##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended July 1, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000  (Registrants telephone number, including area code)
  þ o
  þ o o
  o þ




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##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Balance Sheets as of July 1, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Operations for the three and six month periods ended July 1, 2006 and July 2, 2005
    
    
    4Consolidated Statements of Cash Flow for the six month periods ended July 1, 2006 and July 2, 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    27ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    36PART II
    
    OTHER INFORMATIONITEM 1A.
    
    RISK FACTORS
    
    
    37ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    43ITEM 6.
    
    EXHIBITS
    
    
    44SIGNATURES
    
    
    46EXHIBIT INDEX
    
    
    47Form of Notice of Amendment to Stock Option Certificate/Agreement for Executive OfficerCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 July 1, 2006
    
    
    December 31, 2005(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    378,438
    
    
    $
    30,885Short term investments
    
    
    436
    
    
    
    15,505Accounts receivable, net
    
    
    57,822
    
    
    
    51,058Inventories, net
    
    
    17,197
    
    
    
    18,191Deferred income taxes
    
    
    3,580
    
    
    
    3,197Other current assets
    
    
    7,852
    
    
    
    4,072Total current assets
    
    
    465,325
    
    
    
    122,908Property, plant and equipment, net
    
    
    26,275
    
    
    
    21,371Goodwill, net
    
    
    170,762
    
    
    
    169,700Intangibles, net
    
    
    37,952
    
    
    
    40,578Deferred income taxes
    
    
    13,313
    
    
    
    4,110Investment in technology and other assets
    
    
    754
    
    
    
    659Total assets
    
    $
    714,381
    
    
    $
    359,326Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    6,703
    
    
    $
    3,688Accrued compensation expenses
    
    
    10,542
    
    
    
    11,480Accrued warranty expense
    
    
    1,774
    
    
    
    1,618Income taxes payable
    
    
    
    
    
    
    2,387Other accrued expenses
    
    
    12,901
    
    
    
    8,214Contingent liability on acquisition
    
    
    
    
    
    
    25,988Total current liabilities
    
    
    31,920
    
    
    
    53,375Long-term debt
    
    
    362,541
    
    
    
    Accumulated post retirement benefit obligation
    
    
    3,072
    
    
    
    3,072Total liabilities
    
    
    397,533
    
    
    
    56,447Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding:69,881,255 shares at July 1, 2006
and 69,525,169 shares at December 31, 2005
    
    
    699
    
    
    
    695Additional paid-in capital
    
    
    236,799
    
    
    
    227,284Accumulated other comprehensive income
    
    
    3,487
    
    
    
    2,414Retained earnings
    
    
    75,863
    
    
    
    72,486Total stockholders equity
    
    
    316,848
    
    
    
    302,879Total liabilities and stockholders equity
    
    $
    714,381
    
    
    $
    359,326
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



American Medical
Systems Holdings, Inc.
Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Net sales
    
    $
    78,782
    
    
    $
    65,637
    
    
    $
    152,406
    
    
    $
    127,782Cost of sales (a)
    
    
    11,707
    
    
    
    11,954
    
    
    
    23,437
    
    
    
    22,974Gross profit
    
    
    67,075
    
    
    
    53,683
    
    
    
    128,969
    
    
    
    104,808Operating expensesMarketing and selling (a)
    
    
    29,370
    
    
    
    23,494
    
    
    
    57,184
    
    
    
    45,150Research and development (a)
    
    
    5,772
    
    
    
    4,866
    
    
    
    13,554
    
    
    
    9,504In-process research and development
    
    
    28,075
    
    
    
    
    
    
    
    28,075
    
    
    
    General and administrative (a)
    
    
    7,635
    
    
    
    5,207
    
    
    
    14,129
    
    
    
    10,996Amortization of intangibles
    
    
    1,785
    
    
    
    1,948
    
    
    
    3,626
    
    
    
    3,738Total operating expenses
    
    
    72,637
    
    
    
    35,515
    
    
    
    116,568
    
    
    
    69,388Operating (loss) income
    
    
    (5,562
    )
    
    
    18,168
    
    
    
    12,401
    
    
    
    35,420Other (expense) incomeRoyalty income
    
    
    408
    
    
    
    508
    
    
    
    861
    
    
    
    986Interest income
    
    
    434
    
    
    
    361
    
    
    
    756
    
    
    
    635Interest expense
    
    
    (257
    )
    
    
    (41
    )
    
    
    (353
    )
    
    
    (96
    )Finance charges
    
    
    (6,955
    )
    
    
    
    
    
    
    (6,955
    )
    
    
    Other (expense) income
    
    
    436
    
    
    
    (613
    )
    
    
    290
    
    
    
    (1,077
    )Total other (expense) income
    
    
    (5,934
    )
    
    
    215
    
    
    
    (5,401
    )
    
    
    448(Loss) income before income taxes
    
    
    (11,496
    )
    
    
    18,383
    
    
    
    7,000
    
    
    
    35,868Provision for income taxes
    
    
    (3,401
    )
    
    
    6,376
    
    
    
    3,623
    
    
    
    12,619Net (loss) income
    
    $
    (8,095
    )
    
    $
    12,007
    
    
    $
    3,377
    
    
    $
    23,249Net (loss) income per shareBasic
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    0.05
    
    
    $
    0.34Diluted
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    0.05
    
    
    $
    0.33Weighted average common shares used in calculationBasic
    
    
    69,838
    
    
    
    68,972
    
    
    
    69,755
    
    
    
    68,437Diluted
    
    
    69,838
    
    
    
    71,327
    
    
    
    72,001
    
    
    
    71,449(a) These line items include stock-based compensation of:Cost of sales
    
    $
    110
    
    
    $
    
    
    
    $
    155
    
    
    $
    Marketing and selling
    
    
    878
    
    
    
    
    
    
    
    1,751
    
    
    
    Research and development
    
    
    534
    
    
    
    
    
    
    
    1,034
    
    
    
    General and administrative
    
    
    959
    
    
    
    
    
    
    
    2,137
    
    
    
    Stock-based compensation expense
    
    $
    2,481
    
    
    $
    
    
    
    $
    5,077
    
    
    $
    
 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.
 
 Consolidated Statements of Cash Flow
 Six Months EndedJuly 1, 2006
    
    
    July 2, 2005Cash flows from operating activitiesNet income
    
    $
    3,377
    
    
    $
    23,249Adjustments to reconcile net income to
net cash provided by operating activitiesDepreciation
    
    
    1,763
    
    
    
    2,899Loss on asset disposals
    
    
    331
    
    
    
    45Amortization of intangibles, including deferred financing costs
    
    
    3,630
    
    
    
    3,738Non-cash deferred compensation
    
    
    
    
    
    
    10In-process research and development charges
    
    
    28,075
    
    
    
    Financing charges on credit facility
    
    
    6,955
    
    
    
    Excess tax benefit from excercise of stock options
    
    
    (389
    )
    
    
    Tax benefit on exercised stock option arrangements
    
    
    846
    
    
    
    3,220Change in net deferred income taxes
    
    
    (113
    )
    
    
    159Stock based compensation
    
    
    5,077
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,226
    )
    
    
    (166
    )Inventories
    
    
    1,311
    
    
    
    1,601Accounts payable and accrued expenses
    
    
    (9,561
    )
    
    
    (3,163
    )Other assets
    
    
    (2,077
    )
    
    
    (3,372
    )Net cash provided by operating activities
    
    
    32,999
    
    
    
    28,220Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (6,970
    )
    
    
    (3,211
    )Purchase of business
    
    
    (23,986
    )
    
    
    (24,053
    )Purchase of investments in technology
    
    
    (28,075
    )
    
    
    Purchase of license agreement
    
    
    (1,000
    )
    
    
    (770
    )Purchase of short term investments
    
    
    (110
    )
    
    
    (30,338
    )Sale of short term investments
    
    
    15,190
    
    
    
    29,757Net cash used in investing activities
    
    
    (44,951
    )
    
    
    (28,615
    )Cash flows from financing activitiesIssuance of convertible notes
    
    
    362,538
    
    
    
    Issuance of common stock
    
    
    3,437
    
    
    
    10,249Excess tax benefit from exercise of stock options
    
    
    389
    
    
    
    Financing charges paid on credit facility
    
    
    (6,955
    )
    
    
    Net cash provided by financing activities
    
    
    359,409
    
    
    
    10,249Effect of currency exchange rates on cash
    
    
    96
    
    
    
    890Net increase in cash and cash equivalents
    
    
    347,553
    
    
    
