##### 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 July 4, 2009
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
  þ o
  o o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
  o þ




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##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the
three and six month periods ended July 4, 2009
and June 28, 2008
    
    
    3Consolidated Balance Sheets as of July 4, 2009 and
January 3, 2009
    
    
    4Consolidated Statements of Cash Flow for the six
month periods ended July 4, 2009 and June 28,
2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    28ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    40ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    41PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    42ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    42ITEM 6.
    
    EXHIBITS
    
    
    43SIGNATURES
    
    
    44EXHIBIT INDEX
    
    
    45EX-10.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 American Medical Systems Holdings, Inc.
Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJuly 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008(a)
    
    
    
    
    
    
    (a)Net sales
    
    $
    126,388
    
    
    $
    129,797
    
    
    $
    250,026
    
    
    $
    250,159Cost of sales
    
    
    21,608
    
    
    
    29,185
    
    
    
    44,950
    
    
    
    58,175Gross profit
    
    
    104,780
    
    
    
    100,612
    
    
    
    205,076
    
    
    
    191,984Operating expensesMarketing and selling
    
    
    42,853
    
    
    
    46,301
    
    
    
    86,201
    
    
    
    91,382Research and development
    
    
    13,166
    
    
    
    11,366
    
    
    
    25,977
    
    
    
    22,666General and administrative
    
    
    11,660
    
    
    
    10,552
    
    
    
    22,439
    
    
    
    20,707Amortization of intangibles
    
    
    3,401
    
    
    
    4,300
    
    
    
    6,666
    
    
    
    8,647Total operating expenses
    
    
    71,080
    
    
    
    72,519
    
    
    
    141,283
    
    
    
    143,402Operating income
    
    
    33,700
    
    
    
    28,093
    
    
    
    63,793
    
    
    
    48,582Other (expense) incomeRoyalty income
    
    
    874
    
    
    
    2,476
    
    
    
    1,807
    
    
    
    2,831Interest income
    
    
    43
    
    
    
    157
    
    
    
    146
    
    
    
    352Interest expense
    
    
    (4,966
    )
    
    
    (6,819
    )
    
    
    (10,376
    )
    
    
    (14,876
    )Amortization of financing costs
    
    
    (3,974
    )
    
    
    (4,921
    )
    
    
    (7,955
    )
    
    
    (9,041
    )Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    4,562
    
    
    
    Other income
    
    
    724
    
    
    
    585
    
    
    
    1,276
    
    
    
    1,930Total other (expense) income
    
    
    (7,299
    )
    
    
    (8,522
    )
    
    
    (10,540
    )
    
    
    (18,804
    )Income before income taxes
    
    
    26,401
    
    
    
    19,571
    
    
    
    53,253
    
    
    
    29,778Provision for income taxes
    
    
    9,536
    
    
    
    7,753
    
    
    
    19,308
    
    
    
    11,873Net income
    
    $
    16,865
    
    
    $
    11,818
    
    
    $
    33,945
    
    
    $
    17,905Net income per shareBasic net earnings
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.46
    
    
    $
    0.25Diluted net earnings
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.46
    
    
    $
    0.24Weighted average common shares used in calculationBasic
    
    
    73,919
    
    
    
    72,814
    
    
    
    73,778
    
    
    
    72,645Diluted
    
    
    74,502
    
    
    
    73,928
    
    
    
    74,258
    
    
    
    73,718
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as
required by GAAP, for the change in accounting related to
the Companys Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial
statements.
 3




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##### Table of Contents



American Medical Systems Holdings, Inc.
Consolidated Balance Sheets
 July 4, 2009
    
    
    January 3, 2009(Unaudited)
    
    
    (a)AssetsCurrent assetsCash and cash equivalents
    
    $
    29,619
    
    
    $
    11,642Short-term investments
    
    
    19,712
    
    
    
    31,323Accounts receivable, net
    
    
    91,312
    
    
    
    93,078Inventories, net
    
    
    34,458
    
    
    
    38,500Deferred income taxes
    
    
    13,146
    
    
    
    12,908Other current assets
    
    
    4,748
    
    
    
    6,858Total current assets
    
    
    192,995
    
    
    
    194,309Property, plant and equipment, net
    
    
    45,940
    
    
    
    48,280Goodwill
    
    
    690,527
    
    
    
    690,097Developed and core technology, net
    
    
    56,969
    
    
    
    62,315Other intangibles, net
    
    
    51,448
    
    
    
    47,349Other long-term assets, net
    
    
    1,838
    
    
    
    2,147Total assets
    
    $
    1,039,717
    
    
    $
    1,044,497Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    7,755
    
    
    $
    7,830Income taxes payable
    
    
    4,247
    
    
    
    7,782Accrued compensation expenses
    
    
    21,755
    
    
    
    22,876Accrued warranty expense
    
    
    2,469
    
    
    
    3,287Other accrued expenses
    
    
    23,585
    
    
    
    21,535Total current liabilities
    
    
    59,811
    
    
    
    63,310Long-term debt
    
    
    442,122
    
    
    
    484,582Deferred income taxes
    
    
    50,517
    
    
    
    50,044Long-term income taxes payable
    
    
    15,789
    
    
    
    15,327Long-term employee benefit obligations
    
    
    3,737
    
    
    
    3,752Total liabilities
    
    
    571,976
    
    
    
    617,015Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 74,160,172 shares at July 4, 2009 and
73,668,415 shares at January 3, 2009
    
    
    742
    
    
    
    737Additional paid-in capital
    
    
    375,205
    
    
    
    369,594Accumulated other comprehensive income
    
    
    3,924
    
    
    
    3,226Retained earnings
    
    
    87,870
    
    
    
    53,925Total stockholders equity
    
    
    467,741
    
    
    
    427,482Total liabilities and stockholders equity
    
    $
    1,039,717
    
    
    $
    1,044,497
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as
required by GAAP, for the change
in accounting related to the Companys Convertible Notes. See Note 2. 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
 Six Months EndedJuly 4, 2009
    
    
    June 28, 2008(a)Cash flows from operating activitiesNet income
    
    $
    33,945
    
    
    $
    17,905Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    4,867
    
    
    
    4,764Amortization of intangibles
    
    
    6,666
    
    
    
    8,647Amortization of financing costs
    
    
    7,955
    
    
    
    9,041Non-cash impairment of available-for-sale securities
    
    
    
    
    
    
    843Excess tax benefit from exercise of stock options
    
    
    (310
    )
    
    
    (1,045
    )Tax benefit on exercised stock option arrangements
    
    
    733
    
    
    
    1,104Settlement of derivative contracts, net
    
    
    51
    
    
    
    Change in net deferred income taxes
    
    
    1,422
    
    
    
    2,462Gain on extinguishment of debt
    
    
    (4,562
    )
    
    
    Stock-based compensation
    
    
    4,476
    
    
    
    4,611Changes in operating assets and liabilities:Accounts receivable
    
    
    2,527
    
    
    
    3,071Inventories
    
    
    4,529
    
    
    
    13,632Accounts payable and accrued expenses
    
    
    (3,475
    )
    
    
    (20,456
    )Other assets
    
    
    1,024
    
    
    
    1,922Net cash provided by operating activities
    
    
    59,848
    
    
    
    46,501Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (2,462
    )
    
    
    (3,148
    )Settlement of derivative contracts, net
    
    
    (51
    )
    
    
    Disposal of business
    
    
    
    
    
    
    3,330Purchase of other intangibles
    
    
    (5,000
    )
    
    
    (1,167
    )Purchase of short-term investments
    
    
    (18,684
    )
    
    
    (15,066
    )Sale of short-term investments
    
    
    30,500
    
    
    
    73Net cash provided by (used in) investing activities
    
    
    4,303
    
    
    
    (15,978
    )Cash flows from financing activitiesIssuance of common stock
    
    
    3,908
    
    
    
    3,748Excess tax benefit from exercise of stock options
    
    
    310
    
    
    
    1,045Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    Payments on senior secured credit facility
    
    
    (29,111
    )
    
    
    (41,718
    )Proceeds from short-term borrowings
    
    
    
    
    
    
    12,000Repayments of short-term borrowings
    
    
    
    
    
