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 September 27, 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PagePART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the three and
nine month periods ended September 27, 2008 and
September 29, 2007
    
    
    3Consolidated Balance Sheets as of September 27, 2008 and
December 29, 2007
    
    
    4Consolidated Statements of Cash Flow for the nine month
periods ended September 27, 2008 and September 29, 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    25ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    38ITEM 4. CONTROLS AND PROCEDURES
    
    
    39PART II OTHER INFORMATIONITEM 1A. RISK FACTORS
    
    
    40ITEM 6. EXHIBITS
    
    
    41SIGNATURES
    
    
    42EXHIBIT INDEX
    
    
    43
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Nine Months EndedSeptember 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Net sales
    
    $
    117,468
    
    
    $
    109,041
    
    
    $
    367,627
    
    
    $
    333,879Cost of sales
    
    
    24,863
    
    
    
    24,441
    
    
    
    83,038
    
    
    
    77,925Gross profit
    
    
    92,605
    
    
    
    84,600
    
    
    
    284,589
    
    
    
    255,954Operating expensesMarketing and selling
    
    
    42,226
    
    
    
    42,278
    
    
    
    133,608
    
    
    
    123,402Research and development
    
    
    11,260
    
    
    
    9,918
    
    
    
    33,926
    
    
    
    32,047In-process research and development
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    General and administrative
    
    
    9,728
    
    
    
    10,128
    
    
    
    30,435
    
    
    
    31,704Integration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,103Amortization of intangibles
    
    
    4,334
    
    
    
    4,516
    
    
    
    12,981
    
    
    
    13,969Total operating expenses
    
    
    75,048
    
    
    
    66,840
    
    
    
    218,450
    
    
    
    202,225Operating income
    
    
    17,557
    
    
    
    17,760
    
    
    
    66,139
    
    
    
    53,729Other (expense) incomeRoyalty income
    
    
    745
    
    
    
    3,482
    
    
    
    3,576
    
    
    
    4,664Interest income
    
    
    203
    
    
    
    333
    
    
    
    555
    
    
    
    962Interest expense
    
    
    (6,168
    )
    
    
    (9,460
    )
    
    
    (21,044
    )
    
    
    (28,681
    )Amortization of financing costs
    
    
    (1,358
    )
    
    
    (1,130
    )
    
    
    (3,497
    )
    
    
    (2,667
    )Other income (expense)
    
    
    (957
    )
    
    
    736
    
    
    
    973
    
    
    
    2,710Total other (expense) income
    
    
    (7,535
    )
    
    
    (6,039
    )
    
    
    (19,437
    )
    
    
    (23,012
    )Income from continuing operations before income taxes
    
    
    10,022
    
    
    
    11,721
    
    
    
    46,702
    
    
    
    30,717Provision for income taxes
    
    
    4,288
    
    
    
    4,796
    
    
    
    18,763
    
    
    
    12,083Net income from continuing operations
    
    
    5,734
    
    
    
    6,925
    
    
    
    27,939
    
    
    
    18,634Loss from discontinued operations,
net of tax benefit of $0.4 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (691
    )Net income
    
    $
    5,734
    
    
    $
    6,925
    
    
    $
    27,939
    
    
    $
    17,943Net income (loss) per shareBasic net income from continuing operations
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.38
    
    
    $
    0.26Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Basic net income
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.38
    
    
    $
    0.25Diluted net income from continuing operations
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.38
    
    
    $
    0.25Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )Diluted net income
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.38
    
    
    $
    0.24Weighted average common shares used in calculationBasic
    
    
    73,095
    
    
    
    72,166
    
    
    
    72,796
    
    
    
    72,001Diluted
    
    
    74,209
    
    
    
    73,740
    
    
    
    73,945
    
    
    
    73,605
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### 



American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
  September 27, 2008
    
    
    December 29, 2007(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    12,813
    
    
    $
    34,044Short-term investments
    
    
    22,990
    
    
    
    1,137Accounts receivable, net
    
    
    92,408
    
    
    
    106,457Inventories, net
    
    
    44,957
    
    
    
    60,707Deferred income taxes
    
    
    7,966
    
    
    
    13,105Other current assets
    
    
    6,054
    
    
    
    9,935Total current assets
    
    
    187,188
    
    
    
    225,385Property, plant and equipment, net
    
    
    49,279
    
    
    
    53,126Goodwill
    
    
    690,456
    
    
    
    690,478Developed and core technology, net
    
    
    83,190
    
    
    
    94,452Other intangibles, net
    
    
    47,868
    
    
    
    49,337Other long-term assets, net
    
    
    1,721
    
    
    
    3,655Total assets
    
    $
    1,059,702
    
    
    $
    1,116,433Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    8,635
    
    
    $
    13,364Accrued compensation expenses
    
    
    21,584
    
    
    
    19,258Accrued warranty expense
    
    
    3,478
    
    
    
    3,001Other accrued expenses
    
    
    16,477
    
    
    
    46,464Total current liabilities
    
    
    50,174
    
    
    
    82,087Long-term debt
    
    
    591,608
    
    
    
    666,234Deferred income taxes
    
    
    27,898
    
    
    
    23,333Long-term income taxes payable
    
    
    13,672
    
    
    
    13,414Long-term employee benefit obligations
    
    
    3,175
    
    
    
    3,175Total liabilities
    
    
    686,527
    
    
    
    788,243Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 73,224,595 shares at September 27, 2008 and
72,258,512 shares at December 29, 2007
    
    
    732
    
    
    
    723Additional paid-in capital
    
    
    300,419
    
    
    
    284,751Accumulated other comprehensive income
    
    
    8,279
    
    
    
    6,910Retained earnings
    
    
    63,745
    
    
    
    35,806Total stockholders equity
    
    
    373,175
    
    
    
    328,190Total liabilities and stockholders equity
    
    $
    1,059,702
    
    
    $
    1,116,433
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### 



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
   Nine Months EndedSeptember 27, 2008
    
    
    September 29, 2007Cash flows from operating activitiesNet income
    
    $
    27,939
    
    
    $
    17,943Net loss from discontinued operations
    
    
    
    
    
    
    (691
    )Net income from continuing operations
    
    
    27,939
    
    
    
    18,634Adjustments to reconcile net income from continuing operations to net cash
provided by operating activitiesDepreciation
    
    
    7,530
    
    
    
    6,229Loss (gain) on asset disposals
    
    
    442
    
    
    
    (15
    )Amortization of intangibles
    
    
    12,981
    
    
    
    13,969Amortization of financing costs
    
    
    3,497
    
    
    
    2,667In-process research and development charges
    
    
    7,500
    
    
    
    Non-cash impairment of available-for-sale securities
    
    
    843
    
    
    
    Proceeds from settlement of derivative contracts
    
    
    (560
    )
    
    
    Excess tax benefit from excercise of stock options
    
    
    (1,265
    )
    
    
    (213
    )Tax benefit on exercised stock option arrangements
    
    
    1,187
    
    
    
