TABLE OF CONTENTS




|                              |                                                                                               |                                            |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | STATEMENTS OF OPERATIONS                  
|                              |                                                                                               | STATEMENTS OF CASH FLOWS                  
|                              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|PART II. OTHER INFORMATION   
|                              | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|                              | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                   



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##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(BOX) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001



or

(BOX) 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:  30733

|                                                                                              
|----------------------------------------------------------------------------------------------
|AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 41-1978822                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|10700 Bren Road West, Minnetonka, MN                           |  | 55343                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

|                                                                   
|-------------------------------------------------------------------
|(952) 933-4666
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

(BOX) Yes (BOX) No

As of August 1, 2001, there were 31,561,615 shares of the registrants
$.01 par value Common Stock outstanding.





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##### Table of Contents



INDEX

|           |  |         |  |                                                                                                                                                                                                                                                                                             |  |            
|---------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|           |  |         |  |                                                                                                                                                                                                                                                                                             |  | Page(s)    
|           |  |         |  |                                                                                                                                                                                                                                                                                             |  |            
|Part I     |  |         |  | FINANCIAL INFORMATION                                                                                                                                                                                                                                                                       |  |            
|          
|          
|          
|          
|           |  | Item 1. |  | Financial
Statements

Consolidated Balance Sheets as of June 30, 2001 (Unaudited)
and December 31, 2000
Statements of Operations for the three and six months ended
June 30, 2001 and 2000 (Unaudited)
Statements of Cash Flows for the six months ended June 30,
2001 and 2000 (Unaudited) |  | 3
 
 
4
 
5
|          
|          
|          
|          
|           |  |         |  | Notes to Consolidated Financial Statements (Unaudited)                                                                                                                                                                                                                                      |  | 6-9        
|          
|          
|          
|          
|           |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                                                                                                                                                                                       |  | 10-18      
|          
|          
|          
|          
|           |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                  |  | 18-19      
|          
|          
|          
|          
|           |  |         |  |                                                                                                                                                                                                                                                                                             |  |            
|          
|          
|          
|          
|Part II    |  |         |  | OTHER INFORMATION                                                                                                                                                                                                                                                                           |  |            
|          
|          
|          
|          
|           |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                         |  | 19         
|          
|          
|          
|          
|           |  |         |  |                                                                                                                                                                                                                                                                                             |  |            
|          
|          
|          
|          
|           |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                            |  | 19         
|          
|          
|          
|          
|           |  |         |  |                                                                                                                                                                                                                                                                                             |  |            
|          
|          
|          
|          
|SIGNATURES |  |         |  |                                                                                                                                                                                                                                                                                             |  | 20         

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |         | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------- | ------- | ------------ | ------ | ------- | ------- | 
|                                     |                                                                                                                                  |                                            |        | June 30,    |         | December 31,
|                                     |                                                                                                                                  |                                            |        | 2001        |         | 2000        
|                                     |                                                                                                                                  |                                            |        |             |         |             
|                                     |                                                                                                                                  |                                            |        | (Unaudited) |         |              |        |        
|Assets
Current assets:               |                                                                                                                                  |                                            |        |             |         |              |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                        |                                            | $      | 5,375       |         |              | $      | 12,165  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts receivable, net                                                                                                         |                                            |        | 24,078      |         |              |        | 23,616  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Inventories                                                                                                                      |                                            |        | 11,080      |         |              |        | 9,674   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred taxes                                                                                                                   |                                            |        | 5,475       |         |              |        | 4,366   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                             |                                            |        | 521         |         |              |        | 1,684   |        
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|                                     |                                                                                                                                  | Total current assets                       |        |             | 46,529  |              |        |         | 51,505  | 
|                                    
|                                    
|                                    
|                                    
|Property, plant and equipment, net   |                                                                                                                                  |                                            | 23,719 |             |         |              | 24,773 |        
|                                    
|                                    
|                                    
|                                    
|Intangibles, net                     |                                                                                                                                  |                                            | 99,657 |             |         |              | 97,731 |        
|                                    
|                                    
|                                    
|                                    
|Deferred income taxes                |                                                                                                                                  |                                            | 6,912  |             |         |              | 5,129  |        
|                                    
|                                    
|                                    
|                                    
|Investments and other assets         |                                                                                                                                  |                                            | 7,462  |             |         |              | 2,124  |        
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|                                     |                                                                                                                                  | Total assets                               |        | $           | 184,279 |              |        | $       | 181,262 | 
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|Liabilities and Stockholders Equity |                                                                                                                                  |                                            |        |             |         |              |        |        
|                                    
|                                    
|                                    
|                                    
|Current liabilities:                 |                                                                                                                                  |                                            |        |             |         |              |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                 |                                            | $      | 3,374       |         |              | $      | 2,431   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued compensation expenses                                                                                                    |                                            |        | 14,056      |         |              |        | 13,306  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued warranty expense                                                                                                         |                                            |        | 7,816       |         |              |        | 7,548   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued expenses                                                                                                           |                                            |        | 3,619       |         |              |        | 3,441   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of notes payable                                                                                                 |                                            |        | 6,410       |         |              |        | 6,033   |        
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|                                     |                                                                                                                                  | Total current liabilities                  |        |             | 35,275  |              |        |         | 32,759  | 
|                                    
|                                    
|                                    
|                                    
|Long-term notes payable              |                                                                                                                                  |                                            | 35,065 |             |         |              | 38,459 |        
|                                    
|                                    
|                                    
|                                    
|Other long-term liabilities          |                                                                                                                                  |                                            | 1,503  |             |         |              |       |        
|                                    
|                                    
|                                    
|                                    
|Minority interest                    |                                                                                                                                  |                                            | 521    |             |         |              | 521    |        
|                                    
|                                    
|                                    
|                                    
|Stockholders equity:                |                                                                                                                                  |                                            |        |             |         |              |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued                                                        |                                            |        |            |         |              |        |        |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, par value $.01 per share; authorized
95,000,000 shares; issued and outstanding 28,008,256 shares for June 30, 2001 |                                            |        | 280         |         |              |        | 278     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                       |                                            |        | 136,162     |         |              |        | 135,449 |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred compensation                                                                                                            |                                            |        | (694        | )       |              |        | (996    | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive loss                                                                                             |                                            |        | (2,636      | )       |              |        | (1,073  | )      
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated deficit                                                                                                              |                                            |        | (21,197     | )       |              |        | (24,135 | )      
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|                                     |                                                                                                                                  | Total stockholders equity                 |        |             | 111,915 |              |        |         | 109,523 | 
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        
|                                     |                                                                                                                                  | Total liabilities and stockholders equity |        | $           | 184,279 |              |        | $       | 181,262 | 
|                                     |                                                                                                                                  |                                            |        |             |         |              |        |         |        

