##### 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       April 4, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



INDEX
 PagePART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the
three month periods ended April 4, 2009 and March
29, 2008
    
    
    3Consolidated Balance Sheets as of April 4, 2009 and
January 3, 2009
    
    
    4Consolidated Statements of Cash Flow for the three
month periods ended April 4, 2009 and March 29,
2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    24ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 4. CONTROLS AND PROCEDURES
    
    
    35PART II OTHER INFORMATIONITEM 6. EXHIBITS
    
    
    36SIGNATURES
    
    
    37EXHIBIT INDEX
    
    
    38EX-10.1:EX-31.1:EX-31.2:EX-32.1:
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
   Three Months EndedApril 4, 2009
    
    
    March 29, 2008(a)Net sales
    
    $
    123,638
    
    
    $
    120,362Cost of sales
    
    
    23,342
    
    
    
    28,990Gross profit
    
    
    100,296
    
    
    
    91,372Operating expensesMarketing and selling
    
    
    43,348
    
    
    
    45,081Research and development
    
    
    12,811
    
    
    
    11,300General and administrative
    
    
    10,779
    
    
    
    10,155Amortization of intangibles
    
    
    3,265
    
    
    
    4,347Total operating expenses
    
    
    70,203
    
    
    
    70,883Operating income
    
    
    30,093
    
    
    
    20,489Other (expense) incomeRoyalty income
    
    
    933
    
    
    
    355Interest income
    
    
    103
    
    
    
    195Interest expense
    
    
    (5,410
    )
    
    
    (8,057
    )Amortization of financing costs
    
    
    (3,981
    )
    
    
    (4,120
    )Gain on extinguishment of debt
    
    
    4,562
    
    
    
    Other income
    
    
    552
    
    
    
    1,345Total other (expense) income
    
    
    (3,241
    )
    
    
    (10,282
    )Income before income taxes
    
    
    26,852
    
    
    
    10,207Provision for income taxes
    
    
    9,772
    
    
    
    4,120Net income
    
    $
    17,080
    
    
    $
    6,087Net income per shareBasic net earnings
    
    $
    0.23
    
    
    $
    0.08Diluted net earnings
    
    $
    0.23
    
    
    $
    0.08Weighted average common shares used in calculationBasic
    
    
    73,691
    
    
    
    72,477Diluted
    
    
    74,018
    
    
    
    73,588
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP,
for the change in accounting related to the Companys Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
  April 4, 2009
    
    
    January 3, 2009(Unaudited)
    
    
    (a)AssetsCurrent assetsCash and cash equivalents
    
    $
    14,526
    
    
    $
    11,642Short-term investments
    
    
    27,941
    
    
    
    31,323Accounts receivable, net
    
    
    89,785
    
    
    
    93,078Inventories, net
    
    
    37,396
    
    
    
    38,500Deferred income taxes
    
    
    12,892
    
    
    
    12,908Other current assets
    
    
    5,367
    
    
    
    6,858Total current assets
    
    
    187,907
    
    
    
    194,309Property, plant and equipment, net
    
    
    46,893
    
    
    
    48,280Goodwill
    
    
    689,315
    
    
    
    690,097Developed and core technology, net
    
    
    59,642
    
    
    
    62,315Other intangibles, net
    
    
    46,757
    
    
    
    47,349Other long-term assets, net
    
    
    1,986
    
    
    
    2,147Total assets
    
    $
    1,032,500
    
    
    $
    1,044,497Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    8,777
    
    
    $
    7,830Income taxes payable
    
    
    8,145
    
    
    
    7,782Accrued compensation expenses
    
    
    17,526
    
    
    
    22,876Accrued warranty expense
    
    
    2,865
    
    
    
    3,287Other accrued expenses
    
    
    23,116
    
    
    
    21,535Total current liabilities
    
    
    60,429
    
    
    
    63,310Long-term debt
    
    
    458,636
    
    
    
    484,582Deferred income taxes
    
    
    50,533
    
    
    