    744Change in net deferred income taxes
    
    
    10,771
    
    
    
    7,440Stock based compensation
    
    
    7,135
    
    
    
    9,142Changes in operating assets and liabilities:Accounts receivable
    
    
    13,922
    
    
    
    (2,919
    )Inventories
    
    
    15,457
    
    
    
    (29,830
    )Accounts payable and accrued expenses
    
    
    (29,021
    )
    
    
    (19,861
    )Other assets
    
    
    269
    
    
    
    21,817Net cash provided by operating activities
    
    
    78,627
    
    
    
    27,804Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (4,139
    )
    
    
    (13,930
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    4,690
    
    
    
    21,675Purchase of investments in technology
    
    
    (7,500
    )
    
    
    Purchase of other intangibles
    
    
    (1,262
    )
    
    
    (379
    )Purchase of short-term investments
    
    
    (38,223
    )
    
    
    (14,137
    )Sale of short-term investments
    
    
    16,563
    
    
    
    14,010Proceeds from settlement of derivative contracts
    
    
    560
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (29,311
    )
    
    
    6,458Cash flows from financing activitiesIssuance of common stock
    
    
    7,358
    
    
    
    10,059Excess tax benefit from exercise of stock options
    
    
    1,265
    
    
    
    213Payments on long-term debt
    
    
    (79,018
    )
    
    
    (48,919
    )Proceeds from short-term borrowings
    
    
    12,000
    
    
    
    Repayments of short-term borrowings
    
    
    (12,000
    )
    
    
    Net cash used in financing activities
    
    
    (70,395
    )
    
    
    (38,647
    )Cash used in continuing operations
    
    
    (21,079
    )
    
    
    (4,385
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )Cash used in discontinued operations
    
    
    
    
    
    
    (691
    )Effect of currency exchange rates on cash
    
    
    (152
    )
    
    
    (363
    )Net decrease in cash and cash equivalents
    
    
    (21,231
    )
    
    
    (5,439
    )Cash and cash equivalents at beginning of period
    
    
    34,044
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    12,813
    
    
    $
    23,612Supplemental disclosureCash paid for interest
    
    $
    27,432
    
    
    $
    32,801Cash paid (refunded) for taxes
    
    
    8,189
    
    
    
    (11,211
    )Stock issued to settle contingent liabilities under InnovaQuartz purchase agreement
    
    
    
    
    
    
    7,371
 The accompanying notes are an integral part of the consolidated financial statements.
 5




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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
     6




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##### 



Accounting for
Certain Investments in Debt and Equity Securities,
 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
    
    
    Adjustment to
    
    
    Cash Payments /
    
    
    Liability as of(in thousands)
    
    December 29, 2007
    
    
    Liability
    
    
    Settlements
    
    
    September 27, 2008Severance and benefits
    
    $
    216
    
    
    $
    
    
    
    $
    (163
    )
    
    $
    53Contract terminations and other
    
    
    3,904
    
    
    
    1,081
    
    
    
    (4,937
    )
    
    
    48Total restructuring
    
    $
    4,120
    
    
    $
    1,081
    
    
    $
    (5,100
    )
    
    $
    101
 Integration Costs
  NOTE 4. Acquisitions
      8




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##### 



NOTE 5. Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Cost of sales
    
    $
    452
    
    
    $
    364
    
    
    $
    1,455
    
    
    $
    1,140Marketing and selling
    
    
    848
    
    
    
    1,070
    
    
    
    2,539
    
    
    
    3,154Research and development
    
    
    559
    
    
    
    677
    
    
    
    1,675
    
    
    
    2,080General and administrative
    
    
    665
    
    
    
    1,265
    
    
    
    1,466
    
    
    
    2,768Total stock-based
compensation expense
    
    $
    2,524
    
    
    $
    3,376
    
    
    $
    7,135
    
    
    $
    9,142
    Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at December 29, 2007
    
    
    7,587,892
    
    
    $
    14.82Granted
    
    
    1,412,640
    
    
    
    14.57Exercised
    
    
    (726,263
    )
    
    
    7.09Cancelled or expired
    
    
    (701,781
    )
    
    
    19.07Balance at September 27, 2008
    
    
    7,572,488
    
    
    $
    15.12
    
    
    $
    27,076Options exercisable at September 27, 2008
    
    
    4,654,652
    
    
    $
    14.23
    
    
    $
    21,001
  NOTE 6. Earnings per Share
  Three Months Ended
    
    
    Nine Months Ended(in thousands, except per share data)
    
    September 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Net income from continuing operations
    
    $
    5,734
    
    
    $
    6,925
    
    
    $
    27,939
    
    
    $
    18,634Weighted-average shares outstanding
for basic net income per share
    
    
    73,095
    
    
    
    72,166
    
    
    
    72,796
    
    
    
    72,001Dilutive effect of stock options
and restricted shares
    
    
    1,114
    
    
    
    1,574
    
    
    
    1,149
    
    
    
    1,604Adjusted weighted-average shares outstanding
for diluted net income per share
    
    
    74,209
    
    
    
    73,740
    
    
    
    73,945
    
    
    
    73,605Net income per shareBasic net income from continuing operations
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.38
    
    
    $
    0.26Diluted net income from continuing operations
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    0.38
    
    
    $
    0.25
  9




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##### 



NOTE 7. Inventories
  (in thousands)
    
    September 27, 2008
    
    
    December 29, 2007Raw materials
    
    $
    13,386
    
    
    $
    21,335Work in process
    
    
    5,380
    
    
    
    7,587Finished goods
    
    
    31,620
    
    
    
    34,673Obsolescence reserve
    
    
    (5,429
    )
    
    
    (2,888
    )Net inventories
    
    $
    44,957
    
    
    $
    60,707
 NOTE 8. Warranties
   Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Balance, beginning of period
    
    $
    3,598
    
    
    $
    2,808
    
    
    $
    3,001
    
    
    $
    2,715Provisions for warranty
    
    
    1,122
    
    
    
    1,904
    
    
    
    4,856
    
    
    
    4,418Claims processed
    
    
    (1,242
    )
    
    
    (1,118
    )
    
    
    (4,379
    )
    
    
    (3,539
    )Balance, end of period
    
    $
    3,478
    
    
    $
    3,594
    
    
    $
    3,478
    
    
    $
    3,594
 NOTE 9. Comprehensive Income
  Three Months Ended
    
    Nine Months Ended(in thousands)
    
    September 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007Net income
    
    $
    5,734
    
    
    $
    6,925
    
    
    $
    27,939
    
    
    $
    17,943Foreign currency translation (loss) gain, net of taxes
    
    
    (1,786
    )
    
    
    1,705
    
    
    
    6
    
    
    
    2,947Recognition of previously unrealized losses on
available-for-sale securities, net of taxes
    
    
    
    
    
    
    
    
    
    
    433
    
    
    
    Unrealized gains on available-for-sale securities,
net of taxes
    
    
    102
    
    
    