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.




STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)

|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |   |        | 
|--------------------------------- | ------- | ----------------------------- | ------ | ------------------ | ------ | ---------------- | ------ | ---- | ------ | ---- | ------ | ------ | ------ | - | ------ | - | ------ | 
|                                  |         |                               |        | Three months ended |        | Six months ended
|                                  |         |                               |        | June 30,           |        | June 30,        
|                                  |         |                               |        |                    |        |                 
|                                  |         |                               |        | 2001               |        | 2000             |        | 2001 |        | 2000
|                                  |         |                               |        |                    |        |                  |        |      |        |     
|Net sales                         |         | $                             | 28,438 |                    |        | $                | 25,093 |      |        | $    | 55,986 |        |        | $ | 50,079 |  
|                                 
|                                 
|                                 
|                                 
|Cost of sales                     |         |                               | 5,787  |                    |        |                  | 5,785  |      |        |      | 11,184 |        |        |   | 11,515 |  
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|                                  |         | Gross profit                  |        |                    | 22,651 |                  |        |      | 19,308 |      |        |        | 44,802 |   |        |   | 38,564 | 
|                                 
|                                 
|                                 
|                                 
|Operating expenses:               |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|                                 
|                                 
|                                 
|                                 
|                                  |         | Marketing and sales           |        |                    | 11,211 |                  |        |      | 10,019 |      |        |        | 22,620 |   |        |   | 19,883 | 
|                                 
|                                 
|                                 
|                                 
|                                  |         | General and administrative    |        |                    | 3,077  |                  |        |      | 2,935  |      |        |        | 5,803  |   |        |   | 5,629  | 
|                                 
|                                 
|                                 
|                                 
|                                  |         | Research and development      |        |                    | 2,891  |                  |        |      | 2,965  |      |        |        | 6,081  |   |        |   | 5,993  | 
|                                 
|                                 
|                                 
|                                 
|                                  |         | Transition and reorganization |        |                    |       |                  |        |      | 1,000  |      |        |        |       |   |        |   | 1,000  | 
|                                 
|                                 
|                                 
|                                 
|                                  |         | Amortization of intangibles   |        |                    | 2,361  |                  |        |      | 2,010  |      |        |        | 4,561  |   |        |   | 4,001  | 
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|Total operating expenses          |         |                               | 19,540 |                    |        |                  | 18,929 |      |        |      | 39,065 |        |        |   | 36,506 |  
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|Operating income                  |         |                               | 3,111  |                    |        |                  | 379    |      |        |      | 5,737  |        |        |   | 2,058  |  
|                                 
|                                 
|                                 
|                                 
|Royalty and other income          |         |                               | 775    |                    |        |                  | 701    |      |        |      | 1,850  |        |        |   | 1,427  |  
|                                 
|                                 
|                                 
|                                 
|Interest expense, net             |         |                               | (1,016 | )                  |        |                  | (2,237 | )    |        |      | (2,043 | )      |        |   | (4,081 | )
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|Income (loss) before income taxes |         |                               | 2,870  |                    |        |                  | (1,157 | )    |        |      | 5,544  |        |        |   | (596   | )
|                                 
|                                 
|                                 
|                                 
|Income tax benefit (expense)      |         |                               | (1,336 | )                  |        |                  | 392    |      |        |      | (2,606 | )      |        |   | 40     |  
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|Net income (loss)                 |         | $                             | 1,534  |                    |        |                  | ($765  | )    |        | $    | 2,938  |        |        |   | ($556  | )
|                                  |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|Earnings per share:               |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|                                 
|                                 
|                                 
|                                 
|                                  | Basic   |                               | $      | 0.05               |        |                  |        |      |        |      | $      | 0.11   |        |   |        |   |       
|                                 
|                                 
|                                 
|                                 
|                                  | Diluted |                               | $      | 0.05               |        |                  |        |      |        |      | $      | 0.10   |        |   |        |   |       
|                                 
|                                 
|                                 
|                                 
|Weighted average common shares:   |         |                               |        |                    |        |                  |        |      |        |      |        |        |        |   |        |  
|                                 
|                                 
|                                 
|                                 
|                                  | Basic   |                               |        | 27,938             |        |                  |        |      |        |      |        | 27,876 |        |   |        |   |       
|                                 
|                                 
|                                 
|                                 
|                                  | Diluted |                               |        | 30,064             |        |                  |        |      |        |      |        | 29,984 |        |   |        |   |       

The accompanying notes are an integral part of
the consolidated financial statements.