    50,044Long-term income taxes payable
    
    
    15,557
    
    
    
    15,327Long-term employee benefit obligations
    
    
    3,737
    
    
    
    3,752Total liabilities
    
    
    588,892
    
    
    
    617,015Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 73,808,389 shares at April 4, 2009 and
73,668,415 shares at January 3, 2009
    
    
    738
    
    
    
    737Additional paid-in capital
    
    
    369,525
    
    
    
    369,594Accumulated other comprehensive income
    
    
    2,340
    
    
    
    3,226Retained earnings
    
    
    71,005
    
    
    
    53,925Total stockholders equity
    
    
    443,608
    
    
    
    427,482Total liabilities and stockholders equity
    
    $
    1,032,500
    
    
    $
    1,044,497
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for the change
in accounting related to the Companys Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
   Three Months EndedApril 4, 2009
    
    
    March 29, 2008(a)Cash flows from operating activitiesNet income
    
    $
    17,080
    
    
    $
    6,087Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    2,433
    
    
    
    2,428Amortization of intangibles
    
    
    3,265
    
    
    
    4,347Amortization of deferred financing costs
    
    
    3,981
    
    
    
    4,120Non-cash impairment of available-for-sale securities
    
    
    
    
    
    
    843Excess tax benefit from exercise of stock options
    
    
    
    
    
    
    (855
    )Tax benefit on exercised stock option arrangements
    
    
    22
    
    
    
    867Settlement of derivative contracts
    
    
    (680
    )
    
    
    Change in net deferred income taxes
    
    
    1,403
    
    
    
    1,685Gain on extinguishment of debt
    
    
    (4,562
    )
    
    
    Stock-based compensation
    
    
    2,216
    
    
    
    2,125Changes in operating assets and liabilities:Accounts receivable
    
    
    2,082
    
    
    
    (493
    )Inventories
    
    
    1,036
    
    
    
    5,743Accounts payable and accrued expenses
    
    
    (2,297
    )
    
    
    (23,125
    )Other assets
    
    
    2,229
    
    
    
    3,636Net cash provided by operating activities
    
    
    28,208
    
    
    
    7,408Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (1,108
    )
    
    
    (1,122
    )Net proceeds from settlement of derivative contracts
    
    
    680
    
    
    
    Disposal of business
    
    
    
    
    
    
    1,610Purchase of other intangibles
    
    
    
    
    
    
    (1,052
    )Purchase of short-term investments
    
    
    (18,124
    )
    
    
    (28
    )Sale of short-term investments
    
    
    21,500
    
    
    
    34Net cash provided by (used in) investing activities
    
    
    2,948
    
    
    
    (558
    )Cash flows from financing activitiesIssuance of common stock
    
    
    918
    
    
    
    2,425Excess tax benefit from exercise of stock options
    
    
    
    
    
    
    855Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    Payments on senior secured credit facility
    
    
    (8,585
    )
    
    
    (5,793
    )Proceeds from short-term borrowings
    
    
    
    
    
    
    12,000Repayments of short-term borrowings
    
    
    
    
    
    
    (12,000
    )Net cash used in financing activities
    
    
    (28,792
    )
    
    
    (2,513
    )Cash provided by operations
    
    
    2,364
    
    
    
    4,337Effect of currency exchange rates on cash
    
    
    520
    
    
    
    (1,222
    )Net increase in cash and cash equivalents
    
    
    2,884
    
    
    
    3,115Cash and cash equivalents at beginning of period
    
    
    11,642
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    14,526
    
    
    $
    37,159Supplemental disclosureCash paid for interest
    
    $
    2,562
    
    
    $
    13,684Cash paid for taxes
    
    $
    7,218
    
    
    $
    839
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for
the change in accounting related to the Companys Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
 5




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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. Recently Issued and Adopted Accounting Pronouncements
 Fair Value Measurements Note 11, Fair Value Measurements,
  Business Combinations
 Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133
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Note 12, Derivative Instruments and
Hedging Activities
 Interim Disclosures About Fair Value of
Financial Instruments
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) Accounting
Changes and Error Corrections.
  Three Months Ended April 4, 2009
    