    
    
    
    
    210
    
    
    
    Unrealized gain (loss) on derivative financial instruments:Net change in periodic revaluations
    
    
    579
    
    
    
    
    
    
    
    1,112
    
    
    
    Net amount reclassified to income
    
    
    (263
    )
    
    
    
    
    
    
    (392
    )
    
    
    Comprehensive income
    
    $
    4,366
    
    
    $
    8,630
    
    
    $
    29,308
    
    
    $
    20,890
 NOTE 10. Goodwill and Intangible Assets
  Nine Months Ended(in thousands)
    
    September 27, 2008Goodwill, beginning of the period
    
    $
    690,478Effect of currency translation
    
    
    (22
    )Goodwill, end of the period
    
    $
    690,456
 10




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##### 



September 27, 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
    
    
    $
    (54,363
    )
    
    $
    83,190
    
    
    $
    137,553
    
    
    $
    (43,101
    )
    
    $
    94,452Other intangiblesAmortizedPatents
    
    
    11,510
    
    
    
    (9,221
    )
    
    
    2,289
    
    
    
    11,325
    
    
    
    (8,964
    )
    
    
    2,361Licenses
    
    
    9,223
    
    
    
    (7,352
    )
    
    
    1,871
    
    
    
    9,158
    
    
    
    (6,507
    )
    
    
    2,651Royalty agreement
    
    
    2,970
    
    
    
    (1,053
    )
    
    
    1,917
    
    
    
    2,970
    
    
    
    (767
    )
    
    
    2,203Trademarks
    
    
    2,208
    
    
    
    (1,217
    )
    
    
    991
    
    
    
    2,208
    
    
    
    (886
    )
    
    
    1,322Total amortized other
intangible assets
    
    
    25,911
    
    
    
    (18,843
    )
    
    
    7,068
    
    
    
    25,661
    
    
    
    (17,124
    )
    
    
    8,537UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    66,711
    
    
    
    (18,843
    )
    
    
    47,868
    
    
    
    66,461
    
    
    
    (17,124
    )
    
    
    49,337Total intangible assets
    
    $
    204,264
    
    
    $
    (73,206
    )
    
    $
    131,058
    
    
    $
    204,014
    
    
    $
    (60,225
    )
    
    $
    143,789
 Nine Months Ended
    
    Nine Months Ended(in thousands)
    
    September 27, 2008
    
    September 29, 2007
    
    September 27, 2008
    
    September 29, 2007Amortization expense
    
    $
    4,334
    
    $
    4,516
    
    $
    12,981
    
    $
    13,969
  NOTE 11. Litigation Settlements
 Her Option ®
 NOTE 12. Debt
 Senior Secured Credit Facility
  Note 11, Litigation Settlements
  11




---



##### 



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




---



##### 



13




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended September 27, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    106,020
    
    
    $
    25,737
    
    
    $
    (14,289
    )
    
    $
    117,468Cost of sales
    
    
    
    
    
    
    25,099
    
    
    
    14,486
    
    
    
    (14,722
    )
    
    
    24,863Gross profit
    
    
    
    
    
    
    80,921
    
    
    
    11,251
    
    
    
    433
    
    
    
    92,605Operating expensesMarketing and selling
    
    
    
    
    
    
    32,483
    
    
    
    9,743
    
    
    
    
    
    
    
    42,226Research and development
    
    
    
    
    
    
    11,260
    
    
    
    
    
    
    
    
    
    
    
    11,260In-process research and
development
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    7,500General and administrative
    
    
    
    
    
    
    9,728
    
    
    
    
    
    
    
    
    
    
    
    9,728Amortization of intangibles
    
    
    
    
    
    
    3,465
    
    
    
    869
    
    
    
    
    
    
    
    4,334Total operating expenses
    
    
    
    
    
    
    64,436
    
    
    
    10,612
    
    
    
    
    
    
    
    75,048Operating income
    
    
    
    
    
    
    16,485
    
    
    
    639
    
    
    
    433
    
    
    
    17,557Other (expense) incomeRoyalty income
    
    
    
    
    
    
    745
    
    
    
    
    
    
    
    
    
    
    
    745Interest income
    
    
    
    
    
    
    228
    
    
    
    31
    
    
    
    (56
    )
    
    
    203Interest expense
    
    
    (3,037
    )
    
    
    (3,129
    )
    
    
    (58
    )
    
    
    56
    
    
    
    (6,168
    )Amortization of financing costs
    
    
    (105
    )
    
    
    (1,253
    )
    
    
    
    
    
    
    
    
    
    
    (1,358
    )Other income (expense)
    
    
    
    
    
    
    (468
    )
    
    
    (473
    )
    
    
    (16
    )
    
    
    (957
    )Total other (expense) income
    
    
    (3,142
    )
    
    
    (3,877
    )
    
    
    (500
    )
    
    
    (16
    )
    
    
    (7,535
    )(Loss) income before income taxes
    
    
    (3,142
    )
    
    
    12,608
    
    
    
    139
    
    
    
    417
    
    
    
    10,022Provision for income taxes
    
    
    (1,767
    )
    
    
    5,664
    
    
    
    203
    
    
    
    188
    
    
    
    4,288Equity in earnings of subsidiary
    
    
    6,880
    
    
    
    (64
    )
    
    
    
    
    
    
    (6,816
    )
    
    
    Net income (loss)
    
    $
    5,505
    
    
    $
    6,880
    
    
    $
    (64
    )
    
    $
    (6,587
    )
    
    $
    5,734
 14




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended September 27, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    332,505
    
    
    $
    84,572
    
    
    $
    (49,450
    )
    
    $
    367,627Cost of sales
    
    
    
    
    
    
    82,277
    
    
    
    50,567
    
    
    
    (49,806
    )
    
    
    83,038Gross profit
    
    
    
    
    
    
    250,228
    
    
    
    34,005
    
    
    
    356
    
    
    
    284,589Operating expensesMarketing and selling
    
    
    
    
    
    
    102,647
    
    
    
    30,961
    
    
    
    
    
    
    
    133,608Research and development
    
    
    
    
    
    
    33,926
    
    
    
    
    
    
    
    
    
    
    
    33,926In-process research and
development
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    7,500General and administrative
    
    
    
    
    
    
    30,434
    
    
    
    1
    
    
    
    
    
    
    
    30,435Amortization of intangibles
    
    
    
    
    
    
    10,372
    
    
    
    2,609
    
    
    
    
    
    
    
    12,981Total operating expenses
    
    
    
    
    
    
    184,879
    
    
    
    33,571
    
    
    
    
    
    
    
    218,450Operating income
    
    
    
    
    
    
    65,349
    
    
    
    434
    
    
    
    356
    
    
    
    66,139Other (expense) incomeRoyalty income
    
    
    
    
    
    
    2,076
    
    
    
    1,500
    
    
    
    
    
    
    
    3,576Interest income
    
    
    
    
    