    
    (12,000
    )Net cash used in financing activities
    
    
    (46,018
    )
    
    
    (36,925
    )Effect of currency exchange rates on cash
    
    
    (156
    )
    
    
    (1,447
    )Net increase (decrease) in cash and cash equivalents
    
    
    17,977
    
    
    
    (7,849
    )Cash and cash equivalents at beginning of period
    
    
    11,642
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    29,619
    
    
    $
    26,195Supplemental disclosureCash paid for interest
    
    $
    9,226
    
    
    $
    17,996Cash paid for taxes
    
    $
    19,846
    
    
    $
    1,990
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as
required by GAAP, for the change in accounting related to the Companys Convertible Notes. See Note 2. 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
 1. Basis of Presentation
    2. Recently Issued and Adopted Accounting Pronouncements
 Fair Value Measurements Note 11, Fair Value Measurements,
 Effective Date of FASB
Statement No. 157
 Business Combinations Business Combinations
 6




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Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133 Note 12, Derivative Instruments and Hedging Activities
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting
Changes and Error Corrections.
  Three Months Ended July 4, 2009
    
    Three Months Ended June 28, 2008Previous
    
    Effect of
    
    Current
    
    As
    
    Effect of
    
    As(in thousands, except per share data)
    
    Method
    
    Change
    
    Method
    
    Reported
    
    Change
    
    AdjustedNet income
    
    
    18,861
    
    
    
    (1,996
    )
    
    
    16,865
    
    
    
    13,994
    
    
    
    (2,176
    )
    
    
    11,818Basic net income per share
    
    $
    0.26
    
    
    
    (0.03
    )
    
    $
    0.23
    
    
    $
    0.19
    
    
    
    (0.03
    )
    
    $
    0.16Diluted net income per share
    
    $
    0.26
    
    
    
    (0.03
    )
    
    $
    0.23
    
    
    $
    0.19
    
    
    
    (0.03
    )
    
    $
    0.16
 Six Months Ended July 4, 2009
    
    Six Months Ended June 28, 2008Previous
    
    Effect of
    
    Current
    
    As
    
    Effect of
    
    As(in thousands, except per share data)
    
    Method
    
    Change
    
    Method
    
    Reported
    
    Change
    
    AdjustedNet income
    
    
    38,506
    
    
    
    (4,561
    )
    
    
    33,945
    
    
    
    22,205
    
    
    
    (4,300
    )
    
    
    17,905Basic net income per share
    
    $
    0.52
    
    
    $
    (0.06
    )
    
    $
    0.46
    
    
    $
    0.31
    
    
    $
    (0.06
    )
    
    $
    0.25Diluted net income per share
    
    $
    0.52
    
    
    $
    (0.06
    )
    
    $
    0.46
    
    
    $
    0.30
    
    
    $
    (0.06
    )
    
    $
    0.24
 Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination that Arise from Contingencies
 Interim Disclosures About Fair Value of
Financial Instruments Note 11, Fair Value Measurements
 Subsequent Events
 7




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Note 1, Basis of Presentation
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
 3. Stock-Based Compensation
  Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008Cost of sales
    
    $
    245
    
    
    $
    646
    
    
    $
    486
    
    
    $
    1,003Marketing and selling
    
    
    512
    
    
    
    847
    
    
    
    967
    
    
    
    1,691Research and development
    
    
    302
    
    
    
    558
    
    
    
    589
    
    
    
    1,116General and administrative
    
    
    1,201
    
    
    
    435
    
    
    
    2,434
    
    
    
    801Total stock-based compensation expense
    
    $
    2,260
    
    
    $
    2,486
    
    
    $
    4,476
    
    
    $
    4,611
    Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at January 3, 2009
    
    
    7,020,341
    
    
    $
    15.50Granted
    
    
    1,420,074
    
    
    
    11.37Exercised
    
    
    (296,501
    )
    
    
    8.42Cancelled or expired
    
    
    (635,754
    )
    
    
    16.90Balance at July 4, 2009
    
    
    7,508,160
    
    
    $
    14.88
    
    
    $
    15,343Options exercisable at July 4, 2009
    
    
    4,510,052
    
    
    $
    15.53
    
    
    $
    8,780
  4. Earnings per Share
  8




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Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008Net income
    
    $
    16,865
    
    
    $
    11,818
    
    
    $
    33,945
    
    
    $
    17,905Weighted-average shares outstanding for
basic net income per share
    
    
    73,919
    
    
    
    72,814
    
    
    
    73,778
    
    
    
    72,645Dilutive effect of stock options and
restricted shares
    
    
    583
    
    
    
    1,114
    
    
    
    480
    
    
    
    1,073Adjusted weighted-average shares outstanding
for diluted net income per share
    
    
    74,502
    
    
    
    73,928
    
    
    
    74,258
    
    
    
    73,718Net income per shareBasic net earnings
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.46
    
    
    $
    0.25Diluted net earnings
    
    $
    0.23
    
    
    $
    0.16
    
    
    $
    0.46
    
    
    $
    0.24
  5. Inventories
  (in thousands)
    
    July 4, 2009
    
    January 3, 2009Raw materials
    
    $
    10,447
    
    
    $
    11,611Work in process
    
    
    4,089
    
    
    
    4,841Finished goods
    
    
    26,221
    
    
    
    26,283Obsolescence reserve
    
    
    (6,299
    )
    
    
    (4,235
    )Net inventories
    
    $
    34,458
    
    
    $
    38,500
 6. Warranties
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    July 4, 2009
    
    
    June 28, 2008
    
    
    July 4, 2009
    
    
    June 28, 2008Balance, beginning of period
    
    $
    2,865
    
    
    $
    3,554
    
    
    $
    3,287
    
    
    $
    3,001Provisions for warranty
    
    
    155
    
    
    
    1,597
    
    
    
    963
    
    
    
    3,734Claims processed
    
    
    (551
    )
    
    
    (1,553
    )
    
    
    (1,781
    )
    
    
    (3,137
    )Balance, end of period
    
    $
    2,469
    
    
    $
    3,598
    
    
    $
    2,469
    
    
    $
    3,598
 7. Comprehensive Income
 Note 12, Derivative Instruments and Hedging
Activities
 9




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##### Table of Contents



Three Months Ended(in thousands)
    
    July 4, 2009
    
    June 28, 2008Net income
    
    $
    16,865
    
    
    $
    11,818Foreign currency translation gain (loss), net of taxes
of ($56) and ($121), respectively
    
    
    2,669
    
    
    
    (191
    )Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of $1065 and ($375), respectively
    
    
    (1,828
    )
    
    
    620Reclassification adjustments on cash flow hedges settled and included
in net income, net of tax of ($431)
    
    
    634
    
    
    
    Unrealized gain on available-for-sale securities, net of taxes
of ($63) and ($65), respectively
    
    
    109
    
    
    
    108Comprehensive income
    
    $
    18,449
    
    
    $
    12,355
 Six Months Ended(in thousands)
    
    July 4, 2009
    
    June 28, 2008Net income
    
    $
    33,945
    
    
    $
    17,905Foreign currency translation gain (loss), net of taxes
of ($7) and $326, respectively
    
    
    1,295
    
    
    
    1,793Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of $913 and ($375), respectively
    
    
    (1,546
    )
    
    
    403Reclassification adjustments on cash flow hedges settled and included
in net income, net of tax of ($562)
    
    
    820
    
    
    
    Recognition of previously unrealized losses on available-for-sale
securities, net of taxes of ($263)
    
    
    
    
    
    
    433Unrealized gain on available-for-sale securities, net of taxes
of ($75) and ($65), respectively
    
    
    129
    
    
    
    108Comprehensive income
    
    $
    34,643
    
    
    $
    20,642
  Net UnrealizedGain (Loss) on
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalDerivative
    
    
    
    
    
    Foreign
    
    Net Unrealized
    
    AccumulatedInstruments
    
    Post-retirement
    
    Currency
    
    (Loss) Gain on
    
    OtherQualifying as
    
    Plan Liability
    
    Translation
    
    Available-for-
    
    Comprehensive(in thousands)
    
    Hedges
    
    Adjustment
    
    Adjustment
    
    sale Investments
    
    IncomeBalance at January 3, 2009
    
    $
    (1,982
    )
    