4



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##### Table of Contents






AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(In thousands, except share data)(Unaudited)

|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |       |        |        |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | ----------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ----- | ------------------------ | ------ | ------ | ----- | ------ | ------ | -
|                                                 |                                                                                          |                                                 |                                                     |                                           |       | For the six months ended
|                                                 |                                                                                          |                                                 |                                                     |                                           |       | June 30,                
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                         
|                                                 |                                                                                          |                                                 |                                                     |                                           |       | 2001                     |        | 2000  
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |       
|Cash flows from operating activities:            |                                                                                          |                                                 |                                                     |                                           |       |                          |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Net income (loss)                                                                        |                                                 | $                                                   | 2,938                                     |       |                          |        | ($556  | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                 |                                                     |                                           |       |                          |        |        |      
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Depreciation                                    |                                                     |                                           | 1,909 |                          |        |        | 1,902 |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Amortization of intangibles                     |                                                     |                                           | 4,561 |                          |        |        | 4,001 |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Deferred financing costs                        |                                                     |                                           | 135   |                          |        |        |      |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Noncash pension charge                          |                                                     |                                           | 578   |                          |        |        | 786   |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Noncash deferred compensation                   |                                                     |                                           | 235   |                          |        |        | 191   |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Income tax benefit related to stock option plan |                                                     |                                           | 149   |                          |        |        |      |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Change in net deferred taxes                    |                                                     |                                           | 1,994 |                          |        |        | (633  | )     
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          | Changes in operating assets and liabilities:    |                                                     |                                           |       |                          |        |        |       |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 |                                                     | Accounts receivable                       |       |                          | (916   | )      |       |        | (1,382 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 |                                                     | Inventories                               |       |                          | (1,478 | )      |       |        | (1,586 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 |                                                     | Accounts payable and accrued expenses     |       |                          | 1,852  |        |       |        | (458   | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                          |                                                 |                                                     | Other assets                              |       |                          | 325    |        |       |        | 929    |  
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|                                                 |                                                                                          |                                                 |                                                     | Net cash provided by operating activities |       |                          | 12,282 |        |       |        | 3,194  |  
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Cash flows from investing activities:            |                                                                                          |                                                 |                                                     |                                           |       |                          |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of property, plant and equipment                                                |                                                 |                                                     | (855                                      | )     |                          |        | (1,150 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of businesses, net of cash acquired                                             |                                                 |                                                     | (10,938                                   | )     |                          |        | (5,308 | )    
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of investments in technology                                                    |                                                 |                                                     | (4,500                                    | )     |                          |        |       |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Purchase of other intangibles                                                            |                                                 |                                                     |                                          |       |                          |        | (1,000 | )    
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|                                                 |                                                                                          |                                                 | Net cash used in investing activities               |                                           |       | (16,293                  | )      |        |       | (7,458 | )     
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Cash flows from financing activities:            |                                                                                          |                                                 |                                                     |                                           |       |                          |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Issuance of common stock                                                                 |                                                 |                                                     | 633                                       |       |                          |        | 82     |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Borrowings on long-term debt                                                             |                                                 |                                                     |                                          |       |                          |        | 4,700  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Payments on long-term debt                                                               |                                                 |                                                     | (3,017                                    | )     |                          |        | (2,000 | )    
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|                                                 |                                                                                          |                                                 | Net cash provided by (used in) financing activities |                                           |       | (2,384                   | )      |        |       | 2,782  |       
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Effect of exchange rates                         |                                                                                          |                                                 | (395                                                | )                                         |       |                          | (618   | )     
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Net decrease in cash and cash equivalents        |                                                                                          |                                                 | (6,790                                              | )                                         |       |                          | (2,100 | )     
|                                                
|                                                
|                                                
|                                                
|Cash and cash equivalents at beginning of period |                                                                                          |                                                 | 12,165                                              |                                           |       |                          | 6,940  |       
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Cash and cash equivalents at end of period       |                                                                                          | $                                               | 5,375                                               |                                           |       | $                        | 4,840  |       
|                                                 |                                                                                          |                                                 |                                                     |                                           |       |                          |        |        |      
|Supplemental disclosure:                         |                                                                                          |                                                 |                                                     |                                           |       |                          |        |       
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash paid for interest                                                                   |                                                 | $                                                   | 1,933                                     |       |                          | $      | 3,833  |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash paid for taxes                                                                      |                                                 | $                                                   | 47                                        |       |                          | $      | 5      |      

The accompanying notes are an integral part of the consolidated financial statements.

5



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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



---



1. Basis of Presentation

The consolidated financial statements included in this Form 10-Q have been
prepared by American Medical Systems Holdings, Inc. (the Company), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed, or omitted, pursuant to these rules
and regulations. The year-end balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These unaudited consolidated interim financial
statements should be read in conjunction with the Companys consolidated
financial statements and related notes included in Annual Report on Form 10-K
as filed with the SEC.

The consolidated interim financial statements presented herein as of June 30,
2001, and for the three and six month periods then ended, reflect, in the
opinion of management, all adjustments (which include only normal, recurring
adjustments) necessary for a fair presentation of financial position and the
results of operations and cash flows for the periods presented. The results of
operations for any interim period are not necessarily indicative of results for
the full year.

2. Organization

American Medical Systems was founded in 1972. Pfizer Inc. acquired the
business in 1985. In September 1998, a group of investors led by Warburg,
Pincus Equity Partners, L.P., financed the purchase of the business assets from
Pfizer. American Medical Systems Holdings, Inc., the current holding company,
was formed in April 2000. The Company designs, develops, manufactures and
markets specialty medical devices for patients suffering from incontinence,
erectile dysfunction, and prostate disease.

The consolidated financial statements include the accounts of American Medical
Systems Holdings, Inc. and its subsidiaries, after elimination of all
significant intercompany transactions and accounts.