    
    1,269
    
    
    
    64
    
    
    
    (778
    )
    
    
    555Interest expense
    
    
    (9,111
    )
    
    
    (11,921
    )
    
    
    (790
    )
    
    
    778
    
    
    
    (21,044
    )Amortization of financing costs
    
    
    (314
    )
    
    
    (3,183
    )
    
    
    
    
    
    
    
    
    
    
    (3,497
    )Other income (expense)
    
    
    
    
    
    
    1,476
    
    
    
    (512
    )
    
    
    9
    
    
    
    973Total other (expense) income
    
    
    (9,425
    )
    
    
    (10,283
    )
    
    
    262
    
    
    
    9
    
    
    
    (19,437
    )(Loss) income before income taxes
    
    
    (9,425
    )
    
    
    55,066
    
    
    
    696
    
    
    
    365
    
    
    
    46,702Provision for income taxes
    
    
    (3,908
    )
    
    
    22,234
    
    
    
    287
    
    
    
    150
    
    
    
    18,763Equity in earnings of subsidiary
    
    
    33,241
    
    
    
    409
    
    
    
    
    
    
    
    (33,650
    )
    
    
    Net income
    
    $
    27,724
    
    
    $
    33,241
    
    
    $
    409
    
    
    $
    (33,435
    )
    
    $
    27,939
 15




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    102,208
    
    
    $
    21,904
    
    
    $
    (15,071
    )
    
    $
    109,041Cost of sales
    
    
    
    
    
    
    24,148
    
    
    
    15,159
    
    
    
    (14,866
    )
    
    
    24,441Gross profit
    
    
    
    
    
    
    78,060
    
    
    
    6,745
    
    
    
    (205
    )
    
    
    84,600Operating expensesMarketing and selling
    
    
    
    
    
    
    35,206
    
    
    
    7,072
    
    
    
    
    
    
    
    42,278Research and development
    
    
    
    
    
    
    9,757
    
    
    
    161
    
    
    
    
    
    
    
    9,918General and administrative
    
    
    
    
    
    
    10,116
    
    
    
    12
    
    
    
    
    
    
    
    10,128Amortization of intangibles
    
    
    
    
    
    
    3,646
    
    
    
    870
    
    
    
    
    
    
    
    4,516Total operating expenses
    
    
    
    
    
    
    58,725
    
    
    
    8,115
    
    
    
    
    
    
    
    66,840Operating income (loss)
    
    
    
    
    
    
    19,335
    
    
    
    (1,370
    )
    
    
    (205
    )
    
    
    17,760Other (expense) incomeRoyalty income
    
    
    
    
    
    
    3,482
    
    
    
    
    
    
    
    
    
    
    
    3,482Interest income
    
    
    
    
    
    
    473
    
    
    
    14
    
    
    
    (154
    )
    
    
    333Interest expense
    
    
    (3,037
    )
    
    
    (6,376
    )
    
    
    (196
    )
    
    
    149
    
    
    
    (9,460
    )Amortization of financing
costs
    
    
    (105
    )
    
    
    (1,025
    )
    
    
    
    
    
    
    
    
    
    
    (1,130
    )Other income (expense)
    
    
    
    
    
    
    525
    
    
    
    195
    
    
    
    16
    
    
    
    736Total other (expense) income
    
    
    (3,142
    )
    
    
    (2,921
    )
    
    
    13
    
    
    
    11
    
    
    
    (6,039
    )(Loss) income before income taxes
    
    
    (3,142
    )
    
    
    16,414
    
    
    
    (1,357
    )
    
    
    (194
    )
    
    
    11,721Provision for income taxes
    
    
    (1,286
    )
    
    
    6,716
    
    
    
    (555
    )
    
    
    (79
    )
    
    
    4,796Equity in earnings of subsidiary
    
    
    8,896
    
    
    
    (802
    )
    
    
    
    
    
    
    (8,094
    )
    
    
    Net income (loss)
    
    $
    7,040
    
    
    $
    8,896
    
    
    $
    (802
    )
    
    $
    (8,209
    )
    
    $
    6,925
 16




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    306,997
    
    
    $
    67,988
    
    
    $
    (41,106
    )
    
    $
    333,879Cost of sales
    
    
    
    
    
    
    75,939
    
    
    
    42,582
    
    
    
    (40,596
    )
    
    
    77,925Gross profit
    
    
    
    
    
    
    231,058
    
    
    
    25,406
    
    
    
    (510
    )
    
    
    255,954Operating expensesMarketing and selling
    
    
    
    
    
    
    99,790
    
    
    
    23,612
    
    
    
    
    
    
    
    123,402Research and development
    
    
    
    
    
    
    31,797
    
    
    
    250
    
    
    
    
    
    
    
    32,047General and administrative
    
    
    
    
    
    
    31,631
    
    
    
    73
    
    
    
    
    
    
    
    31,704Integration costs
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    1,103Amortization of intangibles
    
    
    
    
    
    
    11,359
    
    
    
    2,610
    
    
    
    
    
    
    
    13,969Total operating expenses
    
    
    
    
    
    
    175,680
    
    
    
    26,545
    
    
    
    
    
    
    
    202,225Operating income (loss)
    
    
    
    
    
    
    55,378
    
    
    
    (1,139
    )
    
    
    (510
    )
    
    
    53,729Other (expense) incomeRoyalty income
    
    
    
    
    
    
    4,664
    
    
    
    
    
    
    
    
    
    
    
    4,664Interest income
    
    
    
    
    
    
    1,077
    
    
    
    39
    
    
    
    (154
    )
    
    
    962Interest expense
    
    
    (8,952
    )
    
    
    (19,376
    )
    
    
    (502
    )
    
    
    149
    
    
    
    (28,681
    )Amortization of financing costs
    
    
    (420
    )
    
    
    (2,247
    )
    
    
    
    
    
    
    
    
    
    
    (2,667
    )Other income (expense)
    
    
    
    
    
    
    2,751
    
    
    
    (52
    )
    
    
    11
    
    
    
    2,710Total other (expense) income
    
    
    (9,372
    )
    
    
    (13,131
    )
    
    
    (515
    )
    
    
    6
    
    
    
    (23,012
    )(Loss) income from continuing operations
before income taxes
    
    
    (9,372
    )
    
    
    42,247
    
    
    
    (1,654
    )
    
    
    (504
    )
    
    
    30,717Provision for income taxes
    
    
    (3,659
    )
    
    
    16,590
    
    
    
    (661
    )
    
    
    (187
    )
    
    
    12,083Net (loss) income from continuing operations
    
    
    (5,713
    )
    
    
    25,657
    
    
    
    (993
    )
    
    
    (317
    )
    
    
    18,634Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Equity in earnings (loss) of subsidiary
    
    
    23,973
    
    
    
    (993
    )
    
    
    
    
    
    
    (22,980
    )
    
    
    Net income (loss)
    
    $
    18,260
    
    
    $
    23,973
    
    
    $
    (993
    )
    