    Three Months Ended March 29, 2008Previous
    
    Effect of
    
    Current
    
    As
    
    Effect of
    
    As(in thousands, except per share data)
    
    Method
    
    Change
    
    Method
    
    Reported
    
    Change
    
    AdjustedAmortization of financing costs
    
    $
    (605
    )
    
    $
    (3,376
    )
    
    $
    (3,981
    )
    
    $
    (710
    )
    
    $
    (3,410
    )
    
    $
    (4,120
    )Gain on extinguishment of debt
    
    
    5,303
    
    
    
    (741
    )
    
    
    4,562
    
    
    
    
    
    
    
    
    
    
    
    Provision for income taxes
    
    
    11,324
    
    
    
    (1,552
    )
    
    
    9,772
    
    
    
    5,406
    
    
    
    (1,286
    )
    
    
    4,120Net income
    
    
    19,645
    
    
    
    (2,565
    )
    
    
    17,080
    
    
    
    8,211
    
    
    
    (2,124
    )
    
    
    6,087Basic net income per share
    
    $
    0.26
    
    
    
    (0.03
    )
    
    $
    0.23
    
    
    $
    0.11
    
    
    $
    (0.03
    )
    
    $
    0.08Diluted net income per share
    
    $
    0.26
    
    
    
    (0.03
    )
    
    $
    0.23
    
    
    $
    0.11
    
    
    $
    (0.03
    )
    
    $
    0.08
  As of April 4, 2009
    
    
    As of January 3, 2009Previous
    
    
    Effect of
    
    
    Current
    
    
    As
    
    
    Effect of
    
    
    As(in thousands)
    
    Method
    
    
    Change
    
    
    Method
    
    
    Reported
    
    
    Change
    
    
    AdjustedAssetsOther long-term assets, net
    
    $
    2,557
    
    
    $
    (571
    )
    
    $
    1,986
    
    
    $
    2,747
    
    
    $
    (600
    )
    
    $
    2,147Total assets
    
    $
    1,033,071
    
    
    $
    (571
    )
    
    $
    1,032,500
    
    
    $
    1,045,097
    
    
    $
    (600
    )
    
    $
    1,044,497Liabilities and Stockholders EquityLiabilitiesLong-term debt
    
    $
    517,883
    
    
    $
    (59,247
    )
    
    $
    458,636
    
    
    $
    552,416
    
    
    $
    (67,834
    )
    
    $
    484,582Deferred income taxes
    
    
    27,634
    
    
    
    22,121
    
    
    
    49,755
    
    
    
    24,697
    
    
    
    25,347
    
    
    
    50,044Total liabilities
    
    
    626,018
    
    
    
    (37,126
    )
    
    
    588,892
    
    
    
    659,502
    
    
    
    (42,487
    )
    
    
    617,015Stockholders equityAdditional paid-in capital
    
    
    305,972
    
    
    
    63,553
    
    
    
    369,525
    
    
    
    303,274
    
    
    
    66,320
    
    
    
    369,594Retained earnings
    
    
    98,003
    
    
    
    (26,998
    )
    
    
    71,005
    
    
    
    78,358
    
    
    
    (24,433
    )
    
    
    53,925Total stockholders equity
    
    
    407,053
    
    
    
    36,555
    
    
    
    443,608
    
    
    
    385,595
    
    
    
    41,887
    
    
    
    427,482Total liabilities and stockholders equity
    
    $
    1,033,071
    
    
    $
    (571
    )
    
    $
    1,032,500
    
    
    $
    1,045,097
    
    
    $
    (600
    )
    
    $
    1,044,497
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Three Months Ended April 4, 2009
    
    
    Three Months Ended March 29, 2008Previous
    
    
    Effect of
    
    
    Current
    
    
    As
    
    
    Effect of
    
    
    As(in thousands)
    