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3. Inventories

Inventories consist of the following (in thousands):

|                     |  |             |        |              |  |   |        |  
|-------------------- |  | ----------- | ------ | ------------ |  | - | ------ | -
|                     |  | June 30,    |        | December 31,
|                     |  | 2001        |        | 2000        
|                     |  |             |        |             
|                     |  | (unaudited) |        |              |  |  
|Raw materials        |  | $           | 2,590  |              |  | $ | 3,079  |  
|                    
|                    
|                    
|                    
|Work-in-process      |  |             | 3,077  |              |  |   | 2,699  |  
|                    
|                    
|                    
|                    
|Finished goods       |  |             | 8,167  |              |  |   | 7,036  |  
|                    
|                    
|                    
|                    
|Obsolescence reserve |  |             | (2,754 | )            |  |   | (3,140 | )
|                     |  |             |        |              |  |   |        |  
|                     |  | $           | 11,080 |              |  | $ | 9,674  |  
|                     |  |             |        |              |  |   |        |  

4. Industry Segment Information

Since its inception, the Company has operated in the single industry segment of
developing, manufacturing and marketing medical devices.

The Company distributes its products through its direct sales force and
independent sales representatives in the United States, Canada, and most of
Europe. Additionally, the Company distributes its products through foreign
independent distributors, primarily in Europe and Asia, who then market the
products directly to medical institutions. No one customer or distributor
accounted for 10% or more of the Companys net sales for the three or six-month
periods ended June 30, 2001 or June 30, 2000.

Total export sales from the U.S. to unaffiliated entities (primarily to Europe
and payable in U.S. dollars) were $1,557,000 and $3,163,000 for the three and
six-month periods ended June 30, 2001, compared to $1,598,000 and $2,819,000
for the three and six-month periods ended June 30, 2000. Foreign subsidiary
sales are predominantly from customers in Western Europe. Substantially all of
the Companys foreign subsidiary assets are located in Western Europe.

At June 30, 2001 and December 31, 2000, consolidated accounts receivable
included $7,846,000 and $7,200,000, respectively, due from customers located
outside of the United States.

5. Investment in Technology

On January 5, 2001, the Company made a $3.0 million equity investment in
Collagenesis Corp. At the time of the investment, Collagenesis was working with
its existing debt holders to exchange its outstanding debt into equity and
raise additional capital. Pursuant to the terms of the agreement with
Collagenesis, the Company converted its equity position into a $3.0 million 10%
Senior Subordinated Convertible Voting Promissory Note in April 2001. Each
quarter the Company reviews the long-term viability of its investments.
Generally accepted accounting principals require that investments such as the
Companys investment in Collagenesis be

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reviewed for impairment whenever events
or circumstances indicate the carrying amount of an asset may not be
recoverable. The Company considers Collagenesiss inability to raise additional
capital and exchange its debt for equity such an event requiring such a review.
Based on this review, the Company is uncertain of the probability or amount of
possible impairment, if any, in its Collagenesis investment. Accordingly, the
Company is currently carrying its Collagenesis investment at cost.

6. Adoption of Statement of Financial Standards No. 133

The Company adopted Statement of Financial Accounting Standards No. 133, as
amended by SFAS No. 138, Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001. SFAS 133 requires that all derivatives be
recorded on the consolidated balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in earnings or other
comprehensive income (loss) (OCI) depending on the type of hedging instrument
and the effectiveness of those hedges. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative loss adjustment to
OCI of $712,000, after taxes, to recognize the fair value of its derivatives as
of the date of adoption.

All of the derivatives used by the Company as hedges are highly effective as
defined by SFAS 133 because all of the critical terms of the derivatives match
those of the hedged items. All of the derivatives used by the Company have
been designated as cash flow hedges at the time of adoption of SFAS 133. The
effective portion of the cumulative gain or loss on the derivative instrument
is reported as a component of OCI in stockholders equity and recognized into
earnings in the same period or periods during which the hedged transaction
affects earnings. All derivatives are adjusted to their fair market values at
the end of each quarter. Unrealized net gains and losses for cash flow hedges
are recorded in OCI. The Companys credit risk related to derivatives is
considered low because they are entered into with only strong creditworthy
counterparties.

As of June 30, 2001, all of the Companys derivatives, designated as hedges,
are interest rate swaps which qualify for evaluation using the short cut method
for assessing effectiveness. As such, there is an assumption of no
ineffectiveness. The Company hedged a portion of its original $65.0 million
variable rate term note, as required by its senior credit facility, by entering
into an interest rate swap agreement in which the Company agrees to exchange,
at specified intervals, the calculated difference between the fixed interest
rate of the swap and the variable interest rate on $30 million of debt. This
interest rate swap agreement expires June 30, 2003. The Company expects that
pre-tax losses totaling approximately $752,000, which are recorded in OCI at
June 30, 2001 and represent the difference between the fixed rate of the swap
agreement and variable interest of the term note, will be recognized within the
next twelve month period as part of interest expense. At June 30, 2001, the
fair value of the interest rate swap, based upon quoted market prices for
contracts with similar maturities, was approximately $1,503,000. During the
six-month period ended June 30, 2001, unrealized net losses totaling
$1,059,000, after taxes, were recorded in OCI. Pre-tax realized losses of
$206,000 were transferred to interest expense during the six- month period
ended June 30, 2001.