    $
    (23,297
    )
    
    $
    17,943
 17




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of September 27, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    5,191
    
    
    $
    7,622
    
    
    $
    
    
    
    $
    12,813Short-term investments
    
    
    11,650
    
    
    
    10,927
    
    
    
    413
    
    
    
    
    
    
    
    22,990Accounts receivable, net
    
    
    632,822
    
    
    
    65,818
    
    
    
    26,513
    
    
    
    (632,745
    )
    
    
    92,408Inventories, net
    
    
    
    
    
    
    42,431
    
    
    
    7,132
    
    
    
    (4,606
    )
    
    
    44,957Deferred income taxes
    
    
    
    
    
    
    7,337
    
    
    
    629
    
    
    
    
    
    
    
    7,966Other current assets
    
    
    
    
    
    
    4,856
    
    
    
    1,198
    
    
    
    
    
    
    
    6,054Total current assets
    
    
    644,472
    
    
    
    136,560
    
    
    
    43,507
    
    
    
    (637,351
    )
    
    
    187,188Property, plant and equipment, net
    
    
    
    
    
    
    47,674
    
    
    
    1,605
    
    
    
    
    
    
    
    49,279Goodwill
    
    
    
    
    
    
    627,813
    
    
    
    86,665
    
    
    
    (24,022
    )
    
    
    690,456Developed and core technology, net
    
    
    
    
    
    
    65,236
    
    
    
    17,954
    
    
    
    
    
    
    
    83,190Other intangibles, net
    
    
    
    
    
    
    45,951
    
    
    
    1,917
    
    
    
    
    
    
    
    47,868Investment in subsidiaries
    
    
    115,346
    
    
    
    18,757
    
    
    
    
    
    
    
    (134,103
    )
    
    
    Other long-term assets, net
    
    
    1,311
    
    
    
    244
    
    
    
    166
    
    
    
    
    
    
    
    1,721Total assets
    
    $
    761,129
    
    
    $
    942,235
    
    
    $
    151,814
    
    
    $
    (795,476
    )
    
    $
    1,059,702Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    21,600
    
    
    $
    525,686
    
    
    $
    107,472
    
    
    $
    (646,123
    )
    
    $
    8,635Accrued compensation expenses
    
    
    
    
    
    
    18,324
    
    
    
    3,260
    
    
    
    
    
    
    
    21,584Accrued warranty expense
    
    
    
    
    
    
    3,569
    
    
    
    (91
    )
    
    
    
    
    
    
    3,478Other accrued expenses
    
    
    2,970
    
    
    
    13,889
    
    
    
    (382
    )
    
    
    
    
    
    
    16,477Total current liabilities
    
    
    24,570
    
    
    
    561,468
    
    
    
    110,259
    
    
    
    (646,123
    )
    
    
    50,174Non-current liabilitiesLong-term debt
    
    
    363,384
    
    
    
    228,224
    
    
    
    
    
    
    
    
    
    
    
    591,608Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    15,250
    
    
    
    (15,250
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    20,350
    
    
    
    7,548
    
    
    
    
    
    
    
    27,898Long-term income taxes payable
    
    
    
    
    
    
    13,672
    
    
    
    
    
    
    
    
    
    
    
    13,672Long-term employee benefit obligations
    
    
    
    
    
    
    3,175
    
    
    
    
    
    
    
    
    
    
    
    3,175Total non-current liabilities
    
    
    363,384
    
    
    
    265,421
    
    
    
    22,798
    
    
    
    (15,250
    )
    
    
    636,353Total liabilities
    
    
    387,954
    
    
    
    826,889
    
    
    
    133,057
    
    
    
    (661,373
    )
    
    
    686,527Stockholders equityCommon stock
    
    
    732
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    732Additional paid-in capital
    
    
    300,419
    
    
    
    3,424
    
    
    
    67,329
    
    
    
    (70,753
    )
    
    
    300,419Accumulated other comprehensive income
    
    
    8,279
    
    
    
    2,027
    
    
    
    6,853
    
    
    
    (8,880
    )
    
    
    8,279Retained earnings (deficit)
    
    
    63,745
    
    
    
    109,895
    
    
    
    (55,434
    )
    
    
    (54,461
    )
    
    
    63,745Total stockholders equity
    
    
    373,175
    
    
    
    115,346
    
    
    
    18,757
    
    
    
    (134,103
    )
    
    
    373,175Total liabilities and stockholders equity
    
    $
    761,129
    
    
    $
    942,235
    
    
    $
    151,814
    
    
    $
    (795,476
    )
    
    $
    1,059,702
 18




---



##### 



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
 19




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended September 27, 2008AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating activities
    
    $
    (8,655
    )
    
    $
    88,124
    
    
    $
    (842
    )
    
    $
    
    
    
    $
    78,627Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,734
    )
    
    
    (405
    )
    
    
    
    
    
    
    (4,139
    )Disposal of business
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    
    
    
    
    4,690Purchase of investments in technology
    
    
    
    
    
    
    (7,500
    )
    
    
    
    
    
    
    
    
    
    
    (7,500
    )Purchase of other intangibles
    
    
    
    
    
    
    (1,262
    )
    
    
    
    
    
    
    
    
    
    
    (1,262
    )Purchase of short-term investments
    
    
    
    
    
    
    (38,158
    )
    
    
    (65
    )
    
    
    
    
    
    
    (38,223
    )Sale of short-term investments
    
    
    
    
    
    
    16,563
    
    
    
    
    
    
    
    
    
    
    
    16,563Proceeds from settlement of derivative contracts
    
    
    
    
    
    
    560
    
    
    
    
    
    
    
    
    
    
    
    560Net cash used in investing activities
    
    
    
    
    
    
    (28,841
    )
    
    
    (470
    )
    
    
    
    
    
    
    (29,311
    )Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    3,255
    
    
    
    (3,255
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    7,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,358Excess tax benefit from exercise of stock options
    
    
    1,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,265Payments on long-term debt
    
    
    
    
    
    
    (79,018
    )
    
    
    
    
    
    
    
    
    
    
    (79,018
    )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
    
    
    8,623
    
    
    
    (75,763
    )
    
    
    (3,255
    )
    
    
    
    
    
    
    (70,395
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Net decrease in cash and cash equivalents
    
    
    (32
    )
    
    
    (16,480
    )
    
    
    (4,719
    )
    
    
    
    
    
    
    (21,231
    )Cash and cash equivalents at beginning of period
    
    
    32
    
    
    
    21,671
    
    
    
    12,341
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    5,191
    
    
    $
    7,622
    
    
    $
    
    
    
    $
    12,813
 20




---



##### 



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended September 29, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating activities
    
    $
    (10,931
    )
    
    $
    39,641
    
    
    $
    (906
    )
    
    $
    
    
    
    $
    27,804Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (12,689
    )
    
    
    (1,241
    )
    
    
    
    
    
    
    (13,930
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    
    
    
    