    Method
    
    
    Change
    
    
    Method
    
    
    Reported
    
    
    Change
    
    
    AdjustedNet income
    
    $
    19,645
    
    
    $
    (2,565
    )
    
    $
    17,080
    
    
    $
    8,211
    
    
    $
    (2,124
    )
    
    $
    6,087Adjustments
to reconcile net income to net cash provided by operating activities:Gain on extinguishment of debt
    
    
    (5,303
    )
    
    
    741
    
    
    
    (4,562
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of financing costs
    
    
    605
    
    
    
    3,376
    
    
    
    3,981
    
    
    
    710
    
    
    
    3,410
    
    
    
    4,120Change in net deferred income taxes
    
    
    3,411
    
    
    
    (1,552
    )
    
    
    1,859
    
    
    
    2,971
    
    
    
    (1,286
    )
    
    
    1,685Net cash provided by operating activities
    
    
    28,208
    
    
    
    
    
    
    
    28,208
    
    
    
    7,408
    
    
    
    
    
    
    
    7,408Net increase in cash and cash equivalents
    
    
    2,884
    
    
    
    
    
    
    
    2,884
    
    
    
    3,115
    
    
    
    
    
    
    
    3,115Cash and cash equivalents at beginning of period
    
    
    11,642
    
    
    
    
    
    
    
    11,642
    
    
    
    34,044
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    14,526
    
    
    $
    
    
    
    $
    14,526
    
    
    $
    37,159
    
    
    $
    
    
    
    $
    37,159
 3. Stock-Based Compensation
  Three Months Ended(in thousands)
    
    April 4, 2009
    
    
    March 29, 2008Cost of sales
    
    $
    241
    
    
    $
    357Marketing and selling
    
    
    455
    
    
    
    844Research and development
    
    
    287
    
    
    
    558General and administrative
    
    
    1,233
    
    
    
    366Total
stock-based compensation expense
    
    $
    2,216
    
    
    $
    2,125
    Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at January 3, 2009
    
    
    7,020,341
    
    
    $
    15.50Granted
    
    
    1,068,900
    
    
    
    10.63Exercised
    
    
    (23,126
    )
    
    
    7.15Cancelled or expired
    
    
    (264,468
    )
    
    
    18.09Balance at April 4, 2009
    
    
    7,801,647
    
    
    $
    14.77
    
    
    $
    5,410Options exercisable at April 4, 2009
    
    
    4,644,488
    
    
    $
    15.11
    
    
    $
    4,363
  8




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4. Earnings per Share
  Three Months Ended(in thousands, except per share data)
    
    April 4, 2009
    
    
    March 29, 2008Net income from continuing operations
    
    $
    17,080
    
    
    $
    6,087Weighted-average shares outstanding for basic net income per share
    
    
    73,691
    
    
    
    72,477Dilutive effect of stock options and restricted shares
    
    
    327
    
    
    
    1,111Adjusted weighted-average shares outstanding for diluted net income per share
    
    
    74,018
    
    
    
    73,588Net income per shareBasic net earnings from continuing operations
    
    $
    0.23
    
    
    $
    0.08Diluted net earnings from continuing operations
    
    $
    0.23
    
    
    $
    0.08
  5. Inventories
  (in thousands)
    
    April 4, 2009
    
    January 3, 2009Raw materials
    
    $
    11,794
    
    
    $
    11,611Work in process
    
    
    5,104
    
    
    
    4,841Finished goods
    
    
    27,299
    
    
    
    26,283Obsolescence reserve
    
    
    (6,801
    )
    
    
    (4,235
    )Net inventories
    
    $
    37,396
    
    
    $
    38,500
 6. Warranties
   Three Months Ended(in thousands)
    
    April 4, 2009
    
    
    March 29, 2008Balance, beginning of period
    
    $
    3,287
    
    
    $
    3,001Provisions for warranty
    
    
    808
    
    
    
    2,137Claims processed
    
    
    (1,230
    )
    
    
    (1,584
    )Balance, end of period
    
    $
    2,865
    
    
    $
    3,554
 7. Comprehensive Income
 Note 12, Derivative Instruments and Hedging
Activities
 9