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7. Comprehensive Income (Loss)

Comprehensive income (loss) for the Company includes net income, changes in
value on derivative financial instruments, and foreign currency translation.
Comprehensive income for the six-month period ended June 30, was as follows:

|                                                                                                                   |  |                           |       |      |  |  |       |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ----- | ---- |  |  | ----- | -
|                                                                                                                   |  | Six Months Ended June 30,
|                                                                                                                   |  |                          
|                                                                                                                   |  | 2001                      |       | 2000
|                                                                                                                   |  |                           |       |     
|Net income (loss)                                                                                                  |  | $                         | 2,938 |      |  |  | ($556 | )
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Cumulative effect of change in
accounting principle for derivative
and hedging activities (SFAS 133),
net of taxes |  |                           | (712  | )    |  |  |      |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Net loss on derivative financial
instruments, net of taxes                                                         |  |                           | (347  | )    |  |  |      |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Amounts reclassified to interest
expense during the period from
derivative and hedging activities, net
of taxes    |  |                           | 127   |      |  |  |      |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Foreign currency translation
adjustments                                                                           |  |                           | (631  | )    |  |  | 37    |  
|                                                                                                                   |  |                           |       |      |  |  |       |  
|Comprehensive income (loss)                                                                                        |  | $                         | 1,375 |      |  |  | ($519 | )
|                                                                                                                   |  |                           |       |      |  |  |       |  

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of the results of operations and financial
condition for the three and six month periods ended June 30, 2001, compared
with the three and six month periods ended June 30, 2000, and should be read in
conjunction with the Companys Consolidated Financial Statements and Notes
thereto.

Overview

We founded our business in 1972. Pfizer Inc. acquired our business in 1985.
In September 1998, a group of investors led by Warburg, Pincus Equity Partners,
L.P., financed the purchase of our assets from Pfizer. We formed American
Medical Systems Holdings, Inc., our current holding company, in April 2000.

We manufacture and market a broad and well-established line of medical devices
for patients suffering from incontinence, erectile dysfunction and prostate
disease. We are focused on expanding our product offering and adding
less-invasive medical devices for urological disorders through product
development and acquisitions.

Results of Operations

Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30, 2000

Net Sales

Net sales increased $3.3 million, or 13.4%, from $25.1 million in the second
quarter of 2000 to $28.4 million in the second quarter of 2001. Of this
increase, 67.6% was attributable to incontinence product sales, which increased
22.3% in the second quarter of 2001 versus the same period in 2000. Erectile
dysfunction sales increased 10.2% in the second quarter of 2001 versus the
comparable period in 2000 due to volume increases and a shift of product mix to
higher priced products coupled with selected price increases. Prostate disease
products sales decreased 13.0% in the second quarter of 2001 versus the same
period in 2000 as customers rebuilt inventories in the year ago period.

Net sales in the United States increased $3.2 million, or 15.9%, from $20.1
million in the second quarter of 2000 to $23.3 million in the same period in
2001. This increase is attributable to higher sales in both the erectile
dysfunction and incontinence product lines.

Foreign net sales increased $155,000, or 3.1%, from $5.0 million in the second
quarter of 2000 to $5.2 million in the same period in 2001. Higher sales in
the incontinence product line was offset by lower sales in both the erectile
dysfunction and prostate product lines. The net increase in sales was
negatively impacted by currency translation of approximately $200,000 in the
second quarter of 2001 versus the same period in 2000.

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Cost of Goods Sold

Cost of goods sold as a percentage of net sales decreased from 23.1% in the
second quarter of 2000 to 20.3% in the same period in 2001. Cost of sales in
2001 benefited from improved manufacturing efficiencies and higher volumes of
production in a relatively fixed-cost manufacturing plant.

Marketing and Sales

Marketing and sales costs increased $1.2 million, or 11.9%, from $10.0 million
in the second quarter of 2000 to $11.2 million in the same period in 2001.
These cost increases are attributable to higher sales commissions supporting
the increase in sales and marketing and sales expenses associated with training
programs and materials, promotional literature and advertising necessary to
launch new products.

General and Administrative

General and administrative costs increased $142,000 or 4.8% in the second
quarter of 2001 versus the same period in 2000. The increase is attributable
to bad debt expense which increased $90,000 in the second quarter of 2001
versus the same period in 2000, and severance costs for Israeli employees which
were approximately $250,000 in 2001. These cost increases were offset by lower
spending in information technology and legal activities.

Research and Development

Research and development costs decreased $74,000, or 2.5%, from $3.0 million in
the second quarter of 2000 to $2.9 million in the same period in 2001.

Transition and Reorganization

In the second quarter of 2000, an assessment was completed of management
personnel needs. Transition and reorganization costs of $1.0 million were
incurred as a result of this review. These costs primarily related to employee
termination benefits.

Amortization of Intangibles

Amortization of intangibles increased $351,000, or 17.5%, from $2.0 million in
the second quarter of 2000 to $2.4 million in the same period in 2001. The
increase is attributable to additional amortization of intangibles related to
milestone payments and contingent purchase price payments following the
Influence acquisition.

Royalty and Other Income

We license our stent delivery technology to a former subsidiary of Pfizer for
medical use outside of the urology field. We entered into this agreement in
September 1998 in connection with our acquisition from Pfizer. All of our
royalty income is from this license.

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Royalty and other income increased $74,000, or 10.6%, from $701,000 in the
second quarter of 2000 to $775,000 in the same period in 2001.

Interest Expense

Net interest expense decreased $1.2 million or 54.6%, from $2.2 million in the
second quarter of 2000 to $1.0 million in the same period in 2001. Average
borrowings under notes payable were $61.8 million lower in the second quarter
of 2001 versus the same period in 2000. A portion of the benefit from lower
borrowing levels was offset by higher interest rates as our debt is no longer
guaranteed by a major shareholder.

Income Tax Benefit (Expense)

Income tax expense increased $1.7 million in the second quarter of 2001
compared to the same period in 2000 as income before income taxes in 2001 was
$2.9 million compared to a loss before income tax benefits of $1.2 million in
2000. Effective tax rate comparisons between 2000 and 2001 are not meaningful
as permanent non-deductible expenses are abnormally high in comparison to
income (loss) before income taxes in both 2000 and 2001.

Net Income

Net income was $1.5 million in the second quarter of 2001, versus a net loss of
$765,000 in the same period in 2000. The increase in net income resulted from
the increase in revenues described above while maintaining control over our
operating costs.

Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000

Net sales

Net sales increased $5.9 million, or 11.8%, from $50.1 million in the first six
months of 2000 to $56.0 million in the first six months of 2001. Of this
increase, 71.9% was attributable to incontinence product sales. Erectile
dysfunction sales increased 6.1% due to a 5% volume increase and a shift of
product mix to higher-priced products coupled with selected price increases.
Prostate disease products sales increased 3.3% in the first six months of 2001
versus the same period in 2000.

Net sales in the United States increased $5.5 million from $40.2 million in the
first six months of 2000 to $45.7 million in the first six months of 2001. Of
this increase, $3.5 million was attributable to increased sales of incontinence
products and $2.0 million from increased sales of erectile dysfunction
products.

Foreign net sales increased $400,000 from $9.9 million in the first six months
of 2000 to $10.3 million in the first six months of 2001. Increased sales of
incontinence products were offset by lower sales of erectile dysfunction
products. The net increase in foreign sales was negatively impacted by
currency translation of approximately $500,000 in the first six months of 2001
versus the same period in 2000.

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Cost of Goods Sold

Cost of goods sold as a percentage of net sales decreased from 23.0% in the
first six months of 2000 to 20.0% in the same period in 2001. Cost of sales in
2001 benefited from improved manufacturing efficiencies and higher volumes of
production in a relatively fixed-cost manufacturing plant.

Marketing and Sales

Marketing and sales costs increased $2.7 million, or 13.8%, from $19.9 million
in the first six months of 2000 to $22.6 million in the same period in 2001.
These cost increases are attributable to higher sales commissions supporting
the increase in sales and marketing and sales expenses associated with training
programs and materials, promotional literature and advertising necessary to
launch new products.

General and Administrative

General and administrative costs increased $174,000 or 3.1% in the first six
months of 2001 versus the same period in 2000. The increase is attributable to
bad debt expense which increased $180,000 in the first six months of 2001
versus the same period in 2000, and severance costs for Israeli employees
which were approximately $250,000 in 2001. These cost increases were offset by
lower spending in information technology and legal activities.

Research and Development

Research and development costs decreased $88,000, or 1.5%, from $6.0 million in
the first six months of 2000 to $6.1 million in the same period in 2001.

Transition and Reorganization

In the first six months of 2000, an assessment was completed of management
personnel needs. Transition and reorganization costs of $1.0 million were
incurred as a result of this review. These costs primarily related to employee
termination benefits.

Amortization of Intangibles

Amortization of intangibles increased $560,000, or 14.0%, from $4.0 million in
the first six months of 2000 to $4.6 million in the same period in 2001. The
increase is attributable to additional amortization of intangibles related to
milestone payments and contingent purchase price payments following the
Influence acquisition.

Royalty and Other Income

Royalty and other income increased $423,000, or 29.6%, from $1.4 million in the
first six months of 2000 to $1.9 million in the same period in 2001. The
increase is mainly due to a non-recurring payment of $375,000 we received in
the first six months of 2001 representing reimbursement to resolve a quality
issue with a materials suppler dating back to the fourth quarter of 1999.

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Interest Expense

Net interest expense decreased $2.0 million, or 50.1%, from $4.1 million in the
first six months of 2000 to $2.0 million in the same period in 2001. Average
borrowings under notes payable were $59.75 million lower in the first six
months of 2001 versus the same period in 2000. A portion of the benefit from
lower borrowing levels was offset by higher interest rates as our debt is no
longer guaranteed by a major shareholder.

Income Tax Benefit (Expense)

Income tax expense increased $2.6 million in the first six months of 2001
compared to the same period in 2000 as income before income taxes in 2001 was
$5.6 million compared to a loss before income tax benefits of $596,000 in 2000.
Effective tax rate comparisons between 2000 and 2001 are not meaningful as
permanent non-deductible expenses are abnormally high in comparison to income
(loss) before income taxes in both 2000 and 2001.

Net Income (Loss)

Net income was $2.9 million in the first six months of 2001, versus a net loss
of $556,000 in the same period in 2000. The increase in net income resulted
from the increase in revenues described above while maintaining control over
our operating costs.

Liquidity and Capital Resources

Cash and cash equivalents were $5.4 million as of June 30, 2001 as compared to
$12.2 million as of December 31, 2000. The net decrease in cash and cash
equivalents is due to cash flows used in investing and financing activities
being partially offset by cash provided from operations, as described below.

Cash flows from operating activities

In the first six months of 2001, our operations provided $12.3 million of cash
as compared to $3.2 million in the first six months of 2000. Our net income
plus depreciation and amortization of intangibles provided $9.4 million of cash
in the first six months of 2001 versus $5.3 million in the first six months of
2000. Our income tax expense of $2.6 million in 2001 was mostly offset by tax
loss carryforwards included in deferred tax assets. In the first six months of
2001, accounts receivable and inventories increased $2.4 million due to higher
sales in the first half of 2001 and inventories being built to support product
rollouts in the last half of 2001. Accounts payable and accrued expenses
increased $1.9 million in the first six months of 2001 due to higher payable
levels related to higher inventory levels and increased compensation accruals
for bonuses, commissions, and pension liability.

Cash flows from investing activities

In an effort to secure a more dependable supply of cadaveric dermis tissue, on
January 5, 2001, we made a $3.0 million equity investment in Collagenesis Corp.
At the time of the investment, Collagenesis was working with its existing debt
holders to exchange its outstanding debt into

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equity and raise additional
capital. Pursuant to the terms of our agreement with Collagenesis, we converted
our equity position into a $3.0 million 10% Senior Subordinated Convertible
Voting Promissory Note in April 2001. Each quarter we review the long-term
viability of investments. Generally accepted accounting principals require that
investments, such as our investment in Collagenesis, be reviewed for impairment
whenever events or circumstances indicate the carrying amount of an asset may
not be recoverable. We consider Collagenesiss inability to raise additional
capital and exchange its debt for equity an event requiring such a review.
Based on our review, we are uncertain of the probability or possible amount of
impairment, if any, in our Collagenesis investment. Accordingly, we are
currently carrying our Collagenesis investment at cost.