    $
    (180
    )
    
    $
    5,490
    
    
    $
    (102
    )
    
    $
    3,226Balance at July 4, 2009
    
    $
    (2,708
    )
    
    $
    (180
    )
    
    $
    6,785
    
    
    $
    27
    
    
    $
    3,924
 8. Goodwill and Intangible Assets
  Six Months Ended(in thousands)
    
    July 4, 2009Goodwill, beginning of the period
    
    $
    690,097Effect of currency translation
    
    
    430Goodwill, end of the period
    
    $
    690,527
 10




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July 4, 2009
    
    January 3, 2009Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueDeveloped and core technology
    
    $
    137,553
    
    
    $
    (80,584
    )
    
    $
    56,969
    
    
    $
    137,553
    
    
    $
    (75,238
    )
    
    $
    62,315Other intangiblesAmortizedPatents
    
    
    11,510
    
    
    
    (9,507
    )
    
    
    2,003
    
    
    
    11,510
    
    
    
    (9,317
    )
    
    
    2,193Licenses
    
    
    14,731
    
    
    
    (8,378
    )
    
    
    6,353
    
    
    
    9,312
    
    
    
    (7,659
    )
    
    
    1,653Royalty agreement
    
    
    2,970
    
    
    
    (1,339
    )
    
    
    1,631
    
    
    
    2,970
    
    
    
    (1,148
    )
    
    
    1,822Trademarks
    
    
    2,233
    
    
    
    (1,572
    )
    
    
    661
    
    
    
    2,208
    
    
    
    (1,327
    )
    
    
    881Total amortized other
intangible assets
    
    
    31,444
    
    
    
    (20,796
    )
    
    
    10,648
    
    
    
    26,000
    
    
    
    (19,451
    )
    
    
    6,549Unamortized
Trademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    72,244
    
    
    
    (20,796
    )
    
    
    51,448
    
    
    
    66,800
    
    
    
    (19,451
    )
    
    
    47,349Total intangible assets
    
    $
    209,797
    
    
    $
    (101,380
    )
    
    $
    108,417
    
    
    $
    204,353
    
    
    $
    (94,689
    )
    
    $
    109,664
   9. Litigation Settlements
 Her Option ®
 10. Debt
 Senior Secured Credit Facility
  Note 9, Litigation Settlements
 11




---



##### Table of Contents



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




---



##### Table of Contents



Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement). Note 2, Recently Issued and Adopted Accounting Pronouncements.
      13




---



##### Table of Contents



(see Note 2, Recently Issued and Adopted
Accounting Pronouncements).
 14




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended July 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    113,514
    
    
    $
    28,043
    
    
    $
    (15,169
    )
    
    $
    126,388Cost of sales
    
    
    
    
    
    
    20,814
    
    
    
    16,282
    
    
    
    (15,488
    )
    
    
    21,608Gross profit
    
    
    
    
    
    
    92,700
    
    
    
    11,761
    
    
    
    319
    
    
    
    104,780Operating expensesMarketing and selling
    
    
    
    
    
    
    33,639
    
    
    
    9,214
    
    
    
    
    
    
    
    42,853Research and development
    
    
    
    
    
    
    13,198
    
    
    
    (32
    )
    
    
    
    
    
    
    13,166General and administrative
    
    
    
    
    
    
    11,660
    
    
    
    
    
    
    
    
    
    
    
    11,660Amortization of intangibles
    
    
    
    
    
    
    3,401
    
    
    
    
    
    
    
    
    
    
    
    3,401Total operating expenses
    
    
    
    
    
    
    61,898
    
    
    
    9,182
    
    
    
    
    
    
    
    71,080Operating income
    
    
    
    
    
    
    30,802
    
    
    
    2,579
    
    
    
    319
    
    
    
    33,700Other (expense) incomeRoyalty income
    
    
    
    
    
    
    874
    
    
    
    
    
    
    
    
    
    
    
    874Interest income
    
    
    
    
    
    
    76
    
    
    
    15
    
    
    
    (48
    )
    
    
    43Interest expense
    
    
    (2,548
    )
    
    
    (2,414
    )
    
    
    (52
    )
    
    
    48
    
    
    
    (4,966
    )Amortization of financing
costs
    
    
    (3,292
    )
    
    
    (682
    )
    
    
    
    
    
    
    
    
    
    
    (3,974
    )Gain on extinguishment of
debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense)
    
    
    
    
    
    
    392
    
    
    
    312
    
    
    
    20
    
    
    
    724Total other (expense) income
    
    
    (5,840
    )
    
    
    (1,754
    )
    
    
    275
    
    
    
    20
    
    
    
    (7,299
    )(Loss) income before income taxes
    
    
    (5,840
    )
    
    
    29,048
    
    
    
    2,854
    
    
    
    339
    
    
    
    26,401Provision for income taxes
    
    
    (2,202
    )
    
    
    10,617
    
    
    
    994
    
    
    
    127
    
    
    
    9,536Equity in earnings of subsidiary
    
    
    20,291
    
    
    
    1,860
    
    
    
    
    
    
    
    (22,151
    )
    
    
    Net income
    
    $
    16,653
    
    
    $
    20,291
    
    
    $
    1,860
    
    
    $
    (21,939
    )
    
    $
    16,865
 15




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended July 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    225,065
    
    
    $
    55,341
    
    
    $
    (30,380
    )
    
    $
    250,026Cost of sales
    
    
    
    
    
    
    44,420
    
    
    
    31,317
    
    
    
    (30,787
    )
    
    
    44,950Gross profit
    
    
    
    
    
    
    180,645
    
    
    
    24,024
    
    
    
    407
    
    
    
    205,076Operating expensesMarketing and selling
    
    
    
    
    
    
    67,537
    
    
    
    18,664
    
    
    
    
    
    
    
    86,201Research and development
    
    
    
    
    
    
    25,984
    
    
    
    (7
    )
    
    
    
    
    
    
    25,977General and administrative
    
    
    
    
    
    
    22,439
    
    
    
    
    
    
    
    
    
    
    
    22,439Amortization of intangibles
    
    
    
    
    
    
    6,666
    
    
    
    
    
    
    
    
    
    
    
    6,666Total operating expenses
    
    
    
    
    
    
    122,626
    
    
    
    18,657
    
    
    
    
    
    
    
    141,283Operating income
    
    
    
    
    
    
    58,019
    
    
    
    5,367
    
    
    
    407
    
    
    
    63,793Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,807
    
    
    
    
    
    
    
    
    
    
    
    1,807Interest income
    
    
    
    
    
    
    208
    
    
    
    36
    
    
    
    (98
    )
    
    
    146Interest expense
    
    
    (5,249
    )
    
    
    (5,110
    )
    
    
    (115
    )
    
    
    98
    
    
    
    (10,376
    )Amortization of financing costs
    
    
    (6,762
    )
    
    
    (1,193
    )
    
    
    
    
    
    
    
    
    
    
    (7,955
    )Gain on extinguishment of debt
    
    
    4,562
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,562Other income (expense)
    
    
    
    
    
    
    1,150
    
    
    
    124
    
    
    
    2
    
    
    
    1,276Total other (expense) income
    
    
    (7,449
    )
    
    
    (3,138
    )
    
    
    45
    
    
    
    2
    
    
    
    (10,540
    )(Loss) income before income taxes
    
    
    (7,449
    )
    
    
    54,881
    
    
    
    5,412
    
    
    
    409
    
    
    
    53,253Provision for income taxes
    
    
    (2,809
    )
    
    
    20,080
    
    
    
    1,884
    
    
    
    153
    
    
    
    19,308Equity in earnings of subsidiary
    
    
    38,329
    
    
    
    3,528
    
    
    
    
    
    
    
    (41,857
    )
    
    
    Net income
    
    $
    33,689
    
    
    $
    38,329
    
    
    $
    3,528
    
    
    $
    (41,601
    )
    
    $
    33,945
 16




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended June 28, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    116,693
    
    
    $
    31,097
    
    
    $
    (17,993
    )
    
    $
    129,797Cost of sales
    
    
    
    
    