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##### Table of Contents



Three Months Ended(in thousands)
    
    April 4, 2009
    
    March 29, 2008Net income
    
    $
    17,080
    
    
    $
    6,087Foreign currency translation (loss) gain, net of taxes
    
    
    (1,374
    )
    
    
    1,984Unrealized gain (loss) on derivative financial instruments:Net change in periodic revaluations, net of taxes
    
    
    468
    
    
    
    (217
    )Recognition of previously unrealized losses on available-for-sale securities, net
of taxes
    
    
    
    
    
    
    433Unrealized gain on available-for-sale securities, net of taxes
    
    
    20
    
    
    
    Comprehensive income
    
    $
    16,194
    
    
    $
    8,287
  Net UnrealizedGain (Loss) on
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalDerivative
    
    
    
    
    
    Foreign
    
    Net Unrealized
    
    AccumulatedInstruments
    
    Post-retirement
    
    Currency
    
    (Loss) Gain on
    
    OtherQualifying as
    
    Plan Liability
    
    Translation
    
    Available-for-
    
    Comprehensive(in thousands)
    
    Hedges
    
    Adjustment
    
    Adjustment
    
    sale Investments
    
    IncomeBalance at January 3, 2009
    
    $
    (1,982
    )
    
    $
    (180
    )
    
    $
    5,490
    
    
    $
    (102
    )
    
    $
    3,226Balance at April 4, 2009
    
    $
    (1,514
    )
    
    $
    (180
    )
    
    $
    4,116
    
    
    $
    (82
    )
    
    $
    2,340
 8. Goodwill and Intangible Assets
  Three Months Ended(in thousands)
    
    April 4, 2009Goodwill, beginning of the period
    
    $
    690,097Effect of currency translation
    
    
    (782
    )Goodwill, end of the period
    
    $
    689,315
  April 4, 2009
    
    January 3, 2009Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueDeveloped and core technology
    
    $
    137,553
    
    
    $
    (77,911
    )
    
    $
    59,642
    
    
    $
    137,553
    
    
    $
    (75,238
    )
    
    $
    62,315Other intangiblesAmortizedPatents
    
    
    11,510
    
    
    
    (9,413
    )
    
    
    2,097
    
    
    
    11,510
    
    
    
    (9,317
    )
    
    
    2,193Licenses
    
    
    9,312
    
    
    
    (7,949
    )
    
    
    1,363
    
    
    
    9,312
    
    
    
    (7,659
    )
    
    
    1,653Royalty agreement
    
    
    2,970
    
    
    
    (1,244
    )
    
    
    1,726
    
    
    
    2,970
    
    
    
    (1,148
    )
    
    
    1,822Trademarks
    
    
    2,208
    
    
    
    (1,437
    )
    
    
    771
    
    
    
    2,208
    
    
    
    (1,327
    )
    
    
    881Total amortized other
intangible assets
    
    
    26,000
    
    
    
    (20,043
    )
    
    
    5,957
    
    
    
    26,000
    
    
    
    (19,451
    )
    
    
    6,549UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    66,800
    
    
    
    (20,043
    )
    
    
    46,757
    
    
    
    66,800
    
    
    
    (19,451
    )
    
    
    47,349Total intangible assets
    
    $
    204,353
    
    
    $
    (97,954
    )
    
    $
    106,399
    
    
    $
    204,353
    
    
    $
    (94,689
    )
    
    $
    109,664
  10




---



##### Table of Contents



9. Litigation Settlements
 Her Option ®
 10. Debt
 Senior Secured Credit Facility
  Note 9, Litigation Settlements
     11




---



##### Table of Contents



Amendment of Credit Facility
  Convertible Senior Subordinated Notes; Supplemental Guarantor Information
  Accounting for Convertible Debt Instruments that May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement). Note 2, Recently Issued and Adopted Accounting
Pronouncements.
   12