    21,675
    
    
    
    
    
    
    
    
    
    
    
    21,675Purchase of other intangibles
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    (379
    )Purchase of short-term investments
    
    
    
    
    
    
    (14,028
    )
    
    
    (109
    )
    
    
    
    
    
    
    (14,137
    )Sale of short-term investments
    
    
    
    
    
    
    14,000
    
    
    
    10
    
    
    
    
    
    
    
    14,010Net cash provided by (used in) investing activities
    
    
    
    
    
    
    8,579
    
    
    
    (2,121
    )
    
    
    
    
    
    
    6,458Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    300
    
    
    
    (300
    )
    
    
    
    
    
    
    Investment in subsidiary
    
    
    
    
    
    
    (8,334
    )
    
    
    8,334
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    10,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,059Excess tax benefit from exercise of stock options
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Payments on long-term debt
    
    
    
    
    
    
    (48,919
    )
    
    
    
    
    
    
    
    
    
    
    (48,919
    )Net cash provided by (used in) financing activities
    
    
    10,272
    
    
    
    (56,953
    )
    
    
    8,034
    
    
    
    
    
    
    
    (38,647
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (363
    )
    
    
    
    
    
    
    (363
    )Net (decrease) increase in cash and cash equivalents
    
    
    (659
    )
    
    
    (9,424
    )
    
    
    4,644
    
    
    
    
    
    
    
    (5,439
    )Cash and cash equivalents at beginning of period
    
    
    1,138
    
    
    
    22,905
    
    
    
    5,008
    
    
    
    
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    479
    
    
    $
    13,481
    
    
    $
    9,652
    
    
    $
    
    
    
    $
    23,612
 21




---



##### 



NOTE 13. 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)AssetsMoney market funds
    
    $
    21,637
    
    
    $
    
    
    
    $
    Available-for-sale securities
    
    
    694
    
    
    
    
    
    
    
    Other short-term investments
    
    
    246
    
    
    
    413
    
    
    
    Derivatives
    
    
    
    
    
    
    1,166
    
    
    
    Total
    
    $
    22,577
    
    
    $
    1,579
    
    
    $
    LiabilitiesDerivatives
    
    $
    
    
    
    $
    12
    
    
    $
    
  Note 2 Discontinued Operations and Sale of
Aesthetics Business
   22




---



##### 




 Accounting for Derivative Instruments and Hedging
Activity
  NOTE 14. Industry Segment Information and Foreign Operations
 Note 2, Discontinued Operations and Sale of Aesthetics Business)
  23




---



##### 



Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    September 27, 2008
    
    
    September 29, 2007
    
    
    September 27, 2008
    
    
    September 29, 2007United StatesNet sales
    
    $
    84,489
    
    
    $
    78,992
    
    
    $
    258,700
    
    
    $
    243,068Long-lived assets
    
    
    855,545
    
    
    
    891,744
    
    
    
    855,545
    
    
    
    891,744InternationalNet sales
    
    
    32,979
    
    
    
    30,049
    
    
    
    108,927
    
    
    
    90,811Long-lived assets
    
    
    18,302
    
    
    
    17,857
    
    
    
    18,302
    
    
    
    17,857
 NOTE 15. Recently Adopted Accounting Pronouncements and New Accounting Pronouncements
 Fair Value Measurements The Effective Date of FASB Statement No. 157 Note 13, Fair Value Measurements and Derivative Financial Instruments,
 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
 Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 24




---



##### 



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.  Any statements not of historical fact may be considered 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 discussed under the
heading Forward-Looking Statements below.
 Critical Accounting Policies and Estimates
  Overview
  www.AmericanMedicalSystems.com.
 25




---



##### 



Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months Ended(in thousands)
    
    September 27,
2008
    
    September 29, 2007
    
    $   Increase
    
    % Increase
    
    September 27, 2008
    
    September 29, 2007
    
    $   Increase
    
    % IncreaseSalesMens health
    
    $
    78,163
    
    
    $
    73,916
    
    
    $
    4,247
    
    
    
    5.7
    %
    
    $
    246,703
    
    
    $
    225,854
    
    
    $
    20,849
    
    
    
    9.2
    %Womens health
    
    
    39,305
    
    
    
    35,125
    
    
    
    4,180
    
    
    
    11.9
    %
    
    
    120,924
    
    
    
    108,025
    
    
    
    12,899
    
    
    
    11.9
    %Total
    
    $
    117,468
    
    
    $
    109,041
    
    
    $
    8,427
    
    
    
    7.7
    %
    
    $
    367,627
    
    
    $
    333,879
    
    
    $
    33,748
    
    
    
    10.1
    %GeographyUnited States
    
    $
    84,489
    
    
    $
    78,992
    
    
    $
    5,497
    
    
    
    7.0
    %
    
    $
    258,700
    
    
    $
    243,068
    
    
    $
    15,632
    
    
    
    6.4
    %International
    
    
    32,979
    
    
    
    30,049
    
    
    
    2,930
    
    
    
    9.8
    %
    
    
    108,927
    
    
    
    90,811
    
    
    
    18,116
    
    
    
    19.9
    %Total
    
    $
    117,468
    
    
    $
    109,041
    
    
    $
    8,427
    
    
    
    7.7
    %
    
    $
    367,627
    
    
    $
    333,879
    
    
    $
    33,748
    
    
    
    10.1
    %Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedPercent of total sales
    
    September 27, 2008
    
    September 29, 2007
    
    
    
    
    
    
    
    
    
    September 27, 2008
    
    September 29, 2007Mens health
    
    
    66.5
    %
    
    
    67.8
    %
    
    
    
    
    
    
    
    
    
    
    67.1
    %
    
    
    67.6
    %Womens health
    
    
    33.5
    %
    
    
    32.2
    %
    
    
    
    
    
    
    
    
    
    
    32.9
    %
    
    
    32.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    71.9
    %
    
    
    72.4
    %
    
    
    
    
    
    
    
    
    
    
    70.4
    %
    
    
    72.8
    %International
    
    
    28.1
    %
    
    
    27.6
    %
    
    
    
    
    
    
    
    
    
    
    29.6
    %
    
    
    27.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
 26




---



##### 



Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 27,
    
    September 29,
    
    $   Increase
    
    % Increase
    
    September 27,
    
    September 29,
    
    $   Increase
    % Increase(in thousands)
    
    2008
    
    2007
    
    (Decrease)
    
    (Decrease)
    
    2008
    
    2007
    
    (Decrease)
    (Decrease)Net sales
    
    $
    117,468
    
    
    $
    109,041
    
    
    $
    8,427
    
    
    
    7.7
    %
    
    $
    367,627
    
    
    $
    333,879
    
    
    $
    33,748
    
    
    
    10.1
    %Cost of sales
    
    
    24,863
    
    
    
    24,441
    
    
    
    422
    
    
    
    1.7
    %
    
    
    83,038
    
    
    
    77,925
    
    
    