    10,744Cash and cash equivalents at beginning of period
    
    
    30,885
    
    
    
    35,689Cash and cash equivalents at end of period
    
    $
    378,438
    
    
    $
    46,433Supplemental disclosureCash paid for interest
    
    $
    166
    
    
    $
    Cash paid for taxes
    
    $
    16,534
    
    
    $
    11,520
 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
  NOTE 1. Basis of Presentation
    Note 2. Acquisition and Financing of Laserscope (Subsequent Event)
 Laserscope
    Financing
 Note 12 Long Term
Debt
   6




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##### Table of Contents



Results of Operations
 Note 12 Long Term Debt, Note 11 Credit Agreement.
 NOTE 3. Stock-Based Compensation
 Accounting for Stock
Issued to Employees, Accounting for Stock-Based Compensation.
 Share-Based Payment
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    
    July 1, 2006Stock-option awards
    
    $
    2,153
    
    
    $
    4,677Restricted stock awards
    
    
    27
    
    
    
    30Employee stock purchase plan
    
    
    301
    
    
    
    370Total share-based compensation expense
    
    $
    2,481
    
    
    $
    5,077
   7




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 2, 2005
    
    
    July 2, 2005Net income, as reported
    
    $
    12,007
    
    
    $
    23,249Total stock-based employee compensation
expense determined under fair-value based
method for all awards, net of tax
    
    
    (1,789
    )
    
    
    (3,255
    )Pro forma net income
    
    $
    10,218
    
    
    $
    19,994Net income per shareAs reportedBasic
    
    $
    0.17
    
    
    $
    0.34Diluted
    
    $
    0.17
    
    
    $
    0.33Pro formaBasic
    
    $
    0.15
    
    
    $
    0.29Diluted
    
    $
    0.14
    
    
    $
    0.28
     Weighted averageOptions
    
    
    exercise priceoutstanding
    
    
    per shareBalance at December 31, 2005
    
    
    7,950,650
    
    
    $
    11.97Granted
    
    
    794,050
    
    
    
    20.33Exercised
    
    
    (299,331
    )
    
    
    8.60Cancelled or expired
    
    
    (291,527
    )
    
    
    14.67Balance at July 1, 2006
    
    
    8,153,842
    
    
    $
    12.82
 8




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    averageNumber
    
    
    remaining
    
    
    exercise
    
    
    Number
    
    
    exerciseRange of exercise prices
    
    of shares
    
    
    contractual life
    
    
    price
    
    
    of shares
    
    
    price$0.83 - $8.03
    
    
    2,220,275
    
    
    4.3 years
    
    $
    4.12
    
    
    
    2,165,909
    
    
    $
    4.02$8.08 - $14.81
    
    
    2,148,305
    
    
    6.8 years
    
    
    11.34
    
    
    
    1,604,686
    
    
    
    10.84$14.94 - $19.69
    
    
    2,354,762
    
    
    7.2 years
    
    
    17.60
    
    
    
    900,287
    
    
    
    17.13$19.72 - $21.68
    
    
    1,430,500
    
    
    7.1 years
    
    
    20.66
    
    
    
    271,337
    
    
    
    20.15Total
    
    
    8,153,842
    
    
    6.3 years
    
    $
    12.82
    
    
    
    4,942,219
    
    
    $
    9.51
   Three Months Ended
    

Six Months EndedJuly 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Fair value of options granted
    
    $
    6.99
    
    
    $
    7.04
    
    
    $
    6.58
    
    
    $
    7.66Risk free interest rate
    
    
    5.08
    %
    
    
    3.81
    %
    
    
    4.69
    %
    
    
    3.21
    %Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock price volatility
    
    
    37.29
    %
    
    
    38.10
    %
    
    
    34.60
    %
    
    
    38.29
    %Expected life of option
    
    4.6 years
    
    
    4.2 years
    
    
    4.7 years
    
    
    5.3 years
 Expected life
 Expected volatility
 Risk-free rate of return
 Dividend yield
  9




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##### Table of Contents



Restricted Stock
   Unvested Shares
    
    
    Weighted averageoutstanding
    
    
    grant priceBalance at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    51,842
    
    
    $
    18.34Vested
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Balance at July 2, 2006
    
    
    51,842
    
    
    $
    18.34
 Employee Stock Purchase Plan
  NOTE 4. Earnings per Share
  Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Net (loss) income
    
    $
    (8,095
    )
    
    $
    12,007
    
    
    $
    3,377
    
    
    $
    23,249Weighted-average shares
outstanding for basic net income per share
    
    
    69,838
    
    
    
    68,972
    
    
    
    69,755
    
    
    
    68,437Dilutive effect of stock options
and restricted shares
    
    
    0
    
    
    
    2,355
    
    
    
    2,246
    
    
    
    3,012Adjusted weighted-average
shares outstanding and assumed
conversions for diluted net income per share
    
    
    69,838
    
    
    
    71,327
    
    
    
    72,001
    
    
    
    71,449Net (loss) income per shareBasic
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    0.05
    
    
    $
    0.34Diluted
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    0.05
    
    
    $
    0.33
 10




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##### Table of Contents



NOTE 5. Inventories
  (in thousands)
    
    July 1, 2006
    
    
    December 31, 2005Raw materials
    
    $
    3,825
    
    
    $
    4,252Work in process
    
    
    2,809
    
    
    
    2,394Finished goods
    
    
    12,290
    
    
    
    12,862Obsolescence reserve
    
    
    (1,727
    )
    
    
    (1,317
    )Net inventories
    
    $
    17,197
    
    
    $
    18,191
 NOTE 6. Warranties
 
  Six Months Ended(in thousands)
    
    July 1, 2006
    
    
    July 2, 2005Balance, beginning of period
    
    $
    1,618
    
    
    $
    1,451Provisions for warranty
    
    
    307
    
    
    
    151Claims processed
    
    
    (151
    )
    
    
    (122
    )Balance, end of period
    
    $
    1,774
    
    
    $
    1,480
 NOTE 7. Acquisitions
 TherMatrx, Inc.
 TherMatrx
 TherMatrx
 11




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##### Table of Contents



(in thousands)
    
    AmountDeveloped technology and other intangible assets
    
    $
    26,000Customer relationships
    
    
    5,000In-process research and development
    
    
    35,000Tangible assets acquired, net of liabilities assumed
    
    
    5,721Deferred tax liability on assets acquired
    
    
    (7,763
    )Goodwill
    
    
    69,142Purchase price, including earned contingent payments, net of cash acquired, accrued through July 1, 2006
    
    $
    133,100
   Ovion Inc.
  Ovion
  (in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    9,220Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,050Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (131
    )Initial purchase price, net of cash acquired through July 1, 2006
    
    $
    10,407
 Goodwill and Other Intangible Assets
 12




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##### Table of Contents



BioControl Medical, Ltd.
  Goodwill and Other Intangible Assets
    Solarant Medical, Inc.
    (in thousands)
    
    AmountIn-process research and development (including $0.8 million in acquisition costs)
    
    $
    2,462Liabilities assumed, net of tangible assets acquired
    
    
    (88
    )Deferred tax asset acquired
    
    
    360Initial purchase price, net of cash acquired through July 1, 2006
    
    $
    2,734
 13




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##### Table of Contents



Goodwill and Other Intangible Assets
   Laserscope
 Note 2. Acquisition and Financing of
Laserscope (Subsequent Event).
 NOTE 8. Comprehensive (Loss) Income
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Net (loss) income
    
    $
    (8,095
    )
    
    $
    12,007
    
    
    $
    3,377
    
    
    $
    23,249Foreign currency translation loss, net of taxes
    
    
    (794
    )
    
    
    (1,315
    )
    
    
    (1,073
    )
    
    
    (2,261
    )Comprehensive (loss) income
    
    $
    (8,889
    )
    
    $
    10,692
    
    
    $
    2,304
    
    
    $
    20,988
 NOTE 9. Industry Segment Information and Foreign Operations
    Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005United StatesNet sales
    
    $
    60,024
    
    
    $
    50,737
    
    
    $
    117,023
    
    
    $
    99,070Long-lived assets
    
    $
    220,724
    
    
    $
    175,545
    
    
    $
    220,724
    
    
    $
    175,545InternationalNet sales
    
    $
    18,758
    
    
    $
    14,900
    
    
    $
    35,383
    
    
    $
    28,712Long-lived assets
    
    $
    15,020
    
    
    $
    14,646
    
    
    $
    15,020
    
    
    $
    14,646
 14




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##### Table of Contents



NOTE 10. Goodwill and Intangible Assets
  Six Months Ended(in thousands)
    
