securities
    
    $
    356
    
    
    $
    
    
    
    $
    Liabilities:Derivatives
    
    $
    
    
    
    $
    348
    
    
    $
    
 Note 2 Discontinued Operations and Sale of Aesthetics Business
  Accounting for Derivative Instruments and Hedging
Activity
 20




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##### Table of Contents



NOTE 13. Industry Segment Information and Foreign Operations
 Note 2, Discontinued Operations and Sale of Aesthetics Business)
   Three Months Ended(in thousands)
    
    March 29, 2008
    
    March 31, 2007United StatesNet sales
    
    $
    84,393
    
    
    $
    78,940Long-lived assets
    
    
    867,190
    
    
    
    875,159InternationalNet sales
    
    
    35,969
    
    
    
    29,445Long-lived assets
    
    
    19,304
    
    
    
    16,310
 NOTE 14. Recently Adopted Accounting Pronouncements and New Accounting Pronouncements
 Fair Value Measurements The Effective Date of FASB Statement No. 157 Note 12, Fair Value Measurements and Derivative Financial
Instruments,
 21




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##### Table of Contents



Accounting for Nonrefundable
Advance Payments for Goods or Services Received for Use in Future Research and Development
Activities.
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
 22




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements not of historical fact may be considered forward-looking statements.
Written words such as may, expect, believe, anticipate, or estimate, or other variations
of these or similar words, identify such forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may differ materially from
those expressed in such forward-looking statements as a result of many factors, including, but not
limited to, those included on our Form 10-K , Part I, Item 1A for the year ended December 29, 2007.
We undertake no obligation to correct or update any forward-looking statements, whether as a result
of new information, future events, or otherwise. You are advised, however, to consult any future
disclosures we make on related subjects in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Overview
  www.AmericanMedicalSystems.com.
 23




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##### Table of Contents



Results of Operations
  Three Months Ended(in thousands)
    
    March 29, 2008
    
    March 31, 2007
    
    $ Increase
    
    % IncreaseSalesMens health
    
    $
    83,608
    
    
    $
    73,671
    
    
    $
    9,937
    
    
    
    13.5
    %Womens health
    
    
    36,754
    
    
    
    34,714
    
    
    
    2,040
    
    
    
    5.9
    %Total
    
    $
    120,362
    
    
    $
    108,385
    
    
    $
    11,977
    
    
    
    11.1
    %GeographyUnited States
    
    $
    84,393
    
    
    $
    78,940
    
    
    $
    5,453
    
    
    
    6.9
    %International
    
    
    35,969
    
    
    
    29,445
    
    
    
    6,524
    
    
    
    22.2
    %Total
    
    $
    120,362
    
    
    $
    108,385
    
    
    $
    11,977
    
    
    
    11.1
    %
 Three Months EndedMarch 29, 2008
    
    March 31, 2007Percent of total salesMens health
    
    
    69.5
    %
    
    
    68.0
    %Womens health
    
    
    30.5
    %
    
    
    32.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    70.1
    %
    
    
    72.8
    %International
    
    
    29.9
    %
    
    
    27.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 24




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##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    March 29, 2008
    
    March 31, 2007
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    120,362
    
    
    $
    108,385
    
    
    $
    11,977
    
    
    
    11.1
    %Cost of sales
    
    
    28,990
    
    
    
    26,355
    
    
    
    2,635
    
    
    
    10.0
    %Gross profit
    
    
    91,372
    
    
    
    82,030
    
    
    
    9,342
    
    
    
    11.4
    %Operating expensesMarketing and selling
    
    
    45,081
    
    
    
    39,430
    
    
    
    5,651
    
    
    
    14.3
    %Research and development
    
    
    11,300
    
    
    
    11,150
    
    
    
    150
    
    
    
    1.3
    %General and administrative
    
    
    10,155
    
    
    
    10,989
    
    
    
    (834
    )
    
    
    -7.6
    %Integration costs
    
    
    
    
    
    
    1,011
    
    
    
    (1,011
    )
    
    
    n/aAmortization of intangibles
    
    
    4,347
    
    
    
    4,704
    
    
    
    (357
    )
    