    
    28,482
    
    
    
    19,081
    
    
    
    (18,378
    )
    
    
    29,185Gross profit
    
    
    
    
    
    
    88,211
    
    
    
    12,016
    
    
    
    385
    
    
    
    100,612Operating expensesMarketing and selling
    
    
    
    
    
    
    36,217
    
    
    
    10,084
    
    
    
    
    
    
    
    46,301Research and development
    
    
    
    
    
    
    11,366
    
    
    
    
    
    
    
    
    
    
    
    11,366General and administrative
    
    
    
    
    
    
    10,552
    
    
    
    
    
    
    
    
    
    
    
    10,552Amortization of intangibles
    
    
    
    
    
    
    3,430
    
    
    
    870
    
    
    
    
    
    
    
    4,300Total operating expenses
    
    
    
    
    
    
    61,565
    
    
    
    10,954
    
    
    
    
    
    
    
    72,519Operating income
    
    
    
    
    
    
    26,646
    
    
    
    1,062
    
    
    
    385
    
    
    
    28,093Other (expense) incomeRoyalty income
    
    
    
    
    
    
    976
    
    
    
    1,500
    
    
    
    
    
    
    
    2,476Interest income
    
    
    
    
    
    
    232
    
    
    
    21
    
    
    
    (96
    )
    
    
    157Interest expense
    
    
    (3,037
    )
    
    
    (3,777
    )
    
    
    (101
    )
    
    
    96
    
    
    
    (6,819
    )Amortization of financing costs
    
    
    (3,597
    )
    
    
    (1,324
    )
    
    
    
    
    
    
    
    
    
    
    (4,921
    )Other income (expense)
    
    
    
    
    
    
    647
    
    
    
    (53
    )
    
    
    (9
    )
    
    
    585Total other (expense) income
    
    
    (6,634
    )
    
    
    (3,246
    )
    
    
    1,367
    
    
    
    (9
    )
    
    
    (8,522
    )(Loss) income before income taxes
    
    
    (6,634
    )
    
    
    23,400
    
    
    
    2,429
    
    
    
    376
    
    
    
    19,571Provision for income taxes
    
    
    (2,310
    )
    
    
    9,177
    
    
    
    768
    
    
    
    118
    
    
    
    7,753Equity in earnings of subsidiary
    
    
    15,884
    
    
    
    1,661
    
    
    
    
    
    
    
    (17,545
    )
    
    
    Net income (loss)
    
    $
    11,560
    
    
    $
    15,884
    
    
    $
    1,661
    
    
    $
    (17,287
    )
    
    $
    11,818
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for the change in accounting related to
the Companys Convertible Notes. See Note 2. 17




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended June 28, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    226,485
    
    
    $
    58,835
    
    
    $
    (35,161
    )
    
    $
    250,159Cost of sales
    
    
    
    
    
    
    57,178
    
    
    
    36,081
    
    
    
    (35,084
    )
    
    
    58,175Gross profit
    
    
    
    
    
    
    169,307
    
    
    
    22,754
    
    
    
    (77
    )
    
    
    191,984Operating expensesMarketing and selling
    
    
    
    
    
    
    70,164
    
    
    
    21,218
    
    
    
    
    
    
    
    91,382Research and development
    
    
    
    
    
    
    22,666
    
    
    
    
    
    
    
    
    
    
    
    22,666General and administrative
    
    
    
    
    
    
    20,706
    
    
    
    1
    
    
    
    
    
    
    
    20,707Amortization of intangibles
    
    
    
    
    
    
    6,907
    
    
    
    1,740
    
    
    
    
    
    
    
    8,647Total operating expenses
    
    
    
    
    
    
    120,443
    
    
    
    22,959
    
    
    
    
    
    
    
    143,402Operating income
    
    
    
    
    
    
    48,864
    
    
    
    (205
    )
    
    
    (77
    )
    
    
    48,582Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,331
    
    
    
    1,500
    
    
    
    
    
    
    
    2,831Interest income
    
    
    
    
    
    
    1,041
    
    
    
    33
    
    
    
    (722
    )
    
    
    352Interest expense
    
    
    (6,074
    )
    
    
    (8,792
    )
    
    
    (732
    )
    
    
    722
    
    
    
    (14,876
    )Amortization of financing costs
    
    
    (7,111
    )
    
    
    (1,930
    )
    
    
    
    
    
    
    
    
    
    
    (9,041
    )Other income (expense)
    
    
    
    
    
    
    1,944
    
    
    
    (39
    )
    
    
    25
    
    
    
    1,930Total other (expense) income
    
    
    (13,185
    )
    
    
    (6,406
    )
    
    
    762
    
    
    
    25
    
    
    
    (18,804
    )(Loss) income before income taxes
    
    
    (13,185
    )
    
    
    42,458
    
    
    
    557
    
    
    
    (52
    )
    
    
    29,778Provision for income taxes
    
    
    (4,743
    )
    
    
    16,570
    
    
    
    84
    
    
    
    (38
    )
    
    
    11,873Equity in earnings of subsidiary
    
    
    26,361
    
    
    
    473
    
    
    
    
    
    
    
    (26,834
    )
    
    
    Net income (loss)
    
    $
    17,919
    
    
    $
    26,361
    
    
    $
    473
    
    
    $
    (26,848
    )
    
    $
    17,905
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for the change in accounting related to
the Companys Convertible Notes. See Note 2. 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of July 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    17,654
    
    
    $
    11,965
    
    
    $
    
    
    
    $
    29,619Short-term investments
    
    
    4,827
    
    
    
    14,200
    
    
    
    685
    
    
    
    
    
    
    
    19,712Accounts receivable, net
    
    
    589,129
    
    
    
    51,203
    
    
    
    26,705
    
    
    
    (575,725
    )
    
    
    91,312Inventories, net
    
    
    
    
    
    
    32,267
    
    
    
    5,421
    
    
    
    (3,230
    )
    
    
    34,458Deferred income taxes
    
    
    
    
    
    
    12,873
    
    
    
    273
    
    
    
    
    
    
    
    13,146Other current assets
    
    
    
    
    
    
    3,636
    
    
    
    1,112
    
    
    
    
    
    
    
    4,748Total current assets
    
    
    593,956
    
    
    
    131,833
    
    
    
    46,161
    
    
    
    (578,955
    )
    
    
    192,995Property, plant and equipment, net
    
    
    
    
    
    
    44,405
    
    
    
    1,535
    
    
    
    
    
    
    
    45,940Goodwill
    
    
    
    
    
    
    628,193
    
    
    
    86,355
    
    
    
    (24,021
    )
    
    
    690,527Developed and core technology, net
    
    
    
    
    
    
    56,969
    
    
    
    
    
    
    
    
    
    
    
    56,969Other intangibles, net
    
    
    
    
    
    
    51,448
    
    
    
    
    
    
    
    
    
    
    
    51,448Investment in subsidiaries
    
    
    148,582
    
    
    
    38,049
    
    
    
    
    
    
    
    (186,631
    )
    
    
    Other long-term assets, net
    
    
    472
    
    
    
    1,194
    
    
    
    172
    
    
    
    
    
    
    
    1,838Total assets
    
    $
    743,010
    
    
    $
    952,091
    
    
    $
    134,223
    
    
    $
    (789,607
    )
    
    $
    1,039,717Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    9,891
    
    
    $
    514,337
    
    
    $
    74,297
    
    
    $
    (590,770
    )
    
    $
    7,755Accrued compensation expenses
    
    
    
    
    
    
    18,292
    
    
    
    3,463
    
    
    
    
    
    
    
    21,755Accrued warranty expense
    
    
    
    
    
    
    2,583
    
    
    
    (114
    )
    
    
    
    
    
    
    2,469Income taxes payable
    
    
    (4,479
    )
    
    
    6,843
    
    
    
    1,883
    
    
    
    
    
    
    
    4,247Other accrued expenses
    
    
    82
    
    
    
    19,157
    
    
    
    4,346
    
    
    
    
    
    
    
    23,585Total current liabilities
    
    
    5,494
    
    
    
    561,212
    
    
    
    83,875
    
    
    
    (590,770
    )
    