    July 1, 2006Goodwill, beginning of the year, net
    
    $
    169,700Additions
    
    
    372Effect of currency translation
    
    
    690Goodwill, end of second quarter, net
    
    $
    170,762
 15




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##### Table of Contents



July 1, 2006
    
    December 31, 2005Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueAmortizedPatents
    
    $
    10,127
    
    
    $
    (8,272
    )
    
    $
    1,855
    
    
    $
    10,127
    
    
    $
    (7,708
    )
    
    $
    2,419Licenses
    
    
    7,911
    
    
    
    (4,816
    )
    
    
    3,095
    
    
    
    6,911
    
    
    
    (3,847
    )
    
    
    3,064Developed technology
    
    
    48,853
    
    
    
    (19,422
    )
    
    
    29,431
    
    
    
    48,853
    
    
    
    (17,454
    )
    
    
    31,399Non-compete agreements
    
    
    2,050
    
    
    
    (250
    )
    
    
    1,800
    
    
    
    2,050
    
    
    
    (125
    )
    
    
    1,925Total amortized intangible assets
    
    
    68,941
    
    
    
    (32,760
    )
    
    
    36,181
    
    
    
    67,941
    
    
    
    (29,134
    )
    
    
    38,807UnamortizedTrademarks
    
    
    2,233
    
    
    
    (462
    )
    
    
    1,771
    
    
    
    2,233
    
    
    
    (462
    )
    
    
    1,771Total intangible assets
    
    $
    71,174
    
    
    $
    (33,222
    )
    
    $
    37,952
    
    
    $
    70,174
    
    
    $
    (29,596
    )
    
    $
    40,578
 Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Amortization expense
    
    $
    1,785
    
    
    $
    1,948
    
    
    $
    3,626
    
    
    $
    3,738
  NOTE 11. Credit Agreement
 Credit Agreement
  Note 2 Acquisition and Financing of Laserscope( Subsequent Event)
 Bridge Loan Commitment Fee
  NOTE 12. Long Term Debt
 Convertible Senior Subordinated Notes; Supplemental Guarantor Information
  16




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##### Table of Contents



Note 2. Acquisition and Financing of
Laserscope (Subsequent Event)
  17




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    362,647
    
    
    $
    8,361
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    378,438Short term investments
    
    
    
    
    
    
    229
    
    
    
    207
    
    
    
    
    
    
    
    436Accounts receivable, net
    
    
    230,441
    
    
    
    38,916
    
    
    
    18,650
    
    
    
    (230,185
    )
    
    
    57,822Inventories, net
    
    
    
    
    
    
    15,580
    
    
    
    6,094
    
    
    
    (4,477
    )
    
    
    17,197Other current assets
    
    
    2,658
    
    
    
    5,715
    
    
    
    2,738
    
    
    
    321
    
    
    
    11,432Total current assets
    
    
    595,746
    
    
    
    68,801
    
    
    
    35,119
    
    
    
    (234,341
    )
    
    
    465,325Property, plant and equipment, net
    
    
    
    
    
    
    25,686
    
    
    
    589
    
    
    
    
    
    
    
    26,275Goodwill, net
    
    
    
    
    
    
    69,644
    
    
    
    101,639
    
    
    
    (521
    )
    
    
    170,762Intangibles, net
    
    
    
    
    
    
    31,505
    
    
    
    29,947
    
    
    
    (23,500
    )
    
    
    37,952Deferred income taxes
    
    
    
    
    
    
    10,656
    
    
    
    2,657
    
    
    
    
    
    
    
    13,313Investment in subsidiaries
    
    
    108,892
    
    
    
    12,556
    
    
    
    
    
    
    
    (121,448
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    24,323
    
    
    
    135
    
    
    
    (23,704
    )
    
    
    754Total assets
    
    $
    704,638
    
    
    $
    243,171
    
    
    $
    170,086
    
    
    $
    (403,514
    )
    
    $
    714,381Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    
    25,250
    
    
    
    109,033
    
    
    
    129,433
    
    
    
    (257,013
    )
    
    
    6,703Accrued compensation expenses
    
    
    
    
    
    
    9,225
    
    
    
    1,317
    
    
    
    
    
    
    
    10,542Accrued warranty expense
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    
    
    
    
    1,774Other accrued expenses
    
    
    
    
    
    
    8,914
    
    
    
    3,987
    
    
    
    
    
    
    
    12,901Total current liabilities
    
    
    25,250
    
    
    
    128,946
    
    
    
    134,737
    
    
    
    (257,013
    )
    
    
    31,920Non-current liabilitiesAccumulated post retirement benefit
obligation
    
    
    
    
    
    
    3,072
    
    
    
    
    
    
    
    
    
    
    
    3,072Long term debt
    
    
    362,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,541Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    22,068
    
    
    
    (22,068
    )
    
    
    Total non-current liabilities
    
    
    362,541
    
    
    
    3,072
    
    
    
    22,068
    
    
    
    (22,068
    )
    
    
    365,613Total liabilities
    
    
    387,791
    
    
    
    132,018
    
    
    
    156,805
    
    
    
    (279,081
    )
    
    
    397,533Stockholders equityCommon stock
    
    
    699
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    699Additional paid-in capital
    
    
    236,799
    
    
    
    3,424
    
    
    
    67,769
    
    
    
    (71,193
    )
    
    
    236,799Accumulated other comprehensive income
    
    
    3,487
    
    
    
    345
    
    
    
    65,495
    
    
    
    (65,840
    )
    
    
    3,487Retained earnings
    
    
    75,862
    
    
    
    107,384
    
    
    
    (119,992
    )
    
    
    12,609
    
    
    
    75,863Total stockholders equity
    
    
    316,847
    
    
    
    111,153
    
    
    
    13,281
    
    
    
    (124,433
    )
    
    
    316,848Total liabilities and stockholders equity
    
    $
    704,638
    
    
    $
    243,171
    
    
    $
    170,086
    
    
    $
    (403,514
    )
    
    $
    714,381
 18




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 31, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,567
    
    
    $
    21,751
    
    
    $
    7,567
    
    
    $
    
    
    
    $
    30,885Short term investments
    
    
    
    
    
    
    15,304
    
    
    
    201
    
    
    
    
    
    
    
    15,505Accounts receivable, net
    
    
    226,421
    
    
    
    37,152
    
    
    
    11,921
    
    
    
    (224,436
    )
    
    
    51,058Inventories, net
    
    
    
    
    
    
    16,645
    
    
    
    5,012
    
    
    
    (3,466
    )
    
    
    18,191Other current assets
    
    
    
    
    
    
    6,770
    
    
    
    499
    
    
    
    
    
    
    
    7,269Total current assets
    
    
    227,988
    
    
    
    97,622
    
    
    
    25,200
    
    
    
    (227,902
    )
    
    
    122,908Property, plant and equipment, net
    
    
    
    
    
    
    20,797
    
    
    
    574
    
    
    
    
    
    
    
    21,371Goodwill, net
    
    
    
    
    
    
    69,644
    
    
    
    100,577
    
    
    
    (521
    )
    
    
    169,700Intangibles, net
    
    
    
    
    
    
    32,201
    
    
    
    31,877
    
    
    
    (23,500
    )
    
    
    40,578Deferred income taxes
    
    
    
    
    
    
    1,451
    
    
    
    2,659
    
    
    
    
    
    
    
    4,110Investment in subsidiaries
    
    
    100,911
    
    
    
    14,293
    
    
    
    
    
    
    
    (115,204
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    24,222
    
    
    
    130
    
    
    
    (23,693
    )
    
    
    659Total assets
    
    $
    328,899
    
    
    $
    260,230
    
    
    $
    161,017
    
    
    $
    (390,820
    )
    
    $
    359,326Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    
    23,683
    
    
    
    136,201
    
    
    
    94,494
    
    
    
    (250,690
    )
    
    
    3,688Accrued compensation expenses
    
    
    
    
    
    
    10,105
    
    
    
    1,375
    
    
    
    
    
    
    
    11,480Accrued warranty expense
    
    
    
    
    
    
    1,618
    
    
    
    
    
    
    
    
    
    
    
    1,618Income taxes payable
    
    
    
    
    
    
    1,970
    
    
    
    657
    
    
    
    (240
    )
    
    
    2,387Other accrued expenses
    
    
    
    
    
    
    6,353
    
    
    
    1,861
    
    
    
    
    
    
    
    8,214Contingent liability on acquisition
    
    
    
    
    