    5,113
    
    
    
    6.6
    %Gross profit
    
    
    92,605
    
    
    
    84,600
    
    
    
    8,005
    
    
    
    9.5
    %
    
    
    284,589
    
    
    
    255,954
    
    
    
    28,635
    
    
    
    11.2
    %Operating expensesMarketing
and selling
    
    
    42,226
    
    
    
    42,278
    
    
    
    (52
    )
    
    
    -0.1
    %
    
    
    133,608
    
    
    
    123,402
    
    
    
    10,206
    
    
    
    8.3
    %Research and development
    
    
    11,260
    
    
    
    9,918
    
    
    
    1,342
    
    
    
    13.5
    %
    
    
    33,926
    
    
    
    32,047
    
    
    
    1,879
    
    
    
    5.9
    %In-process
research and development
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    n/a
    
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    n/aGeneral and administrative
    
    
    9,728
    
    
    
    10,128
    
    
    
    (400
    )
    
    
    -3.9
    %
    
    
    30,435
    
    
    
    31,704
    
    
    
    (1,269
    )
    
    
    -4.0
    %Integration costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    1,103
    
    
    
    (1,103
    )
    
    
    n/aAmortization
of intangibles
    
    
    4,334
    
    
    
    4,516
    
    
    
    (182
    )
    
    
    -4.0
    %
    
    
    12,981
    
    
    
    13,969
    
    
    
    (988
    )
    
    
    -7.1
    %Total operating expenses
    
    
    75,048
    
    
    
    66,840
    
    
    
    8,208
    
    
    
    12.3
    %
    
    
    218,450
    
    
    
    202,225
    
    
    
    16,225
    
    
    
    8.0
    %Operating income
    
    
    17,557
    
    
    
    17,760
    
    
    
    (203
    )
    
    
    -1.1
    %
    
    
    66,139
    
    
    
    53,729
    
    
    
    12,410
    
    
    
    23.1
    %Royalty income
    
    
    745
    
    
    
    3,482
    
    
    
    (2,737
    )
    
    
    -78.6
    %
    
    
    3,576
    
    
    
    4,664
    
    
    
    (1,088
    )
    
    
    -23.3
    %Interest income
    
    
    203
    
    
    
    333
    
    
    
    (130
    )
    
    
    -39.0
    %
    
    
    555
    
    
    
    962
    
    
    
    (407
    )
    
    
    -42.3
    %Interest expense
    
    
    (6,168
    )
    
    
    (9,460
    )
    
    
    (3,292
    )
    
    
    -34.8
    %
    
    
    (21,044
    )
    
    
    (28,681
    )
    
    
    (7,637
    )
    
    
    -26.6
    %Amortization of financing costs
    
    
    (1,358
    )
    
    
    (1,130
    )
    
    
    228
    
    
    
    20.2
    %
    
    
    (3,497
    )
    
    
    (2,667
    )
    
    
    830
    
    
    
    31.1
    %Other income (expense)
    
    
    (957
    )
    
    
    736
    
    
    
    (1,693
    )
    
    
    -230.0
    %
    
    
    973
    
    
    
    2,710
    
    
    
    (1,737
    )
    
    
    -64.1
    %Income from continuing operations
before income taxes
    
    
    10,022
    
    
    
    11,721
    
    
    
    (1,699
    )
    
    
    -14.5
    %
    
    
    46,702
    
    
    
    30,717
    
    
    
    15,985
    
    
    
    52.0
    %Provision for income taxes
    
    
    4,288
    
    
    
    4,796
    
    
    
    (508
    )
    
    
    -10.6
    %
    
    
    18,763
    
    
    
    12,083
    
    
    
    6,680
    
    
    
    55.3
    %Income from continuing operations
    
    
    5,734
    
    
    
    6,925
    
    
    
    (1,191
    )
    
    
    -17.2
    %
    
    
    27,939
    
    
    
    18,634
    
    
    
    9,305
    
    
    
    49.9
    %Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    (691
    )
    
    
    (691
    )
    
    
    n/aNet income
    
    $
    5,734
    
    
    $
    6,925
    
    
    $
    (1,191
    )
    
    
    -17.2
    %
    
    $
    27,939
    
    
    $
    17,943
    
    
    $
    9,996
    
    
    
    55.7
    %Percent of Sales
    
    
    
    
    
    
    
    
    
    Percent of SalesFor the Three Months Ended
    
    
    
    
    
    
    
    
    
    For the Nine Months EndedSeptember 27,
    
    September 29,
    
    
    
    
    
    
    
    
    
    September 27,
    
    September 29,2008
    
    2007
    
    
    
    
    
    
    
    
    
    2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    21.2
    %
    
    
    22.4
    %
    
    
    
    
    
    
    
    
    
    
    22.6
    %
    
    
    23.3
    %Gross profit
    
    
    78.8
    %
    
    
    77.6
    %
    
    
    
    
    
    
    
    
    
    
    77.4
    %
    
    
    76.7
    %Operating expensesMarketing
and selling
    
    
    35.9
    %
    
    
    38.8
    %
    
    
    
    
    
    
    
    
    
    
    36.3
    %
    
    
    37.0
    %Research
and development
    
    
    9.6
    %
    
    
    9.1
    %
    
    
    
    
    
    
    
    
    
    
    9.2
    %
    
    
    9.6
    %In-process
research and development
    
    
    6.4
    %
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    2.0
    %
    
    
    0.0
    %General and administrative
    
    
    8.3
    %
    
    
    9.3
    %
    
    
    
    
    
    
    
    
    
    
    8.3
    %
    
    
    9.5
    %Integration costs
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    0.3
    %Amortization
of intangibles
    
    
    3.7
    %
    
    
    4.1
    %
    
    
    
    
    
    
    
    
    
    
    3.5
    %
    
    
    4.2
    %Total operating expenses
    
    
    63.9
    %
    
    
    61.3
    %
    
    
    
    
    
    
    
    
    
    
    59.4
    %
    
    
    60.6
    %Operating income
    
    
    14.9
    %
    
    
    16.3
    %
    
    
    
    
    
    
    
    
    
    
    18.0
    %
    
    
    16.1
    %Royalty income
    
    
    0.6
    %
    
    
    3.2
    %
    
    
    
    
    
    
    
    
    
    
    1.0
    %
    
    
    1.4
    %Interest income
    
    
    0.2
    %
    
    
    0.3
    %
    
    
    
    
    
    
    
    
    
    
    0.2
    %
    
    
    0.3
    %Interest expense
    
    
    -5.3
    %
    
    
    -8.7
    %
    
    
    
    
    
    
    
    
    
    
    -5.7
    %
    
    
    -8.6
    %Amortization of financing costs
    
    
    -1.2
    %
    
    
    -1.0
    %
    
    
    
    
    
    
    
    
    
    
    -1.0
    %
    
    
    -0.8
    %Other income (expense)
    
    
    -0.8
    %
    
    
    0.7
    %
    
    
    