In the first six months of 2001, we paid additional contingent purchase price
payments and milestone payments of $10.9 million relating to the acquisition of
Influence. We also made $1.5 million of milestone payments to InjecTx.

Cash flows from financing activities

In the first six months of 2001, we received $633,000 from issuance of common
stock related to our Employee Stock Purchase Plan and exercise of options
issued under our Equity Incentive Plan. On March 30 and June 30, 2001, we made
a quarterly principal payment of $1.5 million on our senior credit facility.

On July 2, 2001, we received approximately $54.0 million related to the
completion of a follow-on public stock offering, in which we sold 3,500,000
shares of common stock, and Warburg Pincus, our principal
shareholder, sold 3,500,000 shares. With these
proceeds, we have made an approximate $11.5 million prepayment on our term debt
under our senior credit facility. We also plan to repay approximately $10
million of additional term debt under this credit facility later in 2001 with
either proceeds from the follow-on public offering or cash from operations, or
a combination of both. Based on June 30, 2001 balances, we would incur a
one-time, pre-tax expense of approximately $500,000 for termination fees under
an interest rate swap agreement, which covers a portion of the term debt that
we plan to repay, if and when we repaid the $10 million of term debt that we
plan to repay later in 2001. The actual amount of the termination fee will be
based on the remaining term of the swap agreement and prevailing interest rates
at the time of repayment and could be higher or lower than $500,000. Following
repayment of $21.5 million of term debt, we will have approximately $20 million
of term debt outstanding subject to the swap agreement and an unused $15
million revolving line of credit.

Cash commitments

During the first quarter of 2001, we reached settlement with Boston Scientific
Corporation on all outstanding patent disputes. As a result of this settlement,
our acquisition agreement with the former shareholders of Influence obligated
us to make additional cash purchase price payments of approximately $7.9
million which we paid in April 2001. This contingent purchase price payment is
net of related costs of $2.1 million. These settlement costs represent
contingent purchase price payments and have been recorded as goodwill.

On January 1, 2002 we plan to terminate the AMS Retirement Annuity Plan and
expect to distribute the plans assets to participants in the first quarter
2002. We expect to make an

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approximate $2.8 million additional cash payment to
the plan prior to distribution of the assets. The ultimate amount of this
additional cash payment is dependent upon the 30-year Treasury Rate and the
prevailing annuity purchase rate on November 20, 2001. We further expect to
record a net pre-tax gain of approximately $3.4 million as other income between
the fourth quarter of 2001 and the first quarter of 2002 due to plan
termination.

We also expect to implement a new profit sharing plan in 2002 whereby
contributions to the plan will vary based upon company performance and will be
allocated to participants based on compensation. While the contribution will be
variable, we expect that initially the profit sharing contribution will
approximate our historical AMS Retirement Annuity Plan expense at current
income levels. We estimate that our pension expense in 2001 will be
approximately $1.3 million.

We believe that funds generated from operations, together with the net proceeds
of the offering and funds available under our senior credit facility will be
sufficient to finance our current operations and planned capital expenditure
requirements for at least the next 12 months.

Acquired In-Process Research and Development

In connection with our acquisitions of technologies during 1999, we conducted a
valuation of the intangible assets acquired. Based on this valuation, we
assigned $7.4 million to acquired in-process research and development resulting
in a one-time charge to 1999 earnings. A brief description of the status of our
acquired in-process research and development projects is set forth below:

The InVance Male Sling System, formerly Straight-In, is a male sling fixation
system. We launched the initial version of this product in mid-2000. The second
design iteration and high volume production tooling have been completed. The
product has 510(k) clearance. We introduced an improved version of this product
to the market in the first half of 2001 and plan to introduce a next generation
at the end of 2001.

The TransFix Sutureless Sling Fixation System, formerly Staple-Tac, is a
pull-in anchoring system that is sutureless. Development on this product is
nearly complete. The product is currently being evaluated in a limited market
release to ensure broad acceptance by urologists. The product has 510(k)
clearance and we currently plan to launch it upon the successful completion of
our test release.

The No-Tac, a next generation female sling system, does not require a bone
screw in the pubic bone. We currently estimate that this product is 95%
complete. At the time of the acquisition, we estimated this product would be
released in late 2000. We submitted a
510(k) for this product in the second
quarter of 2001 and expect to perform initial U.S. cases on a controlled basis
before the end of 2001. Based on the outcome of these cases, we will decide on
appropriate launch plans.

The Flast is a device used to harvest human fascia lata tissue for a sling
procedure. Our assessment of the economic viability has caused us to postpone
further project development and the release of any future product.

NexTus is a soft tissue-anchoring device. We received 510(k) clearance for this
device in the

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second quarter of 2001. We are now clinically evaluating the
product with a select physician group. Our launch plans will depend on both the
clinical success with the product and our ability to manufacture the product
economically.

The Clip-In is a clip around the suture in place of a knot. We do not currently
plan to release any future product based on our assessment of economic
viability.

The UroVive Microballoon System is a durable reversible microballoon system to
treat stress urinary incontinence. It includes a microballoon, a delivery
system, and a syringe filled with saline. The clinical data we acquired with
this product was subsequently deemed not suitable for FDA submission. Because
of the expense necessary to meet the FDA requirements, we are not currently
pursuing a U.S. launch. This product is being sold internationally and a next
generation is currently under development.

Certain Important Factors

Except for the historical information contained herein, the disclosures in this
Form 10-Q are forward-looking statements made under the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated. These risks, and
their impact on the success of our operations and our ability to achieve our
goals, include the following:

Successful Introduction of New Products and Product Improvements

As part of our growth strategy, we intend to introduce a number of new products
and product improvements, which are described above. If we do not introduce
these new products and product improvements timely, or they are not
well-accepted by the market, our future growth will suffer.