    
    -7.6
    %Total operating expenses
    
    
    70,883
    
    
    
    67,284
    
    
    
    3,599
    
    
    
    5.3
    %Operating income
    
    
    20,489
    
    
    
    14,746
    
    
    
    5,743
    
    
    
    38.9
    %Royalty income
    
    
    355
    
    
    
    679
    
    
    
    (324
    )
    
    
    -47.7
    %Interest income
    
    
    195
    
    
    
    336
    
    
    
    (141
    )
    
    
    -42.0
    %Interest expense
    
    
    (8,057
    )
    
    
    (9,633
    )
    
    
    (1,576
    )
    
    
    -16.4
    %Amortization of financing costs
    
    
    (710
    )
    
    
    (782
    )
    
    
    (72
    )
    
    
    -9.2
    %Other income
    
    
    1,345
    
    
    
    1,623
    
    
    
    (278
    )
    
    
    -17.1
    %Income from continuing operations before income taxes
    
    
    13,617
    
    
    
    6,969
    
    
    
    6,648
    
    
    
    95.4
    %Provision for income taxes
    
    
    5,406
    
    
    
    2,586
    
    
    
    2,820
    
    
    
    109.0
    %Income from continuing operations
    
    
    8,211
    
    
    
    4,383
    
    
    
    3,828
    
    
    
    87.3
    %Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    (691
    )
    
    
    n/aNet income
    
    $
    8,211
    
    
    $
    3,692
    
    
    $
    4,519
    
    
    
    122.4
    %
 Percent of SalesFor the Three Months EndedMarch 29, 2008
    
    March 31, 2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    24.1
    %
    
    
    24.3
    %Gross profit
    
    
    75.9
    %
    
    
    75.7
    %Operating expensesMarketing and selling
    
    
    37.5
    %
    
    
    36.4
    %Research and development
    
    
    9.4
    %
    
    
    10.3
    %General and administrative
    
    
    8.4
    %
    
    
    10.1
    %Integration costs
    
    
    n/a
    
    
    
    0.9
    %Amortization of intangibles
    
    
    3.6
    %
    
    
    4.3
    %Total operating expenses
    
    
    58.9
    %
    
    
    62.1
    %Operating income
    
    
    17.0
    %
    
    
    13.6
    %Royalty income
    
    
    0.3
    %
    
    
    0.6
    %Interest income
    
    
    0.2
    %
    
    
    0.3
    %Interest expense
    
    
    -6.7
    %
    
    
    -8.9
    %Amortization of financing costs
    
    
    -0.6
    %
    
    
    -0.7
    %Other income
    
    
    1.1
    %
    
    
    1.5
    %Income from continuing operations before income taxes
    
    
    11.3
    %
    
    
    6.4
    %Provision for income taxes
    
    
    4.5
    %
    
    
    2.4
    %Income from continuing operations
    
    
    6.8
    %
    
    
    4.0
    %Loss from discontinued operations, net of tax
    
    
    n/a
    
    
    
    -0.6
    %Net income
    
    
    6.8
    %
    
    
    3.4
    %
 25




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##### Table of Contents



Comparison of the Three Months Ended March 29, 2008 to the Three Months Ended March 31, 2007
 Net sales. MiniArc Single-Incision Sling InhibiZone ® AMS ® 800 AdVance ® AMS 700 ® MS
 Net sales mens health products. AdVance ® , AMS 800 ® AMS 800 ® InhibiZone ® AMS 700 ® MS AMS 700 ® LGX TherMatrx ®
 Net sales womens health products. MiniArc Apogee ® Perigee ® Her
Option ®
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development. GreenLight High-Performance System (HPS)
 26




---



##### Table of Contents



In-process research and development.
     General and administrative.
 Integration costs
 Amortization of intangibles.
 Royalty income.
 Interest income.
 Interest expense.
 27




---



##### Table of Contents



Amortization of financing costs.
 Other income Notes to
Consolidated Financial Statements  No. 2, Discontinued Operations and Sale of Aesthetics
Business
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities. Notes to Consolidated Financial Statements -
No. 10, Litigation Settlements
 Cash flows from investing activities. Notes to
Consolidated Financial Statements  No. 2, Discontinued Operations and Sale of Aesthetics
Business
 Cash flows from financing activities.
  28