    
    
    
    
    
    25,988
    
    
    
    
    
    
    
    25,988Total current liabilities
    
    
    23,683
    
    
    
    156,247
    
    
    
    124,375
    
    
    
    (250,930
    )
    
    
    53,375Non-current liabilitiesAccumulated post retirement benefit obligation
    
    
    
    
    
    
    3,072
    
    
    
    
    
    
    
    
    
    
    
    3,072Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    22,349
    
    
    
    (22,349
    )
    
    
    Total non-current liabilities
    
    
    
    
    
    
    3,072
    
    
    
    22,349
    
    
    
    (22,349
    )
    
    
    3,072Total liabilities
    
    
    23,683
    
    
    
    159,319
    
    
    
    146,724
    
    
    
    (273,279
    )
    
    
    56,447Stockholders equityCommon stock
    
    
    695
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    695Additional paid-in capital
    
    
    227,284
    
    
    
    1,689
    
    
    
    130,031
    
    
    
    (131,720
    )
    
    
    227,284Accumulated other comprehensive income
    
    
    2,414
    
    
    
    37
    
    
    
    2,305
    
    
    
    (2,342
    )
    
    
    2,414Retained earnings
    
    
    74,823
    
    
    
    99,185
    
    
    
    (118,052
    )
    
    
    16,530
    
    
    
    72,486Total stockholders equity
    
    
    305,216
    
    
    
    100,911
    
    
    
    14,293
    
    
    
    (117,541
    )
    
    
    302,879Total liabilities and stockholders equity
    
    $
    328,899
    
    
    $
    260,230
    
    
    $
    161,017
    
    
    $
    (390,820
    )
    
    $
    359,326
 19




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    73,833
    
    
    $
    15,999
    
    
    $
    (11,050
    )
    
    $
    78,782Cost of sales
    
    
    
    
    
    
    11,716
    
    
    
    10,629
    
    
    
    (10,638
    )
    
    
    11,707Gross profit
    
    
    
    
    
    
    62,117
    
    
    
    5,370
    
    
    
    (412
    )
    
    
    67,075Operating expensesMarketing and selling
    
    
    
    
    
    
    23,857
    
    
    
    5,513
    
    
    
    
    
    
    
    29,370Research and development
    
    
    
    
    
    
    5,772
    
    
    
    
    
    
    
    
    
    
    
    5,772In-process researchand development
    
    
    
    
    
    
    25,613
    
    
    
    2,462
    
    
    
    
    
    
    
    28,075General and administrative
    
    
    
    
    
    
    7,597
    
    
    
    38
    
    
    
    
    
    
    
    7,635Amortization of intangibles
    
    
    
    
    
    
    820
    
    
    
    965
    
    
    
    
    
    
    
    1,785Total operating expenses
    
    
    
    
    
    
    63,659
    
    
    
    8,978
    
    
    
    
    
    
    
    72,637Operating (loss) income
    
    
    
    
    
    
    (1,542
    )
    
    
    (3,608
    )
    
    
    (412
    )
    
    
    (5,562
    )Other (expense) incomeRoyalty income
    
    
    
    
    
    
    408
    
    
    
    
    
    
    
    
    
    
    
    408Interest income
    
    
    
    
    
    
    590
    
    
    
    (297
    )
    
    
    141
    
    
    
    434Interest expense
    
    
    (3
    )
    
    
    (282
    )
    
    
    169
    
    
    
    (141
    )
    
    
    (257
    )Other (expense) income
    
    
    (6,955
    )
    
    
    461
    
    
    
    (80
    )
    
    
    55
    
    
    
    (6,519
    )Total other (expense) income
    
    
    (6,958
    )
    
    
    1,177
    
    
    
    (208
    )
    
    
    55
    
    
    
    (5,934
    )(Loss) income before income taxes
    
    
    (6,958
    )
    
    
    (365
    )
    
    
    (3,816
    )
    
    
    (357
    )
    
    
    (11,496
    )Provision for income taxes
    
    
    (2,658
    )
    
    
    1,835
    
    
    
    (2,440
    )
    
    
    (138
    )
    
    
    (3,401
    )Equity in (loss) earnings of subsidiary
    
    
    (3,576
    )
    
    
    (1,376
    )
    
    
    
    
    
    
    4,952
    
    
    
    Net (loss) income
    
    $
    (7,876
    )
    
    $
    (3,576
    )
    
    $
    (1,376
    )
    
    $
    4,733
    
    
    $
    (8,095
    )
 20




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    142,584
    
    
    $
    30,476
    
    
    $
    (20,654
    )
    
    $
    152,406Cost of sales
    
    
    
    
    
    
    23,694
    
    
    
    19,548
    
    
    
    (19,805
    )
    
    
    23,437Gross profit
    
    
    
    
    
    
    118,890
    
    
    
    10,928
    
    
    
    (849
    )
    
    
    128,969Operating expensesMarketing and selling
    
    
    
    
    
    
    46,331
    
    
    
    10,853
    
    
    
    
    
    
    
    57,184Research and development
    
    
    
    
    
    
    13,554
    
    
    
    
    
    
    
    
    
    
    
    13,554In-process research and development
    
    
    
    
    
    
    25,613
    
    
    
    2,462
    
    
    
    
    
    
    
    28,075General and administrative
    
    
    
    
    
    
    14,090
    
    
    
    39
    
    
    
    
    
    
    
    14,129Amortization of intangibles
    
    
    
    
    
    
    1,696
    
    
    
    1,930
    
    
    
    
    
    
    
    3,626Total operating expenses
    
    
    
    
    
    
    101,284
    
    
    
    15,284
    
    
    
    
    
    
    
    116,568Operating income (loss)
    
    
    
    
    
    
    17,606
    
    
    
    (4,356
    )
    
    
    (849
    )
    
    
    12,401Other (expense) incomeRoyalty income
    
    
    
    
    
    
    861
    
    
    
    
    
    
    
    
    
    
    
    861Interest income
    
    
    
    
    
    
    1,043
    
    
    
    (287
    )
    
    
    
    
    
    
    756Interest expense
    
    
    (3
    )
    
    
    (378
    )
    
    
    28
    
    
    
    
    
    
    
    (353
    )Other (expense) income
    
    
    (6,955
    )
    
    
    395
    
    
    
    (114
    )
    
    
    9
    
    
    
    (6,665
    )Total other (expense) income
    
    
    (6,958
    )
    
    
    1,921
    
    
    
    (373
    )
    
    
    9
    
    
    
    (5,401
    )Income (loss) before income taxes
    
    
    (6,958
    )
    
    
    19,527
    
    
    
    (4,729
    )
    
    
    (840
    )
    
    
    7,000Provision for income taxes
    
    
    (2,658
    )
    
    
    9,389
    
    
    
    (2,787
    )
    
    
    (321
    )
    
    
    3,623Equity in (loss) earnings of subsidiary
    
    
    8,196
    
    
    
    (1,942
    )
    
    
    
    
    
    
    (6,254
    )
    
    
    Net (loss) income
    
    $
    3,896
    
    
    $
    8,196
    
    
    $
    (1,942
    )
    
    $
    (6,773
    )
    
    $
    3,377
 21




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended July 2, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    59,466
    
    
    $
    12,911
    
    
    $
    (6,740
    )
    
    $
    65,637Cost of sales
    
    
    
    
    
    
    12,231
    
    
    
    5,825
    
    
    
    (6,102
    )
    
    
    11,954Gross profit
    
    
    
    
    
    
    47,235
    
    
    
    7,086
    
    
    
    (638
    )
    
    
    53,683Operating expensesMarketing and selling
    
    
    
    
    
    
    18,351
    
    
    
    5,143
    
    
    
    
    
    
    
    23,494Research and development
    
    
    
    
    
    
    4,866
    
    
    
    
    
    
    
    
    
    
    
    4,866General and administrative
    
    
    
    
    
    
    5,217
    
    
    
    (10
    )
    
    
    
    
    
    
    5,207Amortization of intangibles
    
    
    
    
    
    
    1,046
    
    
    
    902
    
    
    
    
    
    
    
    1,948Total operating expenses
    
    
    
    
    
    
    29,480
    
    
    
    6,035
    
    
    
    
    
    
    
    35,515Operating income
    
    
    
    
    
    
    17,755
    
    
    
    1,051
    
    
    
    (638
    )
    
    
    18,168Other income (expense)Royalty income
    
    
    
    
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    508Interest income
    
    
    
    
    
    
    273
    
    
    
    8
    
    
    
    80
    
    
    