---



##### Table of Contents



(See Note 2, Recently Issued and
Adopted Accounting Pronouncements.)
 13




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended April 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    111,551
    
    
    $
    27,298
    
    
    $
    (15,211
    )
    
    $
    123,638Cost of sales
    
    
    
    
    
    
    23,606
    
    
    
    15,035
    
    
    
    (15,299
    )
    
    
    23,342Gross profit
    
    
    
    
    
    
    87,945
    
    
    
    12,263
    
    
    
    88
    
    
    
    100,296Operating expensesMarketing and selling
    
    
    
    
    
    
    33,898
    
    
    
    9,450
    
    
    
    
    
    
    
    43,348Research and development
    
    
    
    
    
    
    12,786
    
    
    
    25
    
    
    
    
    
    
    
    12,811General and administrative
    
    
    
    
    
    
    10,779
    
    
    
    
    
    
    
    
    
    
    
    10,779Amortization of intangibles
    
    
    
    
    
    
    3,265
    
    
    
    
    
    
    
    
    
    
    
    3,265Total operating expenses
    
    
    
    
    
    
    60,728
    
    
    
    9,475
    
    
    
    
    
    
    
    70,203Operating income
    
    
    
    
    
    
    27,217
    
    
    
    2,788
    
    
    
    88
    
    
    
    30,093Other (expense) incomeRoyalty income
    
    
    
    
    
    
    933
    
    
    
    
    
    
    
    
    
    
    
    933Interest income
    
    
    
    
    
    
    132
    
    
    
    21
    
    
    
    (50
    )
    
    
    103Interest expense
    
    
    (2,701
    )
    
    
    (2,696
    )
    
    
    (63
    )
    
    
    50
    
    
    
    (5,410
    )Amortization of financing
costs
    
    
    (3,470
    )
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    (3,981
    )Gain on extinguishment of
debt
    
    
    4,562
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,562Other income (expense)
    
    
    
    
    
    
    758
    
    
    
    (188
    )
    
    
    (18
    )
    
    
    552Total other (expense) income
    
    
    (1,609
    )
    
    
    (1,384
    )
    
    
    (230
    )
    
    
    (18
    )
    
    
    (3,241
    )(Loss) income before income taxes
    
    
    (1,609
    )
    
    
    25,833
    
    
    
    2,558
    
    
    
    70
    
    
    
    26,852Provision for income taxes
    
    
    (607
    )
    
    
    9,463
    
    
    
    890
    
    
    
    26
    
    
    
    9,772Equity in earnings of subsidiary
    
    
    18,038
    
    
    
    1,668
    
    
    
    
    
    
    
    (19,706
    )
    
    
    Net income
    
    $
    17,036
    
    
    $
    18,038
    
    
    $
    1,668
    
    
    $
    (19,662
    )
    
    $
    17,080
 14




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended March 29, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    109,792
    
    
    $
    27,738
    
    
    $
    (17,168
    )
    
    $
    120,362Cost of sales
    
    
    
    
    
    
    28,696
    
    
    
    17,000
    
    
    
    (16,706
    )
    
    
    28,990Gross profit
    
    
    
    
    
    
    81,096
    
    
    
    10,738
    
    
    
    (462
    )
    
    
    91,372Operating expensesMarketing and selling
    
    
    
    
    
    
    33,947
    
    
    
    11,134
    
    
    
    
    
    
    
    45,081Research and development
    
    
    
    
    
    
    11,300
    
    
    
    
    
    
    
    
    
    
    
    11,300General and administrative
    
    
    
    
    
    
    10,154
    
    
    
    1
    
    
    
    
    
    
    
    10,155Amortization of intangibles
    
    
    
    
    
    
    3,477
    
    
    
    870
    
    
    
    
    
    
    
    4,347Total operating expenses
    
    
    
    
    
    
    58,878
    
    
    
    12,005
    
    
    
    
    
    
    
    70,883Operating income
    
    
    
    
    
    
    22,218
    
    
    
    (1,267
    )
    