    
    59,811Non-current liabilitiesLong-term debt
    
    
    247,506
    
    
    
    194,616
    
    
    
    
    
    
    
    
    
    
    
    442,122Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    12,206
    
    
    
    (12,206
    )
    
    
    Deferred income taxes
    
    
    22,269
    
    
    
    28,155
    
    
    
    93
    
    
    
    
    
    
    
    50,517Long-term income taxes payable
    
    
    
    
    
    
    15,789
    
    
    
    
    
    
    
    
    
    
    
    15,789Long-term employee benefit obligations
    
    
    
    
    
    
    3,737
    
    
    
    
    
    
    
    
    
    
    
    3,737Total non-current liabilities
    
    
    269,775
    
    
    
    242,297
    
    
    
    12,299
    
    
    
    (12,206
    )
    
    
    512,165Total liabilities
    
    
    275,269
    
    
    
    803,509
    
    
    
    96,174
    
    
    
    (602,976
    )
    
    
    571,976Stockholders equityCommon stock
    
    
    742
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    742Additional paid-in capital
    
    
    375,205
    
    
    
    3,424
    
    
    
    67,368
    
    
    
    (70,792
    )
    
    
    375,205Accumulated other comprehensive income
    
    
    3,924
    
    
    
    (1,943
    )
    
    
    6,065
    
    
    
    (4,122
    )
    
    
    3,924Retained earnings (deficit)
    
    
    87,870
    
    
    
    147,101
    
    
    
    (35,393
    )
    
    
    (111,708
    )
    
    
    87,870Total stockholders equity
    
    
    467,741
    
    
    
    148,582
    
    
    
    38,049
    
    
    
    (186,631
    )
    
    
    467,741Total liabilities and stockholders equity
    
    $
    743,010
    
    
    $
    952,091
    
    
    $
    134,223
    
    
    $
    (789,607
    )
    
    $
    1,039,717
 19




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of January 3, 2009(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    3,143
    
    
    $
    8,499
    
    
    $
    
    
    
    $
    11,642Short-term investments
    
    
    15,756
    
    
    
    15,433
    
    
    
    134
    
    
    
    
    
    
    
    31,323Accounts receivable, net
    
    
    618,891
    
    
    
    68,158
    
    
    
    24,817
    
    
    
    (618,788
    )
    
    
    93,078Inventories, net
    
    
    
    
    
    
    36,521
    
    
    
    5,226
    
    
    
    (3,247
    )
    
    
    38,500Deferred income taxes
    
    
    
    
    
    
    12,412
    
    
    
    496
    
    
    
    
    
    
    
    12,908Other current assets
    
    
    
    
    
    
    5,832
    
    
    
    1,026
    
    
    
    
    
    
    
    6,858Total current assets
    
    
    634,647
    
    
    
    141,499
    
    
    
    40,198
    
    
    
    (622,035
    )
    
    
    194,309Property, plant and equipment, net
    
    
    
    
    
    
    46,751
    
    
    
    1,529
    
    
    
    
    
    
    
    48,280Goodwill
    
    
    
    
    
    
    628,193
    
    
    
    85,925
    
    
    
    (24,021
    )
    
    
    690,097Developed and core technology, net
    
    
    
    
    
    
    62,315
    
    
    
    
    
    
    
    
    
    
    
    62,315Other intangibles, net
    
    
    
    
    
    
    47,349
    
    
    
    
    
    
    
    
    
    
    
    47,349Investment in subsidiaries
    
    
    110,868
    
    
    
    32,824
    
    
    
    
    
    
    
    (143,692
    )
    
    
    Other long-term assets, net
    
    
    578
    
    
    
    1,418
    
    
    
    151
    
    
    
    
    
    
    
    2,147Total assets
    
    $
    746,093
    
    
    $
    960,349
    
    
    $
    127,803
    
    
    $
    (789,748
    )
    
    $
    1,044,497Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    11,461
    
    
    $
    556,362
    
    
    $
    70,944
    
    
    $
    (630,937
    )
    
    $
    7,830Accrued compensation expenses
    
    
    
    
    
    
    19,252
    
    
    
    3,624
    
    
    
    
    
    
    
    22,876Accrued warranty expense
    
    
    
    
    
    
    3,300
    
    
    
    (13
    )
    
    
    
    
    
    
    3,287Income taxes payable
    
    
    (980
    )
    
    
    6,657
    
    
    
    2,105
    
    
    
    
    
    
    
    7,782Other accrued expenses
    
    
    91
    
    
    
    18,504
    
    
    
    2,940
    
    
    
    
    
    
    
    21,535Total current liabilities
    
    
    10,572
    
    
    
    604,075
    
    
    
    79,600
    
    
    
    (630,937
    )
    
    
    63,310Non-current liabilitiesLong-term debt
    
    
    262,094
    
    
    
    222,488
    
    
    
    
    
    
    
    
    
    
    
    484,582Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    15,119
    
    
    
    (15,119
    )
    
    
    Deferred income taxes
    
    
    45,945
    
    
    
    3,839
    
    
    
    260
    
    
    
    
    
    
    
    50,044Long-term income taxes payable
    
    
    
    
    
    
    15,327
    
    
    
    
    
    
    
    
    
    
    
    15,327Long-term employee benefit obligations
    
    
    
    
    
    
    3,752
    
    
    
    
    
    
    
    
    
    
    
    3,752Total non-current liabilities
    
    
    308,039
    
    
    
    245,406
    
    
    
    15,379
    
    
    
    (15,119
    )
    
    
    553,705Total liabilities
    
    
    318,611
    
    
    
    849,481
    
    
    
    94,979
    
    
    
    (646,056
    )
    
    
    617,015Stockholders equityCommon stock
    
    
    737
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    737Additional paid-in capital
    
    
    369,594
    
    
    
    3,424
    
    
    
    67,368
    
    
    
    (70,792
    )
    
    
    369,594Accumulated other comprehensive income
    
    
    3,226
    
    
    
    (1,334
    )
    
    
    4,367
    
    
    
    (3,033
    )
    
    
    3,226Retained earnings (deficit)
    
    
    53,925
    
    
    
    108,778
    
    
    
    (38,920
    )
    
    
    (69,858
    )
    
    
    53,925Total stockholders equity
    
    
    427,482
    
    
    
    110,868
    
    
    
    32,824
    
    
    
    (143,692
    )
    
    
    427,482Total liabilities and stockholders equity
    
    $
    746,093
    
    
    $
    960,349
    
    
    $
    127,803
    
    
    $
    (789,748
    )
    
    $
    1,044,497
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for the change in accounting related tothe Companys Convertible Notes. See Note 2. 20




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended July 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    16,907
    
    
    $
    35,477
    
    
    $
    7,464
    
    
    $
    
    
    
    $
    59,848Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (2,259
    )
    
    
    (203
    )
    
    
    
    
    
    
    (2,462
    )Purchase of other intangibles
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    
    
    
    
    (5,000
    )Purchase of short-term investments
    
    
    
    
    
    
    (18,134
    )
    
    
    (550
    )
    
    
    
    
    
    
    (18,684
    )Sale of short-term investments
    
    
    
    
    
    
    30,500
    
    
    
    
    
    
    
    
    
    
    
    30,500Settlement of derivative contracts, net
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Net cash provided by (used in) investing activities
    
    
    
    
    
    
    5,056
    
    
    
    (753
    )
    
    
    
    
    
    
    4,303Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    3,089
    
    
    
    (3,089
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    3,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,908Excess tax benefit from exercise of stock options
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310Payments on senior secured credit facility
    
    
    
    
    
    
    (29,111
    )
    
    
    
    
    
    
    
    
    
    
    (29,111
    )Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,125
    )Net cash used in financing activities
    
    
    (16,907
    )
    
    
    (26,022
    )
    
    
    (3,089
    )
    
    
    
    
    
    
    (46,018
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (156
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    14,511
    
    
    
    3,466
    
    
    
    
    
    
    
    17,977Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,143
    
    
    
    8,499
    
    
    
    
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    17,654
    
    
    $
    11,965
    
    
    $
    
    
    
    $
    29,619
 21




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended June 28, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating activities
    
    $
    (4,793
    )
    