    361Interest expense
    
    
    
    
    
    
    146
    
    
    
    (107
    )
    
    
    (80
    )
    
    
    (41
    )Other (expense) income
    
    
    
    
    
    
    (604
    )
    
    
    26
    
    
    
    (35
    )
    
    
    (613
    )Total other income (expense)
    
    
    
    
    
    
    323
    
    
    
    (73
    )
    
    
    (35
    )
    
    
    215Income (loss) before income taxes
    
    
    
    
    
    
    18,078
    
    
    
    978
    
    
    
    (673
    )
    
    
    18,383Provision for income taxes
    
    
    
    
    
    
    6,333
    
    
    
    349
    
    
    
    (306
    )
    
    
    6,376Equity in earnings (loss) of subsidiary
    
    
    12,373
    
    
    
    629
    
    
    
    
    
    
    
    (13,002
    )
    
    
    Net income (loss)
    
    $
    12,373
    
    
    $
    12,374
    
    
    $
    629
    
    
    $
    (13,369
    )
    
    $
    12,007
 22




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended July 2, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    118,177
    
    
    $
    25,164
    
    
    $
    (15,559
    )
    
    $
    127,782Cost of sales
    
    
    
    
    
    
    23,547
    
    
    
    14,261
    
    
    
    (14,834
    )
    
    
    22,974Gross profit
    
    
    
    
    
    
    94,630
    
    
    
    10,903
    
    
    
    (725
    )
    
    
    104,808Operating expensesMarketing and selling
    
    
    
    
    
    
    35,477
    
    
    
    9,673
    
    
    
    
    
    
    
    45,150Research and development
    
    
    
    
    
    
    9,504
    
    
    
    
    
    
    
    
    
    
    
    9,504General and administrative
    
    
    
    
    
    
    11,002
    
    
    
    (6
    )
    
    
    
    
    
    
    10,996Amortization of intangibles
    
    
    
    
    
    
    1,933
    
    
    
    1,805
    
    
    
    
    
    
    
    3,738Total operating expenses
    
    
    
    
    
    
    57,916
    
    
    
    11,472
    
    
    
    
    
    
    
    69,388Operating income
    
    
    
    
    
    
    36,714
    
    
    
    (569
    )
    
    
    (725
    )
    
    
    35,420Other income (expense)Royalty income
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Interest income
    
    
    
    
    
    
    612
    
    
    
    23
    
    
    
    
    
    
    
    635Interest expense
    
    
    
    
    
    
    91
    
    
    
    (187
    )
    
    
    
    
    
    
    (96
    )Other (expense) income
    
    
    
    
    
    
    (970
    )
    
    
    37
    
    
    
    (144
    )
    
    
    (1,077
    )Total other income (expense)
    
    
    
    
    
    
    719
    
    
    
    (127
    )
    
    
    (144
    )
    
    
    448Income (loss) before income taxes
    
    
    
    
    
    
    37,433
    
    
    
    (696
    )
    
    
    (869
    )
    
    
    35,868Provision for income taxes
    
    
    
    
    
    
    13,170
    
    
    
    (245
    )
    
    
    (306
    )
    
    
    12,619Equity in earnings (loss) of subsidiary
    
    
    23,812
    
    
    
    (451
    )
    
    
    
    
    
    
    (23,361
    )
    
    
    Net income (loss)
    
    $
    23,812
    
    
    $
    23,812
    
    
    $
    (451
    )
    
    $
    (23,924
    )
    
    $
    23,249
 23




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    2,060
    
    
    $
    27,740
    
    
    $
    3,199
    
    
    $
    
    
    
    $
    32,999Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (6,870
    )
    
    
    (100
    )
    
    
    
    
    
    
    (6,970
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (23,986
    )
    
    
    
    
    
    
    
    
    
    
    (23,986
    )Purchase of investments in technology
    
    
    
    
    
    
    (25,613
    )
    
    
    (2,462
    )
    
    
    
    
    
    
    (28,075
    )Purchase of license agreement
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Purchase of short term investments
    
    
    
    
    
    
    (100
    )
    
    
    (10
    )
    
    
    
    
    
    
    (110
    )Sale of short term investments
    
    
    
    
    
    
    15,176
    
    
    
    14
    
    
    
    
    
    
    
    15,190Net cash used in investing
activities
    
    
    
    
    
    
    (42,393
    )
    
    
    (2,558
    )
    
    
    
    
    
    
    (44,951
    )Cash flows from financing activitiesIssuance of common stock
    
    
    3,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,437Issuance of convertible notes
    
    
    362,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,538Intercompany notes
    
    
    
    
    
    
    874
    
    
    
    (874
    )
    
    
    
    
    
    
    Excess tax benefit from exercise of stock options
    
    
    
    
    
    
    389
    
    
    
    
    
    
    
    
    
    
    
    389Financing
charges paid on credit facility
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Net cash used in (provided by) financing
    
    
    359,020
    
    
    
    1,263
    
    
    
    (874
    )
    
    
    
    
    
    
    359,409activitiesEffect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Net increase (decrease) in cash and cash equivalents
    
    
    361,080
    
    
    
    (13,390
    )
    
    
    (137
    )
    
    
    
    
    
    
    347,553Cash and cash equivalents at beginning of period
    
    
    1,567
    
    
    
    21,751
    
    
    
    7,567
    
    
    
    
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    362,647
    
    
    $
    8,361
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    378,438
 24




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended July 2, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided (used) in operating activities
    
    $
    (1,970
    )
    
    $
    31,182
    
    
    $
    (992
    )
    
    $
    
    
    
    $
    28,220Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,063
    )
    
    
    (148
    )
    
    
    
    
    
    
    (3,211
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (24,053
    )
    
    
    
    
    
    
    
    
    
    
    (24,053
    )Purchase of license agreement
    
    
    
    
    
    
    (770
    )
    
    
    
    
    
    
    
    
    
    
    (770
    )Purchase of short term investments
    
    
    
    
    
    
    (30,338
    )
    
    
    
    
    
    
    
    
    
    
    (30,338
    )Sale of short term investments
    
    
    
    
    
    
    29,757
    
    
    
    
    
    
    
    
    
    
    
    29,757Net cash used in investing activities
    
    
    
    
    
    
    (28,467
    )
    
    
    (148
    )
    
    
    
    
    
    
    (28,615
    )Cash flows from financing activitiesIssuance of common stock
    
    
    10,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,249Net cash provided by financing activities
    
    
    10,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,249Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    890
    
    
    
    
    
    
    
    890Net increase (decrease) in cash and cash equivalents
    
    
    8,279
    
    
    
    2,715
    
    
    
    (250
    )
    
    
    
    
    
    
    10,744Cash and cash equivalents at beginning of period
    
    
    1,305
    
    
    
    25,525
    
    
    
    8,859
    
    
    
    
    
    
    
    35,689Cash and cash equivalents at end of period
    
    $
    9,584
    
    
    $
    28,240
    
    
    $
    8,609
    
    
    $
    
    
    
    $
    46,433
 25




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##### Table of Contents



NOTE 13. Other Contingencies
 Her Option® Her Option
 NOTE 14. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement 109.
 26




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements not of historical fact may be considered forward-looking statements.
Written words such as may, expect, believe, anticipate, or estimate, or other variations
of these or similar words, identify such forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may differ materially from
those expressed in such forward-looking statements as a result of many factors, including, but not
limited to, those included on our Form 10-K, Part I, Item 1A for the year ended December 31, 2005.
We undertake no obligation to correct or update any forward-looking statements, whether as a result
of new information, future events, or otherwise. You are advised, however, to consult any future
disclosures we make on related subjects in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Adoption of SFAS 123(R), Share-Based Payment
 Share-Based Payment
   27




---



##### Table of Contents



Overview
  www.AmericanMedicalSystems.com.
 Laserscope Acquisition
     Stock-Based Compensation
 Share-Based Payment
 Notes to Consolidated Financial Statements  No.
3
 Three Months Ended
    
    Six Months Ended(in thousands, except per share data)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net (loss) income, as reported
    
    $
    (8,095
    )
    
    $
    12,007
    
    
    $
    3,377
    
    
    $
    23,249Stock-based employee compensation expense
included in reported (loss) income, net of tax
    
    $
    1,907
    
    
    $
    
    
    
    $
    3,842
    
    
    $
    Diluted earnings per share, as reported
    
    $
    (0.12
    )
    
    $
    0.17
    
    
    $
    0.05
    
    
    $
    0.33Stock-based employee compensation expense
included in reported (loss) income, net of tax, per diluted share
    