Continued Use of Non-Invasive Treatment Alternatives

We predominantly sell medical devices for invasive or minimally invasive
surgical procedures. If patients do not accept our products, our sales may
decline. Patient acceptance of our products depends on a number of factors,
including the failure of non-invasive therapies, the degree of invasiveness
involved in the procedures using our products, the rate and severity of
complications from the procedures using our products and other adverse side
effects from the procedures using our products. Patients are more likely first
to consider non-invasive alternatives to treat their urological disorders. The
introduction of new oral medications or other less-invasive therapies may cause
our sales to decline in the future.

Continued Physician Use and Endorsement of our Products

In order for us to sell our products, physicians must recommend and endorse
them. We may not obtain the necessary recommendations or endorsements from
physicians. Many of the products we recently acquired or are developing are
based on new treatment methods. Acceptance of our products is dependent on
educating the medical community as to the distinctive characteristics,

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perceived benefits, clinical efficacy and cost-effectiveness of our products
compared to competitive products, and on training physicians in the proper
application of our products.

Increased Supply of Sling Material

We provide human cadaveric tissue as a service in conjunction with the sale of
our sling procedure kits for urinary incontinence. Currently, the available
supply of human tissue is not sufficient to meet demand. In June 2001, we
entered into a new agreement with our supplier of cadaveric dermal tissue which
we believe will increase our supply of tissue. If this agreement proves
inadequate, or we are unable to purchase enough dermal tissue, sales of our
sling procedure kits could decline.

Increasing Growth of the Penile Implant Market

In order to grow our business, we need to increase our sales in the penile
implant market. If we are unable to do so, our future growth will suffer.

Actions Related to Reimbursement for our Products

We may be unable to sell our products on a profitable basis if third-party
payors deny coverage or reduce their current levels of reimbursement. Our
revenues depend largely on government health care programs and private health
insurers reimbursing patients medical expenses. Physicians, hospitals and
other health care providers may not purchase our products if they do not
receive satisfactory reimbursement from these third-party payors for the cost
of the procedures using our products. If we are unable to obtain adequate
levels of reimbursement from third-party payors outside of the United States,
international sales of our products may decline. Many foreign markets have
governmentally managed health care systems that govern reimbursement for new
devices and procedures.

Potential Product Recalls

In the event that any of our products prove to be defective, we could
voluntarily recall, or the FDA could require us to redesign or implement a
recall of, any defective product. We believe there is a possibility that we
may recall products in the future and that future recalls could result in
significant costs to us and in significant negative publicity which could harm
our ability to market our products in the future.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Hedging and Currency Fluctuations

We do not engage in trading market risk sensitive instruments or purchasing
hedging instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, and commodity price or equity price
risk. We have not purchased options or entered into forward or futures
contracts, except as required by our senior credit facility. See Note 6 in
Notes to Consolidated Financial Statements included in this report.

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Our operations outside of the United States are maintained in their local
currency, except for our Israeli subsidiary, where the U.S. dollar serves as
the functional currency. All assets and liabilities of our international
subsidiaries are translated to U.S. dollars at quarter-end exchange rates.
Translation adjustments arising from the use of differing exchange rates are
included in accumulated other comprehensive income in stockholders equity.
Gains and losses on foreign currency transactions are included in operations
and were not material in any period.




PART II. OTHER INFORMATION




Item 4. Submission of Matters to a Vote of Security Holders.



| | (a) |  | Our annual meeting of stockholders was held on May 8, 2001.                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Not required. We solicited proxies pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
there was no solicitation in opposition to managements
nominees for directors as listed in the proxy statement and
our stockholders elected all of these nominees at the annual
meeting.                                                                                                                                        
|
| | (c) |  | At the annual meeting, our stockholders were
presented with and asked to vote upon a proposal to elect two
directors to serve for the next three years or until their
successors are elected and duly qualified. The two nominees
for directors, both incumbent directors, were elected at the
annual meeting to serve for three-year terms expiring in 2004.
The names of these nominees for directors and voting results
are as follows:

|                 |  |       |            |         |  |          |   |           |  |  |        |  |  |  |   | 
|---------------- |  | ----- | ---------- | ------- |  | -------- | - | --------- |  |  | ------ |  |  |  | - | 
|                 |  | Votes |            | Votes   |  | Votes    |   | Broker   
|Name             |  | For   |            | Against |  | Withheld |   | Non-Votes
|David W. Stassen |  |       | 14,959,730 |         |  |          | 0 |           |  |  | 30,163 |  |  |  | 0 | 
|                
|                
|                
|                
|James T. Treace  |  |       | 14,959,730 |         |  |          | 0 |           |  |  | 30,163 |  |  |  | 0 | 




Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | Exhibits:                                                                             
| | --- |  | --------------------------------------------------------------------------------------
|
| |     |  | There are no exhibits to this Quarterly Report on Form 10-Q.                          
|
| | (b) |  | Reports on Form 8-K:                                                                  
|
| |     |  | No report on Form 8-K was filed by the Company during the quarter
ended June 30, 2001.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|        |  |                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------
|        |  | AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.                                                          
|       
|       
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|8/13/01 |  | By /s/ Douglas W. Kohrs                                                                          
|        |  |                                                                                                  
|Date    |  | Douglas W. Kohrs                                                                                 
|       
|       
|       
|       
|        |  | Chief Executive Officer                                                                          
|       
|       
|       
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|8/13/01 |  | By /s/ M. James Call                                                                             
|        |  |                                                                                                  
|Date    |  | M. James Call                                                                                    
|       
|       
|       
|       
|        |  | Executive Vice-President and Chief
Financial Officer
(Principal Financial and Accounting Officer)

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