    $
    50,588
    
    
    $
    706
    
    
    $
    
    
    
    $
    46,501Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (2,860
    )
    
    
    (288
    )
    
    
    
    
    
    
    (3,148
    )Disposal of business
    
    
    
    
    
    
    3,330
    
    
    
    
    
    
    
    
    
    
    
    3,330Purchase of other intangibles
    
    
    
    
    
    
    (1,167
    )
    
    
    
    
    
    
    
    
    
    
    (1,167
    )Purchase of short-term investments
    
    
    
    
    
    
    (15,066
    )
    
    
    
    
    
    
    
    
    
    
    (15,066
    )Sale of short-term investments
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    73Net cash used in investing activities
    
    
    
    
    
    
    (15,690
    )
    
    
    (288
    )
    
    
    
    
    
    
    (15,978
    )Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    3,777
    
    
    
    (3,777
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    3,748
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,748Excess tax benefit from exercise of stock options
    
    
    1,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,045Payments on long-term debt
    
    
    
    
    
    
    (41,718
    )
    
    
    
    
    
    
    
    
    
    
    (41,718
    )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
    
    
    4,793
    
    
    
    (37,941
    )
    
    
    (3,777
    )
    
    
    
    
    
    
    (36,925
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (1,447
    )
    
    
    
    
    
    
    (1,447
    )Net (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (3,043
    )
    
    
    (4,806
    )
    
    
    
    
    
    
    (7,849
    )Cash and cash equivalents at beginning of period
    
    
    32
    
    
    
    21,671
    
    
    
    12,341
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    32
    
    
    $
    18,628
    
    
    $
    7,535
    
    
    $
    
    
    
    $
    26,195
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for the change in accounting related tothe Companys Convertible Notes. See Note 2. 22




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##### Table of Contents



11. Fair Value Measurements
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  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
    
    $
    18,481
    
    
    $
    
    
    
    $
    Available-for-sale securities
    
    
    420
    
    
    
    
    
    
    
    Other short-term investments
    
    
    126
    
    
    
    685
    
    
    
    Derivatives
    
    
    
    
    
    
    68
    
    
    
    Total
    
    $
    19,027
    
    
    $
    753
    
    
    $
    LiabilitiesDerivatives
    
    $
    
    
    
    $
    4,121
    
    
    $
    
    Note 12, Derivative Instruments and
Hedging Activities
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  23




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##### Table of Contents



Fair
Value of Debt
   July 4, 2009
    
    
    January 3, 2009Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueConvertible Notes
    
    $
    311,985
    
    
    $
    304,756
    
    
    $
    339,250
    
    
    $
    229,944Credit Facility
    
    
    199,705
    
    
    
    182,865
    
    
    
    228,817
    
    
    
    193,003$
    511,690
    
    
    $
    487,621
    
    
    $
    568,067
    
    
    $
    422,947
 12. Derivative Instruments and Hedging Activities
     24




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##### Table of Contents



Fair Values of Derivative InstrumentsAsset Derivatives
    
    
    Liability DerivativesJuly 4, 2009
    
    
    January 3, 2009
    
    
    July 4, 2009
    
    
    January 3, 2009Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceSheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair(in thousands)
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    ValueDerivatives designated as hedging instruments under SFAS 133Interest rate swap contracts
    
    Other current assets
    
    $
    
    
    
    Other current assets
    
    $
    
    
    
    Other accrued expenses
    
    $
    1,546
    
    
    Other accrued expenses
    
    $
    2,663Foreign exchange forward contracts
    
    Other current assets
    
    
    
    
    
    Other current assets
    
    
    659
    
    
    Other accrued expenses
    
    
    2,575
    
    
    Other accrued expenses
    
    
    1,729Total derivatives designated as hedging
instruments under SFAS 133
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    659
    
    
    
    
    
    
    $
    4,121
    
    
    
    
    
    
    $
    4,392Derivatives not designated as hedging instruments under SFAS 133Foreign exchange forward contracts
    
    Other current assets
    
    $
    68
    
    
    Other current assets
    
    $
    223
    
    
    Other accrued  expenses
    
    $
    
    
    
    Other accrued  expenses
    
    $
    Total derivatives not designated as hedging instruments under SFAS 133
    
    
    
    
    
    $
    68
    
    
    
    
    
    
    $
    223
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Total derivatives
    
    
    
    
    
    $
    68
    
    
    
    
    
    
    $
    882
    
    
    
    
    
    
    $
    4,121
    
    
    
    
    
    
    $
    4,392
    25




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##### Table of Contents



The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Three Months Ended July 4, 2009
  Amount of Gain
    
    
    Location of
    
    Amount of Gain orDerivatives in
    
    or (Loss) Recognized
    
    
    Gain or (Loss)
    
    (Loss) ReclassifiedSFAS 133
    
    in OCI on
    
    
    Reclassified from
    
    from AccumulatedCash Flow
    
    Derivatives
    
    
    Accumulated OCI
    
    OCI into IncomeHedging
    
    (Effective Portion)
    
    
    into Income
    
    (Effective Portion)Relationships
    
    July 4, 2009
    
    
    (Effective Portion)
    
    July 4, 2009Interest rate swap
contracts
    
    $
    533
    
    
    Interest expense
    
    $
    (877
    )Foreign exchange
contracts
    
    
    (2,362
    )
    
    Other income
    
    
    (188
    )Total
    
    $
    (1,829
    )
    
    
    
    $
    (1,065
    )
 Derivatives not
    
    Location ofDesignated
    
    Gain or (Loss)
    
    
    Amount of Gain oras Hedging
    
    Recognized
    
    
    (Loss) Recognized inInstruments
    
    in Income on
    
    
    Income on Derivativesunder SFAS 133
    
    Derivatives
    
    
    July 4, 2009Foreign exchange contracts
    
    Other income
    
    $
    (559
    )Total
    
    
    
    
    
    $
    (559
    )
 The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Six Months Ended July 4, 2009
  Amount of Gain
    
    
    Location of
    
    Amount of Gain orDerivatives in
    
    or (Loss) Recognized
    
    
    Gain or (Loss)
    
    (Loss) ReclassifiedSFAS 133
    
    in OCI on
    
    
    Reclassified from
    
    from AccumulatedCash Flow
    
    Derivatives
    
    
    Accumulated OCI
    
    OCI into IncomeHedging
    
    (Effective Portion)
    
    
    into Income
    
    (Effective Portion)Relationships
    
    July 4, 2009
    
    
    (Effective Portion)
    
    July 4, 2009Interest rate swap
contracts
    
    $
    1,162
    
    
    Interest expense
    
    $
    (1,911
    )Foreign exchange
contracts
    
    
    (2,238
    )
    
    Other income
    
    
    529Total
    
    $
    (1,076
    )
    
    
    
    $
    (1,382
    )
 Derivatives not
    
    Location ofDesignated
    
    Gain or (Loss)
    
    Amount of Gain oras Hedging
    
    Recognized
    
    (Loss) Recognized inInstruments
    
    in Income on
    
    Income on Derivativesunder SFAS 133
    
    Derivatives
    
    July 4, 2009Foreign exchange contracts
    
    Other income
    
    $
    (206
    )Total
    
    
    
    $
    (206
    )
 13. Industry Segment Information and Foreign Operations
   26




---



##### Table of Contents



Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 4, 2009
    
    June 28, 2008
    
    July 4, 2009
    
    June 28, 2008United StatesNet sales
    
    $
    89,405
    
    
    $
    89,818
    
    
    $
    179,075
    
    
    $
    174,211Long-lived assets
    
    
    829,172
    
    
    
    861,598
    
    
    
    829,172
    
    
    
    861,598InternationalNet sales
    
    
    36,983
    
    
    
    39,979
    
    
    
    70,951
    
    
    
    75,948Long-lived assets
    
    
    17,550
    
    
    
    19,468
    
    
    
    17,550
    
    
    
    19,468
 27




---



##### 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. 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.
 28




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    $ Increase
    
    % Increase
    
    Six Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    July 4, 2009
    
    June 28, 2008
    
    (Decrease)
    
    (Decrease)
    
    July 4, 2009
    
    June 28, 2008
    
    (Decrease)
    