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##### Table of Contents



The number of shares issued uponIf the market price of our stock is:
    
    full conversion would be (1):$
    25.00
    
    
    4.3   million$
    30.00
    
    
    6.8   million$
    35.00
    
    
    8.6   million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as follows: 
     29




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##### Table of Contents



The number of common share equivalentsIf the average market
    
    potentially included in the computation of
    
    Percentprice of our stock is:
    
    diluted EPS would be (1):
    
    Dilution (2)$
19.00
    
    
    
    
    (anti-dilutive)
    
    
    0.0
    %$
25.00
    
    
    4.3
    
    million
    
    
    5.6
    %$
30.00
    
    
    6.8
    
    million
    
    
    8.6
    %$
35.00
    
    
    8.6
    
    million
    
    
    10.6
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method, in accordance with
EITF 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.(2)
    
    The percent dilution is based on 72,679,071 outstanding shares as of March 29, 2008.   Notes to Consolidated Financial Statements  No. 10, Litigation
Settlements
   30




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##### Table of Contents



For The Fiscal
    
    AmendedFinancial
    
    Periods Ending
    
    RequiredCovenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    3/31/08
    
    5.25:1.00 (maximum)6/30/08
    
    5.00:1.009/30/08
    
    4.75:1.0012/31/08
    
    4.50:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    3/31/08
    
    2.50:1.00 (maximum)6/30/08
    
    2.50:1.009/30/08
    
    2.50:1.0012/31/08
    
    2.25:1.00Reductions continuing until 3/31/09
    
    2.00:1.00Interest Coverage Ratio
    
    3/31/08
    
    3.25:1.00 (minimum)6/30/08
    
    3.50:1.009/30/08
    
    3.50:1.0012/31/08
    
    3.75:1.00Increases continuing until 9/30/09
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    3/31/08
    
    1.25:1.00 (minimum)6/30/08
    
    1.25:1.009/30/08
    
    1.40:1.0012/31/08
    
    1.40:1.00Increases continuing until 3/31/09
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/08
    
    $15.0 million12/31/09
    
    $17.5 million
  Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    5.25:1.00 (maximum)
    
    
    5.02Senior Leverage Ratio (2)
    
    2.50:1.00 (maximum)
    
    
    2.27Interest Coverage Ratio (3)
    
    3.25:1.00 (minimum)
    
    
    3.74Fixed Charge Coverage Ratio (4)
    
    1.25:1.00 (minimum)
    
    
    1.91Maximum Capital Expenditures (5)
    
    $15.0 million
    
    $1.1 million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four
quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for such period.(4)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to fixed charges (cash interest
expense, scheduled principal payments on debt, capital expenditures, income taxes paid,
earn-out and milestone payments) for such period.(5)
    
    Limit of capital expenditures for the full year.  31




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##### Table of Contents



Notes to Consolidated Financial Statements 
No. 11, Debt.
 Cash commitments.
 Ovion TM
    Additional Information on AMS
 http://www.sec.gov.
 32




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##### Table of Contents



www.AmericanMedicalSystems.com
 33




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
  Currency
    Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  34




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing10.3
    
    Summary of Named
Executive Officer
Compensation.
    
    Filed with this Quarterly Report on Form 10-Q.31.1
    
    Certification by
Chief Executive
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly Report on Form 10-Q.31.2
    
    Certification by
Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly Report on Form 10-Q.32.1
    
    Certification
pursuant to 18
U.S.C. Section
1350, as adopted
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly Report on Form 10-Q.
 35




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCMay 7, 2008

Date
    
    
    
    By
    
    /s/ Anthony P. Bihl, III

Anthony P. Bihl, IIIPresident and Chief Executive OfficerMay 7, 2008

Date
    
    
    
    By
    
    /s/ Mark A. Heggestad

Mark A. HeggestadExecutive Vice President and Chief FinancialOfficer
 36




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended March 29, 2008
 Item No.
    
    Item
    
    Method of Filing10.3
    
    Summary of Named Executive
Officer Compensation.
    
    Filed with this Quarterly
Report on Form 10-Q.31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 37