    $
    0.03
    
    
    $
    
    
    
    $
    0.05
    
    
    $
    
 28




---



##### Table of Contents



Results of Operations
 Sales Trends
  Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    $ Increase
    
    % Increase
    
    July 1, 2006
    
    July 2, 2005
    
    $ Increase
    
    % IncreaseSalesProduct LineMens health
    
    $
    45,912
    
    
    $
    40,817
    
    
    $
    5,095
    
    
    
    12.5
    %
    
    $
    90,570
    
    
    $
    81,406
    
    
    $
    9,164
    
    
    
    11.3
    %Womens health
    
    
    32,870
    
    
    
    24,820
    
    
    
    8,050
    
    
    
    32.4
    %
    
    
    61,836
    
    
    
    46,376
    
    
    
    15,460
    
    
    
    33.3
    %Total
    
    $
    78,782
    
    
    $
    65,637
    
    
    $
    13,145
    
    
    
    20.0
    %
    
    $
    152,406
    
    
    $
    127,782
    
    
    $
    24,624
    
    
    
    19.3
    %GeographyUnited States
    
    $
    60,024
    
    
    $
    50,737
    
    
    $
    9,287
    
    
    
    18.3
    %
    
    $
    117,023
    
    
    $
    99,070
    
    
    $
    17,953
    
    
    
    18.1
    %International
    
    
    18,758
    
    
    
    14,900
    
    
    
    3,858
    
    
    
    25.9
    %
    
    
    35,383
    
    
    
    28,712
    
    
    
    6,671
    
    
    
    23.2
    %Total
    
    $
    78,782
    
    
    $
    65,637
    
    
    $
    13,145
    
    
    
    20.0
    %
    
    $
    152,406
    
    
    $
    127,782
    
    
    $
    24,624
    
    
    
    19.3
    %
 Three Months Ended
    
    Six Months EndedJuly 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Percent of total salesProduct LineMens health
    
    
    58.3
    %
    
    
    62.2
    %
    
    
    59.4
    %
    
    
    63.7
    %Womens health
    
    
    41.7
    %
    
    
    37.8
    %
    
    
    40.6
    %
    
    
    36.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    76.2
    %
    
    
    77.3
    %
    
    
    76.8
    %
    
    
    77.5
    %International
    
    
    23.8
    %
    
    
    22.7
    %
    
    
    23.2
    %
    
    
    22.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Net Sales
 Mens pelvic health products. AMS 700 ® Tactile Pump InhibiZone® AMS 800 Artificial Urinary Sphincter Invance® TherMatrx
 Womens pelvic health products. Apogee Perigee Monarc® BioArc® SP BioArc® TO Monarc® BioArc® InFast SPARC ® Her
Option
 29




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##### Table of Contents



International sales and foreign exchange effects.
 30




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase
    
    Six Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    (Decrease)
    
    (Decrease)
    
    July 1, 2006
    
    July 2, 2005
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    78,782
    
    
    $
    65,637
    
    
    $
    13,145
    
    
    
    20.0
    %
    
    $
    152,406
    
    
    $
    127,782
    
    
    $
    24,624
    
    
    
    19.3
    %Cost of sales (a)
    
    
    11,707
    
    
    
    11,954
    
    
    
    (247
    )
    
    
    -2.1
    %
    
    
    23,437
    
    
    
    22,974
    
    
    
    463
    
    
    
    2.0
    %Gross profit
    
    
    67,075
    
    
    
    53,683
    
    
    
    13,392
    
    
    
    24.9
    %
    
    
    128,969
    
    
    
    104,808
    
    
    
    24,161
    
    
    
    23.1
    %Operating expensesMarketing and selling (a)
    
    
    29,370
    
    
    
    23,494
    
    
    
    5,876
    
    
    
    25.0
    %
    
    
    57,184
    
    
    
    45,150
    
    
    
    12,034
    
    
    
    26.7
    %Research and development (a)
    
    
    5,772
    
    
    
    4,866
    
    
    
    906
    
    
    
    18.6
    %
    
    
    13,554
    
    
    
    9,504
    
    
    
    4,050
    
    
    
    42.6
    %In-process research and development
    
    
    28,075
    
    
    
    
    
    
    
    28,075
    
    
    
    
    
    28,075
    
    
    
    
    
    
    
    28,075General and administrative (a)
    
    
    7,635
    
    
    
    5,207
    
    
    
    2,428
    
    
    
    46.6
    %
    
    
    14,129
    
    
    
    10,996
    
    
    
    3,133
    
    
    
    28.5
    %Amortization of intangibles
    
    
    1,785
    
    
    
    1,948
    
    
    
    (163
    )
    
    
    -8.4
    %
    
    
    3,626
    
    
    
    3,738
    
    
    
    (112
    )
    
    
    -3.0
    %Total operating expenses
    
    
    72,637
    
    
    
    35,515
    
    
    
    37,122
    
    
    
    104.5
    %
    
    
    116,568
    
    
    
    69,388
    
    
    
    47,180
    
    
    
    68.0
    %Operating income
    
    
    (5,562
    )
    
    
    18,168
    
    
    
    (23,730
    )
    
    
    -130.6
    %
    
    
    12,401
    
    
    
    35,420
    
    
    
    (23,019
    )
    
    
    -65.0
    %Royalty income
    
    
    408
    
    
    
    508
    
    
    
    (100
    )
    
    
    -19.7
    %
    
    
    861
    
    
    
    986
    
    
    
    (125
    )
    
    
    -12.7
    %Interest income
    
    
    434
    
    
    
    361
    
    
    
    73
    
    
    
    20.2
    %
    
    
    756
    
    
    
    635
    
    
    
    121
    
    
    
    19.1
    %Interest expense
    
    
    (257
    )
    
    
    (41
    )
    
    
    (216
    )
    
    
    -526.8
    %
    
    
    (353
    )
    
    
    (96
    )
    
    
    (257
    )
    
    
    -267.7
    %Finance charge
    
    
    (6,955
    )
    
    
    
    
    
    
    (6,955
    )
    
    
    
    
    (6,955
    )
    
    
    
    
    
    
    (6,955
    )Other income (expense)
    
    
    436
    
    
    
    (613
    )
    
    
    1,049
    
    
    
    -171.1
    %
    
    
    290
    
    
    
    (1,077
    )
    
    
    1,367
    
    
    
    -126.9
    %Income before income taxes
    
    
    (11,496
    )
    
    
    18,383
    
    
    
    (29,879
    )
    
    
    -162.5
    %
    
    
    7,000
    
    
    
    35,868
    
    
    
    (28,868
    )
    
    
    -80.5
    %Provision for income taxes
    
    
    (3,401
    )
    
    
    6,376
    
    
    
    (9,777
    )
    
    
    -153.3
    %
    
    
    3,623
    
    
    
    12,619
    
    
    
    (8,996
    )
    
    
    -71.3
    %Net income
    
    $
    (8,095
    )
    
    $
    12,007
    
    
    $
    (20,102
    )
    
    
    -167.4
    %
    
    $
    3,377
    
    
    $
    23,249
    
    
    $
    (19,872
    )
    
    
    -85.5
    %
 Percent of Sales
    
    Percent of SalesFor the Three Months Ended
    
    For the Six Months EndedJuly 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales (a)
    
    
    14.9
    %
    
    
    18.2
    %
    
    
    15.4
    %
    
    
    18.0
    %Gross profit
    
    
    85.1
    %
    
    
    81.8
    %
    
    
    84.6
    %
    
    
    82.0
    %Operating expensesMarketing and selling (a)
    
    
    37.3
    %
    
    
    35.8
    %
    
    
    37.5
    %
    
    
    35.3
    %Research and development (a)
    
    
    7.3
    %
    
    
    7.4
    %
    
    
    8.9
    %
    
    
    7.4
    %In-process research and development
    
    
    35.6
    %
    
    
    0.0
    %
    
    
    18.4
    %
    
    
    0.0
    %General and administrative (a)
    
    
    9.7
    %
    
    
    7.9
    %
    
    
    9.3
    %
    
    
    8.6
    %Amortization of intangibles
    
    
    2.3
    %
    
    
    3.0
    %
    
    
    2.4
    %
    
    
    2.9
    %Total operating expenses
    
    
    92.2
    %
    
    
    54.1
    %
    
    
    76.5
    %
    
    
    54.3
    %Operating income
    
    
    -7.1
    %
    
    
    27.7
    %
    
    
    8.1
    %
    
    
    27.7
    %Royalty income
    
    
    0.5
    %
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.8
    %Interest income
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.5
    %Interest expense
    