    (Decrease)Net SalesProduct LineMens health
    
    $
    56,967
    
    
    $
    56,570
    
    
    $
    397
    
    
    
    0.7
    %
    
    $
    116,424
    
    
    $
    109,245
    
    
    $
    7,179
    
    
    
    6.6
    %BPH therapy
    
    
    28,084
    
    
    
    28,362
    
    
    
    (278
    )
    
    
    -1.0
    %
    
    
    53,473
    
    
    
    59,295
    
    
    
    (5,822
    )
    
    
    -9.8
    %Womens health
    
    
    41,337
    
    
    
    44,865
    
    
    
    (3,528
    )
    
    
    -7.9
    %
    
    
    80,129
    
    
    
    81,619
    
    
    
    (1,490
    )
    
    
    -1.8
    %Total
    
    $
    126,388
    
    
    $
    129,797
    
    
    $
    (3,409
    )
    
    
    -2.6
    %
    
    $
    250,026
    
    
    $
    250,159
    
    
    $
    (133
    )
    
    
    -0.1
    %GeographyUnited States
    
    $
    89,405
    
    
    $
    89,818
    
    
    $
    (413
    )
    
    
    -0.5
    %
    
    $
    179,075
    
    
    $
    174,211
    
    
    $
    4,864
    
    
    
    2.8
    %International
    
    
    36,983
    
    
    
    39,979
    
    
    
    (2,996
    )
    
    
    -7.5
    %
    
    
    70,951
    
    
    
    75,948
    
    
    
    (4,997
    )
    
    
    -6.6
    %Total
    
    $
    126,388
    
    
    $
    129,797
    
    
    $
    (3,409
    )
    
    
    -2.6
    %
    
    $
    250,026
    
    
    $
    250,159
    
    
    $
    (133
    )
    
    
    -0.1
    %
 Three Months Ended
    
    Six Months EndedJuly 4, 2009
    
    June 28, 2008
    
    July 4, 2009
    
    June 28, 2008Percent of net salesMens health
    
    
    45.1
    %
    
    
    43.6
    %
    
    
    46.6
    %
    
    
    43.7
    %BPH therapy
    
    
    22.2
    %
    
    
    21.9
    %
    
    
    21.4
    %
    
    
    23.7
    %Womens health
    
    
    32.7
    %
    
    
    34.6
    %
    
    
    32.0
    %
    
    
    32.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    70.7
    %
    
    
    69.2
    %
    
    
    71.6
    %
    
    
    69.6
    %International
    
    
    29.3
    %
    
    
    30.8
    %
    
    
    28.4
    %
    
    
    30.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 29




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase
    
    Six Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    July 4, 2009
    
    June 28, 2008
    
    (Decrease)
    
    (Decrease)
    
    July 4, 2009
    
    June 28, 2008
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    126,388
    
    
    $
    129,797
    
    
    $
    (3,409
    )
    
    
    -2.6
    %
    
    $
    250,026
    
    
    $
    250,159
    
    
    $
    (133
    )
    
    
    -0.1
    %Cost of sales
    
    $
    21,608
    
    
    $
    29,185
    
    
    
    (7,577
    )
    
    
    -26.0
    %
    
    $
    44,950
    
    
    $
    58,175
    
    
    
    (13,225
    )
    
    
    -22.7
    %Gross profit
    
    
    104,780
    
    
    
    100,612
    
    
    
    4,168
    
    
    
    4.1
    %
    
    
    205,076
    
    
    
    191,984
    
    
    
    13,092
    
    
    
    6.8
    %Operating expensesMarketing and selling
    
    
    42,853
    
    
    
    46,301
    
    
    
    (3,448
    )
    
    
    -7.4
    %
    
    
    86,201
    
    
    
    91,382
    
    
    
    (5,181
    )
    
    
    -5.7
    %Research and development
    
    
    13,166
    
    
    
    11,366
    
    
    
    1,800
    
    
    
    15.8
    %
    
    
    25,977
    
    
    
    22,666
    
    
    
    3,311
    
    
    
    14.6
    %General and administrative
    
    
    11,660
    
    
    
    10,552
    
    
    
    1,108
    
    
    
    10.5
    %
    
    
    22,439
    
    
    
    20,707
    
    
    
    1,732
    
    
    
    8.4
    %Amortization of intangibles
    
    
    3,401
    
    
    
    4,300
    
    
    
    (899
    )
    
    
    -20.9
    %
    
    
    6,666
    
    
    
    8,647
    
    
    
    (1,981
    )
    
    
    -22.9
    %Total operating expenses
    
    
    71,080
    
    
    
    72,519
    
    
    
    (1,439
    )
    
    
    -2.0
    %
    
    
    141,283
    
    
    
    143,402
    
    
    
    (2,119
    )
    
    
    -1.5
    %Operating income
    
    
    33,700
    
    
    
    28,093
    
    
    
    5,607
    
    
    
    20.0
    %
    
    
    63,793
    
    
    
    48,582
    
    
    
    15,211
    
    
    
    31.3
    %Royalty income
    
    
    874
    
    
    
    2,476
    
    
    
    (1,602
    )
    
    
    -64.7
    %
    
    
    1,807
    
    
    
    2,831
    
    
    
    (1,024
    )
    
    
    -36.2
    %Interest income
    
    
    43
    
    
    
    157
    
    
    
    (114
    )
    
    
    -72.6
    %
    
    
    146
    
    
    
    352
    
    
    
    (206
    )
    
    
    -58.5
    %Interest expense
    
    
    (4,966
    )
    
    
    (6,819
    )
    
    
    (1,853
    )
    
    
    -27.2
    %
    
    
    (10,376
    )
    
    
    (14,876
    )
    
    
    (4,500
    )
    
    
    -30.3
    %Amortization of financing costs
    
    
    (3,974
    )
    
    
    (4,921
    )
    
    
    (947
    )
    
    
    -19.2
    %
    
    
    (7,955
    )
    
    
    (9,041
    )
    
    
    (1,086
    )
    
    
    -12.0
    %Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    4,562
    
    
    
    
    
    
    
    (4,562
    )
    
    
    n/aOther income
    
    
    724
    
    
    
    585
    
    
    
    139
    
    
    
    23.8
    %
    
    
    1,276
    
    
    
    1,930
    
    
    
    (654
    )
    
    
    -33.9
    %Income before taxes
    
    
    26,401
    
    
    
    19,571
    
    
    
    6,830
    
    
    
    34.9
    %
    
    
    53,253
    
    
    
    29,778
    
    
    
    23,475
    
    
    
    78.8
    %Provision for income taxes
    
    
    9,536
    
    
    
    7,753
    
    
    
    1,783
    
    
    
    23.0
    %
    
    
    19,308
    
    
    
    11,873
    
    
    
    7,435
    
    
    
    62.6
    %Net income
    
    $
    16,865
    
    
    $
    11,818
    
    
    $
    5,047
    
    
    
    42.7
    %
    
    $
    33,945
    
    
    $
    17,905
    
    
    $
    16,040
    
    
    
    89.6
    %
 Percent of Sales
    
    Percent of SalesFor the Three Months Ended
    
    For the Six Months EndedJuly 4, 2009
    
    June 28, 2008
    
    July 4, 2009
    
    June 28, 2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    17.1
    %
    
    
    22.5
    %
    
    
    18.0
    %
    
    
    23.3
    %Gross profit
    
    
    82.9
    %
    
    
    77.5
    %
    
    
    82.0
    %
    
    
    76.7
    %Operating expensesMarketing and selling
    
    
    33.9
    %
    
    
    35.7
    %
    
    
    34.5
    %
    
    
    36.5
    %Research and development
    
    
    10.4
    %
    
    
    8.8
    %
    
    
    10.4
    %
    
    
    9.1
    %General and administrative
    
    
    9.2
    %
    
    
    8.1
    %
    
    
    9.0
    %
    
    
    8.3
    %Amortization of intangibles
    
    
    2.7
    %
    
    
    3.3
    %
    
    
    2.7
    %
    
    
    3.5
    %Total operating expenses
    
    
    56.2
    %
    
    
    55.9
    %
    
    
    56.5
    %
    
    
    57.3
    %Operating income
    
    
    26.7
    %
    
    
    21.6
    %
    
    
    25.5
    %
    
    
    19.4
    %Royalty income
    
    
    0.7
    %
    
    
    1.9
    %
    
    
    0.7
    %
    
    
    1.1
    %Interest income
    
    
    0.0
    %
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.1
    %Interest expense
    