    
    
    
    
    
    
    
    0.3
    %
    
    
    0.8
    %Income from continuing operations
before income taxes
    
    
    8.5
    %
    
    
    10.7
    %
    
    
    
    
    
    
    
    
    
    
    12.7
    %
    
    
    9.2
    %Provision for income taxes
    
    
    3.7
    %
    
    
    4.4
    %
    
    
    
    
    
    
    
    
    
    
    5.1
    %
    
    
    3.6
    %Income from continuing operations
    
    
    4.9
    %
    
    
    6.4
    %
    
    
    
    
    
    
    
    
    
    
    7.6
    %
    
    
    5.6
    %Loss from discontinued operations,
net of tax
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    
    
    
    
    
    
    
    
    0.0
    %
    
    
    -0.2
    %Net income
    
    
    4.9
    %
    
    
    6.4
    %
    
    
    
    
    
    
    
    
    
    
    7.6
    %
    
    
    5.4
    %
 27




---



##### 



Comparison of the Three Months Ended September 27, 2008 to the Three Months Ended September 29,
2007
 Net sales. AdVance ® MiniArc ® Single-Incision Sling, InhibiZone ® AMS
800 ® AMS 700 ® MS
 Net sales mens health products. AdVance ® AMS
800 ® InhibiZone ®
 Net sales womens health products. MiniArc ® Elevate ® Her Option ®
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development.
 28




---



##### 



In-process research and development.
     General and administrative.
 Amortization of intangibles.
 Royalty income.
 Interest income.
 29




---



##### 



Interest expense.
 Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Amortization of financing costs.
 Other income (expense)
 Provision for income taxes.
  Comparison of the Nine Months Ended September 27, 2008 to the Nine Months Ended September 29, 2007
 Net sales. MiniArc ® Single-Incision Sling InhibiZone ® AMS 800 ® AdVance ® AMS
700 ® MS
 30




---



##### 



Net sales mens health products. AdVance ® AMS
800 ® InhibiZone ®
 Net sales womens health products. MiniArc ® Elevate ® Her Option ®
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development.
 In-process research and development.
 General and administrative.
 Integration costs
 Amortization of intangibles.
 31




---



##### 



Royalty income.
 Interest income.
 Interest expense.
 Amortization of financing costs.
 Other income (expense)
 Provision for income taxes.
   Liquidity and Capital Resources
  32




---



##### 



Cash flows from operating activities. Notes to
Consolidated Financial Statements  No. 11, 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.
   33




---



##### 



If the market price of
    
    
    
    The number of shares issued uponour 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: 
     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
    
    
    8.5
    %$
    35.00
    
    
    
    
    8.6  million
    
    
    10.5
    %
 
 (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 73,224,595 outstanding shares as of September 27, 2008.    34




---



##### 



Notes to Consolidated Financial Statements  No. 11, Litigation Settlements
    For The Fiscal
    
    AmendedFinancial
    
    Periods Ending
    
    RequiredCovenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    9/30/08
    
    4.75:1.00 (maximum)12/31/08
    
    4.50:1.003/31/09
    
    4.25:1.006/30/09
    
    4.00:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    9/30/08
    
    2.50:1.00 (maximum)12/31/08
    
    2.25:1.003/31/09
    
    2.00:1.00Thereafter
    
    2.00:1.00Interest Coverage Ratio
    
    9/30/08
    
    3.50:1.00 (minimum)12/31/08
    
    3.75:1.003/31/09
    
    3.75:1.006/30/09
    
    3.75:1.00Increases continuing until 9/30/09
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    9/30/08
    
    1.40:1.00 (minimum)12/31/08
    
    1.40:1.003/31/09
    
    1.50:1.00Thereafter
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/08
    
    $15.0 million12/31/09
    
    $17.5 million
 35




---



##### 



Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    4.75:1.00 (maximum)
    
    
    4.13Senior Leverage Ratio (2)
    
    2.50:1.00 (maximum)
    
    
    1.59Interest Coverage Ratio (3)
    
    3.50:1.00(minimum)
    
    
    4.89Fixed Charge Coverage Ratio (4)
    
    1.40:1.00 (minimum)
    
    
    1.96Maximum Capital Expenditures (5)
    
    $15.0 million
    
    $4.1 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 cash 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.   Notes to Consolidated Financial Statements 
No. 12, Debt.
 Cash commitments.
 Ovion TM
    36




---



##### 



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 Forward-Looking Statements
      37




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rates
  Currency
    Credit Risk
  38




---



##### 



Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  39




---



##### 



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  A recent public health notice issued by the FDA may adversely affect sales of our female
incontinence and prolapse products.
  Current worldwide economic conditions may adversely affect our business, operating results and
financial condition.
  Disruptions in the global financial markets could impact the ability of our counterparties and
others to perform their obligations to us and our ability to obtain future financing.
  40




---



##### 



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Settlement Agreement and
Limited Waiver dated July 15,
2008, among American Medical
Systems Holdings, Inc., Galil
Ltd., and Martin J. Emerson.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed July 21, 2008
(File No. 000-30733).10.2
    
    First Amendment to Asset
Purchase Agreement dated
August 8, 2008, by and
between American Medical
Systems, Inc. and Bio Control
Medical (B.C.M), Ltd.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed August 19,
2008 (File No. 000-30733).10.3
    
    First Amendment to Amended
and Restated License
Agreement dated August 8,
2008, by and between American
Medical Systems, Inc. and Bio
Control Medical (B.C.M), Ltd.
    
    Incorporated by reference to
Exhibit 10.2 of the Companys
Form 8-K filed August 19,
2008 (File No. 000-30733).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.
 41




---



##### 



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCNovember 6, 2008

Date
    
    
    
    By
    
    /s/ Anthony P. Bihl, III

Anthony P. Bihl, IIIPresident and Chief Executive OfficerNovember 6, 2008

Date
    
    
    
    By
    
    /s/ Mark A. Heggestad

Mark A. HeggestadExecutive Vice President and Chief FinancialOfficer
 42




---



##### 



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended September 27, 2008
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Settlement Agreement and
Limited Waiver dated July 15,
2008, among American Medical
Systems Holdings, Inc, Galil
Ltd., and Martin J. Emerson.
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed July 21, 2008
(File No. 000-30733)10.2
    
    First Amendment to Asset
Purchase Agreement dated
August 8, 2008, by and
between American Medical
Systems, Inc. and Bio Control
Medical (B.C.M), Ltd.
    
    Incorporated by reference to
Exhibit 10.2 of the Companys
Form 8-K filed August 19,
2008 (File No. 000-30733).10.3
    
    First Amendment to Amended
and Restated License
Agreement dated August 8,
2008, by and between American
Medical Systems, Inc. and Bio
Control Medical (B.C.M), Ltd.
    
    Incorporated by reference to
Exhibit 10.2 of the Companys
Form 8-K filed August 19,
2008 (File No. 000-30733).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.
 43