    
    -0.3
    %
    
    
    -0.1
    %
    
    
    -0.2
    %
    
    
    -0.1
    %Finance charge
    
    
    -8.8
    %
    
    
    0.0
    %
    
    
    -4.6
    %
    
    
    0.0
    %Other income (expense)
    
    
    0.6
    %
    
    
    -0.9
    %
    
    
    0.2
    %
    
    
    -0.8
    %Income before income taxes
    
    
    -14.6
    %
    
    
    28.0
    %
    
    
    4.6
    %
    
    
    28.1
    %Provision for income taxes
    
    
    -4.3
    %
    
    
    9.7
    %
    
    
    2.4
    %
    
    
    9.9
    %Net income
    
    
    -10.3
    %
    
    
    18.3
    %
    
    
    2.2
    %
    
    
    18.2
    %
 
 (a)
    
    These line items include stock-based compensation of : Percent of Sales
    
    
    
    
    
    
    
    
    
    Percent of SalesSix Months Ended
    

For
the Six Months Ended
    

Six Months Ended
    

For
the Six Months Ended(in thousands)
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005
    
    July 1, 2006
    
    July 2, 2005Cost of sales
    
    $
    110
    
    
    $
    
    
    
    
    0.1
    %
    
    
    0.0
    %
    
    $
    155
    
    
    $
    
    
    
    
    0.2
    %
    
    
    0.0
    %Marketing and selling
    
    
    877
    
    
    
    
    
    
    
    1.1
    %
    
    
    0.0
    %
    
    
    1,751
    
    
    
    
    
    
    
    2.2
    %
    
    
    0.0
    %Research and development
    
    
    534
    
    
    
    
    
    
    
    0.7
    %
    
    
    0.0
    %
    
    
    1,034
    
    
    
    
    
    
    
    1.3
    %
    
    
    0.0
    %General and administrative
    
    
    959
    
    
    
    
    
    
    
    1.2
    %
    
    
    0.0
    %
    
    
    2,137
    
    
    
    
    
    
    
    2.7
    %
    
    
    0.0
    %Stock-based compensation expense
    
    $
    2,480
    
    
    $
    
    
    
    
    3.1
    %
    
    
    0.0
    %
    
    $
    5,077
    
    
    $
    
    
    
    
    6.4
    %
    
    
    0.0
    %
 31




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##### Table of Contents



Cost of sales
 Marketing and selling.
 Research and development.
 In-process research and development. (IPR&D) Notes to Consolidated Financial Statements  No. 7
 General and administrative.
 Amortization of intangibles.
 Royalty income.
 Interest income.
 Interest expense.
 Finance charges.
 Other income (expense).
 32




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##### Table of Contents



Income taxes.
 Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Effective tax rate  as reported
    
    
    29.6
    %
    
    
    34.7
    %
    
    
    51.8
    %
    
    
    35.2
    %Stock option expense increase to tax rate
    
    
    1.8
    %
    
    
    
    
    
    
    1.6
    %
    
    
    Expiration of Federal research and development credit
    
    
    0.9
    %
    
    
    
    
    
    
    1.8
    %
    
    
    In-process research and development charge
    
    
    (8.0
    %)
    
    
    
    
    
    
    13.0
    %
 Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
   33




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##### Table of Contents



Cash commitments.
 TherMatrx
  34




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##### Table of Contents



Notes to Consolidated Financial Statements  No. 7
     Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 35




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
  Currency
    Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  36




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
   Changes in third party reimbursement for our products and therapies may influence our customers
purchasing activity.
  Our revenues and operating results may be negatively affected and we may not achieve future growth
projections if we fail to compete successfully against our competitors.
  We may experience an interruption in sales of a product and incur costs if that product is recalled
or withdrawn.
  We may not be able to supply products that incorporate materials or components which are single- or
sole-sourced.
 TherMatrx InhibiZone
 37




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##### Table of Contents



Our sale of products could be reduced if we are unable to comply with regulatory requirements or
obtain the regulatory approvals necessary to market our products in the United States and foreign
jurisdictions.
  
    
    imposing fines and penalties on us;
    
    preventing us from manufacturing or distributing our products;
    
    bringing civil or criminal charges against us;
    
    delaying the introduction or denying marketing approval of our new products;
    
    recalling, withdrawing, or seizing our products; and
    
    requiring additional regulatory filings and/or approvals.
 In the event we fail to comply with manufacturing regulations, we could be prevented from selling
our products.
  We may be unable to adequately protect our intellectual property rights or obtain necessary
intellectual property rights from third parties which could adversely affect our business,
including losing market share to our competitors and the inability to operate our business
profitably.
  38




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##### Table of Contents




    
    these agreements will not be breached;
    
    we will have adequate remedies for any breach; or
    
    our trade secrets will not otherwise become known to or independently
developed by our competitors.
  We could incur significant costs and/or be required to stop the sale of the related product as a
result of litigation or other proceedings relating to patent and other intellectual property
rights.
  We are required to comply with broad, pervasive and continually changing federal and state fraud
and abuse laws, and, if we are unable to fully comply with such laws, we could face substantial
penalties and our products could be excluded from government healthcare programs.
  
    
    the federal Anti-Kickback Statute, which prohibits persons from
knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce
either the referral of an individual, or furnishing or arranging for a
good or service, for which payment may be made under federal
healthcare programs, such as the Medicare and Medicaid programs, and
corresponding state laws;
    
    the federal False Claims Act, which imposes civil and criminal
liability on individuals and entities who submit, or cause to be
submitted, false or fraudulent claims for payment to the government;
and
    
    the federal False Statements Statute, which prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the delivery
of or payment for healthcare benefits, items or services.
 39




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##### Table of Contents



We could incur significant costs or other negative impacts if significant product liability claims
are made against us.
  Changes in international stability or foreign exchange rates could negatively impact our sales.
   
    
    changes in regulatory requirements;
    
    delays resulting from difficulty in obtaining export licenses for certain technology;
    
    customs, tariffs and other barriers and restrictions; and
    
    burdens of complying with a variety of foreign laws.
 40




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##### Table of Contents



The failure to successfully integrate Laserscopes business and operations in the expected time
frame, or at all, may adversely affect the combined companys future results.
  
    
    failure to successfully manage relationships with customers, distributors and suppliers;
    
    failure of customers to accept new products or to continue as customers of the combined
company;
    
    failure to effectively coordinate sales and marketing efforts to communicate the
capabilities of the combined company;
    
    failure to qualify the combined companys products as a primary source of supply with
OEM customers on a timely basis or at all;
    
    failure to successfully launch the anticipated Laserscope Greenlight HPS product to
treat obstructive BPH;
    
    potential incompatibility of technologies and systems;
    
    diversion of management resources from the business of the combined company to
integration-related issues ;
    
    failure to leverage the increased scale of the combined company quickly and effectively;
    
    potential difficulties integrating and harmonizing financial reporting systems; and
    
    the loss of key employees.
  Laserscopes aesthetics
business comprised a substantial portion of its operating results, and we are
considering a divestiture of this business.
  Related to our acquisition of
Laserscope, we have substantially increased our debt leverage, which may result in dilution to our shareholders.
   41




---



##### Table of Contents




    
    limiting our ability to obtain any necessary financing in the future for working capital, capital
expenditures, debt service requirements, or other purposes;
    
    limiting our flexibility in planning for, or reacting to, changes in our business;
    
    placing us at a competitive disadvantage relative to our competitors who have lower levels of debt;
    
    decreasing our debt ratings and increasing our cost of borrowed funds;
    
    making us more vulnerable to a downturn in our business or the economy generally;
    
    subjecting us to the risk of being forced to refinance at higher interest rates these amounts when
due; and
    
    requiring us to use a substantial portion of our cash to pay principal and interest on our debt or
AMS debt, instead of contributing those funds to other purposes such as working capital and
capital expenditures.
 42




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 Our annual meeting of stockholders was held on May 4, 2006.At the meeting Thomas E. Timbie and Elizabeth H. Weatherman were reelected for a term expiring
in May 2009. Martin J. Emerson and Albert Jay Graf continue to serve as directors for terms
expiring in May 2007, and Richard B. Emmitt and Christopher H. Porter, Ph.D. continue to serve
as directors for terms expiring in May 2008. Shareholders also approved an amendment to our
Second Amended and Restated Certificate of Incorporation and ratified the appointment of Ernst &
Young LLP as independent auditors for fiscal year 2006.The results of the stockholder votes were as follows:
 For
    
    Withheld1. Election of Directors:Term expiring in 2009:Thomas E. Timbie
    
    
    63,767,194
    
    
    
    1,598,778Elizabeth H. Weatherman
    
    
    62,888,924
    
    
    
    2,477,048
 BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes2. Approval of Second Amended and
Restated Certificate of
Incorporation
    
    
    59,433,909
    
    
    
    98,949
    
    
    
    403,330
    
    
    
    5,429,7843. Ratification of Ernst & Young
LLP as independent auditors for
fiscal year 2006
    
    
    64,318,420
    
    
    
    648,776
    
    
    
    398,776
    
    
    
    0
 43




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##### Table of Contents



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing1.1
    
    Purchase Agreement, dated as of June
21, 2006, between American Medical
Systems Holdings, Inc. and Piper
Jaffray & Co., as representative of
the Underwriters listed in Schedule
I thereto.
    