    
    -3.9
    %
    
    
    -5.3
    %
    
    
    -4.1
    %
    
    
    -5.9
    %Amortization of financing costs
    
    
    -3.1
    %
    
    
    -3.8
    %
    
    
    -3.2
    %
    
    
    -3.6
    %Gain on extinguishment of debt
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    1.8
    %
    
    
    0.0
    %Other income
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.8
    %Income before taxes
    
    
    20.9
    %
    
    
    15.1
    %
    
    
    21.3
    %
    
    
    11.9
    %Provision for income taxes
    
    
    7.5
    %
    
    
    6.0
    %
    
    
    7.7
    %
    
    
    4.7
    %Net income
    
    
    13.3
    %
    
    
    9.1
    %
    
    
    13.6
    %
    
    
    7.2
    %
 30




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##### Table of Contents



Comparison of the Three Months Ended July 4, 2009 to the Three Months Ended June 28, 2008
 Net sales.
 Mens health products. AdVance ®
 BPH therapy products. Greenlight ® Thermatrx ®
 Womens health products. Elevate ® Her
Option ®
 Net sales by geography and foreign exchange effects.
 Gross profit.
 Marketing and selling.
 Research and development.
 31




---



##### Table of Contents



General and administrative.
 Amortization of intangibles. Thermatrx ® GreenLight PV ®
 Royalty income.
 Interest income.
 Interest expense.
 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) Note 2, Recently Issued and Adopted Accounting Pronouncements
 Amortization of financing costs.
 Other income
 Provision for income taxes.
 Comparison of the Six Months Ended July 4, 2009 to the Six Months Ended June 28, 2008
 Net sales.
 32




---



##### Table of Contents



AdVance ® MiniArc ® Single-Incision Sling Elevate ®
 Mens health products. AdVance ® AMS 800 ® InhibiZone ®
 BPH therapy products. Thermatrx ®
 Womens health products. Elevate ® MiniArc ® Her Option ®
 Net sales by geography and foreign exchange effects.
 Gross profit.
 Marketing and selling.
 Research and development.
 General and administrative.
 33




---



##### Table of Contents



Amortization of intangibles. Thermatrx ® GreenLight PV ®
 Royalty income.
 Interest income.
 Interest expense.
 Note 2, Recently Issued and
Adopted Accounting Pronouncements
 Amortization of financing costs.
 Other income
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities.
 34




---



##### Table of Contents



Note 9, Litigation Settlements).
 Cash flows from investing activities.
 Cash flows from financing activities.
 Convertible Notes.
   The number of shares issued uponIf the market price of our stock is:
    
    full conversion would be (1):$20.00
    
    0.5 million$25.00
    
    3.6 million$30.00
    
    5.7 million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as
follows: (
    $312.0 million principal
    
    x
    Market price of stock at time of
    -
    
    $312.0 million
)
    
    =
    Shares issued$19.406 conversion price
    
    conversion
    
    principal
    
    upon fullMarket price of stock at time of conversion
    
    
    
    
    
    
    conversion
  35




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##### Table of Contents



The number of common shareIf the average
    
    equivalents potentiallymarket price of our
    
    included in the computation ofstock is:
    
    diluted EPS would be (1):
    
    Percent Dilution (2)$19.00
    
    (anti-dilutive)
    
    
    0.0
    %$20.00
    
    0.5              million
    
    
    0.6
    %$25.00
    
    3.6              million
    
    
    4.6
    %$30.00
    
    5.7              million
    
    
    7.1
    %
 
 (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 74,160,172 outstanding shares as of July 4, 2009.  Credit Facility.
 Note 9,
Litigation Settlements Item 3.
Quantitative and Qualitative Disclosures About Market Risk, Credit
Risk
   36




---



##### Table of Contents



For The Fiscal
    
    AmendedFinancial
    
    Periods Ending
    
    RequiredCovenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    6/30/09
    
    4.00:1.00 (maximum)9/30/09
    
    3.75:1.0012/31/09
    
    3.50:1.003/31/10
    
    3.25:1.00Reductions
    
    3.00:1.00continuing until6/30/10Senior Leverage Ratio
    
    6/30/09
    
    2.00:1.00 (maximum)Thereafter
    
    2.00:1.00Interest Coverage Ratio
    
    6/30/09
    
    3.75:1.00 (minimum)9/30/09
    
    4.00:1.00Thereafter
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    6/30/09
    
    1.50:1.00 (minimum)Thereafter
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/09
    
    $17.5 million12/31/10
    
    $20.0 million
  Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    4.00:1.00 (maximum)
    
    
    3.13Senior Leverage Ratio (2)
    
    2.00:1.00 (maximum)
    
    
    1.22Interest Coverage Ratio (3)
    
    3.75:1.00 (minimum)
    
    
    7.13Fixed Charge Coverage Ratio (4)
    
    1.50:1.00 (minimum)
    
    
    2.34Maximum Capital Expenditures (5)
    
    $17.5 million
    
    $2.46 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 Adjusted EBITDA for the trailing four quarters to cash interest expense for
such period.(4)
    
    Ratio of Consolidated Adjusted 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.  37




---



##### Table of Contents



Note 10, Debt.
 Cash commitments.
   Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 Forward-Looking Statements
  38




---



##### Table of Contents



39




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rates
  Currency
    Credit Risk
    40




---



##### Table of Contents



Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  41




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     For
    
    Withheld1. Election of DirectorsTerm expiring in 2012:Anthony P. Bihl, III
    
    
    66,641,854
    
    
    
    3,654,184Jane E. Kiernan
    
    
    66,949,481
    
    
    
    3,346,557Thomas E. Timbie
    
    
    66,947,394
    
    
    
    3,348,644
 BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes2. Approval of amendment to 2005 Stock
Incentive Plan
    
    
    55,076,786
    
    
    
    11,324,450
    
    
    
    51,922
    
    
    
    3,842,8793. Ratification of Ernst & Young LLP as independent
auditor for fiscal year 2009
    
    
    69,828,764
    
    
    
    404,821
    
    
    
    62,452
    
    
    
    
 42




---



##### Table of Contents



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Form of Change in Control
Severance Agreements (Version
modified in 2009).
    
    Filed with this Quarterly
Report on Form 10-Q.10.2
    
    Employment Agreement, dated
October 20, 2008, between
Francois Georgelin and
American Medical Systems
Europe B.V.
    
    Filed with this Quarterly
Report on Form 10-Q.10.3
    
    Employment Agreement,
effective as of April 1,
2009, between Joe W. Martin
and American Medical Systems,
Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.4
    
    2005 Stock Incentive Plan (As
Amended and Restated).
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 10-Q for the Fiscal
Quarter Ended April 4, 2009
(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




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCAugust 11, 2009
    
    
    
    By
    
    /s/ Anthony P. Bihl, IIIDate
    
    
    
    
    
    Anthony P. Bihl, IIIPresident and Chief Executive Officer(Principal Executive Officer)August 11, 2009
    
    
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    
    
    Mark A. HeggestadExecutive Vice President and Chief Financial
Officer(Principal Financial and Accounting Officer)
 44




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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 July 4, 2009
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Form of Change in Control
Severance Agreement (Version
modified in 2009).
    
    Filed with this Quarterly
Report on Form 10-Q.10.2
    
    Employment Agreement, dated
October 20, 2008, between
Francois Georgelin and
American Medical Systems
Europe B.V.
    
    Filed with this Quarterly
Report on Form 10-Q.10.3
    
    Employment Agreement,
effective as of April 1,
2009, between Joe W. Martin
and American Medical Systems,
Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.4
    
    2005 Stock Incentive Plan (As
Amended and Restated).
    
    Incorporated by reference to
Exhibit 10.1 of the Companys
Form 10-Q for the Fiscal
Quarter Ended April 4, 2009
(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.
 45