    Incorporated by
reference to Exhibit
1.1 of the Companys
Current Report on
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).2.1
    
    Agreement and Plan of Merger, dated
as of June 3, 2006, by and among
American Medical Systems Holdings,
Inc., Laserscope and Kermit Merger
Corp.
    
    Incorporated by
reference to Exhibit
2.1 of the Companys
Current Report on
Form 8-K filed on
June 5, 2006 (File
No. 000-30733).3.1
    
    Second Amended and Restated
Certificate of Incorporation of the
Company.
    
    Incorporated by
reference to Exhibit
3.1 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.1
    
    Form of Indenture for Senior Debt
Securities.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.2
    
    Form of Senior Debt Security.
    
    Incorporated by
reference to Exhibit
4.3 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.3
    
    Form of Indenture for Subordinated
Debt Securities.
    
    Incorporated by
reference to Exhibit
4.4 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.4
    
    Form of Subordinated Debt Security.
    
    Incorporated by
reference to Exhibit
4.5 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.5
    
    Form of Indenture for Senior
Subordinated Debt Securities.
    
    Incorporated by
reference to Exhibit
4.6 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.6
    
    Form of Senior Subordinated Debt
Security.
    
    Incorporated by
reference to Exhibit
4.7 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.7
    
    Indenture, dated as of June 27,
2006, between American Medical
Systems Holdings, Inc., the Notes
Guarantors (as defined therein), and
U.S. Bank National Association, as
trustee.
    
    Incorporated by
reference to Exhibit
4.1 of the Companys
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).4.8
    
    Form of 31/4% Convertible Senior
Subordinated Note.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).10.1
    
    Asset Purchase Agreement, dated
April 26, 2006, between American
Medical Systems, Inc. and BioControl
Medical, Ltd.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on
April 27, 2006 (File
No. 000-30733).10.2
    
    License Agreement, dated April 26,
2006, between American Medical
Systems, Inc. and BioControl
Medical, Ltd.
    
    Incorporated by
reference to Exhibit
10.2 of the Companys
Current Report on
Form 8-K filed on
April 27, 2006 (File
No. 000-30733).
 44




---



##### Table of Contents



Item No.
    
    Item
    
    Method of Filing10.3
    
    Agreement and Plan of Merger, dated
as of May 8, 2006, by and among,
American Medical System, Inc., Xenon
Merger Corp., a wholly owned
subsidiary of American Medical
System, Inc., Solarant Medical,
Inc., and Warburg Pincus Equity
Partners, L.P., as stockholders
representative.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on May
9, 2006 (File No.
000-30733).10.4
    
    Compensation Summary for Ross
Longhini, Executive Vice President
and Chief Operating Officer.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on
June 20, 2006 (File
No. 000-30733).10.5
    
    Executive Compensation and Other
Benefits Executive Employment
Agreements Section of the Companys
Schedule 14A, Definitive Proxy
Statement dated April 6, 2006.
    
    Incorporated by
reference to Exhibit
10.2 of the Companys
Current Report on
Form 8-K filed on
June 20, 2006 (File
No. 000-30733).10.6
    
    Form of Notice of Amendment to Stock
Option Certificate/Agreement for
Executive Officers of American
Medical Systems Holdings, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.1
    
    Certificate of Chief Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.2
    
    Certificate of Chief Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.
 45




---



##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCAugust 10, 2006
    
    
    
    By
    
    /s/ Martin J. EmersonDate
    
    
    
    
    
    Martin J. Emerson
President and Chief Executive OfficerAugust 10, 2006
    
    
    
    By
    
    /s/ Carmen L. DiersenDate
    
    
    
    
    
    Carmen L. Diersen
Executive Vice President, Chief Financial Officer
and Corporate Secretary (Principal Financial and
Accounting Officer)
 46




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
 For the Fiscal Quarter Ended July 2, 2006
 Item No.
    
    Item
    
    Method of Filing1.1
    
    Purchase Agreement, dated as of June
21, 2006, between American Medical
Systems Holdings, Inc. and Piper
Jaffray & Co., as representative of
the Underwriters listed in Schedule
I thereto.
    
    Incorporated by
reference to Exhibit
1.1 of the Companys
Current Report on
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).2.1
    
    Agreement and Plan of Merger, dated
as of June 3, 2006, by and among
American Medical Systems Holdings,
Inc., Laserscope and Kermit Merger
Corp.
    
    Incorporated by
reference to Exhibit
2.1 of the Companys
Current Report on
Form 8-K filed on
June 5, 2006 (File
No. 000-30733).3.1
    
    Second Amended and Restated
Certificate of Incorporation of the
Company.
    
    Incorporated by
reference to Exhibit
3.1 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.1
    
    Form of Indenture for Senior Debt
Securities.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.2
    
    Form of Senior Debt Security.
    
    Incorporated by
reference to Exhibit
4.3 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.3
    
    Form of Indenture for Subordinated
Debt Securities.
    
    Incorporated by
reference to Exhibit
4.4 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.4
    
    Form of Subordinated Debt Security.
    
    Incorporated by
reference to Exhibit
4.5 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.5
    
    Form of Indenture for Senior
Subordinated Debt Securities.
    
    Incorporated by
reference to Exhibit
4.6 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.6
    
    Form of Senior Subordinated Debt
Security.
    
    Incorporated by
reference to Exhibit
4.7 of the Companys
Form S-3 filed on
June 19, 2006 (File
No. 333-135135).4.7
    
    Indenture, dated as of June 27,
2006, between American Medical
Systems Holdings, Inc., the Notes
Guarantors (as defined therein), and
U.S. Bank National Association, as
trustee.
    
    Incorporated by
reference to Exhibit
4.1 of the Companys
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).4.8
    
    Form of 31/4% Convertible Senior
Subordinated Note.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form 8-K filed on
June 28, 2006 (File
No. 000-30733).10.1
    
    Asset Purchase Agreement, dated
April 26, 2006, between American
Medical Systems, Inc. and BioControl
Medical, Ltd.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on
April 27, 2006 (File
No. 000-30733).
 47




---



##### Table of Contents



Item No.
    
    Item
    
    Method of Filing10.2
    
    License Agreement, dated April 26,
2006, between American Medical
Systems, Inc. and BioControl
Medical, Ltd.
    
    Incorporated by
reference to Exhibit
10.2 of the Companys
Current Report on
Form 8-K filed on
April 27, 2006 (File
No. 000-30733).10.3
    
    Agreement and Plan of Merger, dated
as of May 8, 2006, by and among,
American Medical System, Inc., Xenon
Merger Corp., a wholly owned
subsidiary of American Medical
System, Inc., Solarant Medical,
Inc., and Warburg Pincus Equity
Partners, L.P., as stockholders
representative.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on May
9, 2006 (File No.
000-30733).10.4
    
    Compensation Summary for Ross
Longhini, Executive Vice President
and Chief Operating Officer.
    
    Incorporated by
reference to Exhibit
10.1 of the Companys
Current Report on
Form 8-K filed on
June 20, 2006 (File
No. 000-30733).10.5
    
    Executive Compensation and Other
Benefits Executive Employment
Agreements Section of the Companys
Schedule 14A, Definitive Proxy
Statement dated April 6, 2006.
    
    Incorporated by
reference to Exhibit
10.2 of the Companys
Current Report on
Form 8-K filed on
June 20, 2006 (File
No. 000-30733).10.6
    
    Form of Notice of Amendment to Stock
Option Certificate/Agreement for
Executive Officers of American
Medical Systems Holdings, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.1
    
    Certificate of Chief Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.2
    
    Certificate of Chief Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.
 48