    
    (462
    )
    
    
    20,489Other (expense) incomeRoyalty income
    
    
    
    
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355Interest income
    
    
    
    
    
    
    809
    
    
    
    12
    
    
    
    (626
    )
    
    
    195Interest expense
    
    
    (3,037
    )
    
    
    (5,015
    )
    
    
    (631
    )
    
    
    626
    
    
    
    (8,057
    )Amortization of financing
costs
    
    
    (3,514
    )
    
    
    (606
    )
    
    
    
    
    
    
    
    
    
    
    (4,120
    )Other income (expense)
    
    
    
    
    
    
    1,297
    
    
    
    14
    
    
    
    34
    
    
    
    1,345Total other (expense) income
    
    
    (6,551
    )
    
    
    (3,160
    )
    
    
    (605
    )
    
    
    34
    
    
    
    (10,282
    )(Loss) income before income taxes
    
    
    (6,551
    )
    
    
    19,058
    
    
    
    (1,872
    )
    
    
    (428
    )
    
    
    10,207Provision for income taxes
    
    
    (2,433
    )
    
    
    7,393
    
    
    
    (684
    )
    
    
    (156
    )
    
    
    4,120Equity in earnings of subsidiary
    
    
    10,477
    
    
    
    (1,188
    )
    
    
    
    
    
    
    (9,289
    )
    
    
    Net income (loss)
    
    $
    6,359
    
    
    $
    10,477
    
    
    $
    (1,188
    )
    
    $
    (9,561
    )
    
    $
    6,087
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP,
for the change in accounting related to
the Companys Convertible Notes. See Note 2. 15




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of April 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    5,141
    
    
    $
    9,385
    
    
    $
    
    
    
    $
    14,526Short-term investments
    
    
    8,814
    
    
    
    19,001
    
    
    
    126
    
    
    
    
    
    
    
    27,941Accounts receivable, net
    
    
    584,528
    
    
    
    51,594
    
    
    
    24,788
    
    
    
    (571,125
    )
    
    
    89,785Inventories, net
    
    
    
    
    
    
    35,142
    
    
    
    5,374
    
    
    
    (3,120
    )
    
    
    37,396Deferred income taxes
    
    
    
    
    
    
    12,412
    
    
    
    480
    
    
    
    
    
    
    
    12,892Other current assets
    
    
    
    
    
    
    4,181
    
    
    
    1,186
    
    
    
    
    
    
    
    5,367Total current assets
    
    
    593,342
    
    
    
    127,471
    
    
    
    41,339
    
    
    
    (574,245
    )
    
    
    187,907Property, plant and equipment, net
    
    
    
    
    
    
    45,473
    
    
    
    1,420
    
    
    
    
    
    
    
    46,893Goodwill
    
    
    
    
    
    
    628,192
    
    
    
    85,144
    
    
    
    (24,021
    )
    
    
    689,315Developed and core technology, net
    
    
    
    
    
    
    59,642
    
    
    
    
    
    
    
    
    
    
    
    59,642Other intangibles, net
    
    
    
    
    
    
    46,757
    
    
    
    
    
    
    
    
    
    
    
    46,757Investment in subsidiaries
    
    
    151,035
    
    
    
    11,430
    
    
    
    
    
    
    
    (162,465
    )
    
    
    Other long-term assets, net
    
    
    502
    
    
    
    1,331
    
    
    
    153
    
    
    
    
    
    
    
    1,986Total assets
    
    $
    744,879
    
    
    $
    920,296
    
    
    $
    128,056
    
    
    $
    (760,731
    )
    
    $
    1,032,500Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    34,431
    
    
    $
    464,283
    
    
    $
    93,380
    
    
    $
    (583,317
    )
    
    $
    8,777Accrued compensation expenses
    
    
    
    
    
    
    14,736
    
    
    
    2,790
    
    
    
    
    
    
    
    17,526Accrued warranty expense
    
    
    
    
    
    
    2,925
    
    
    
    (60
    )
    
    
    
    
    
    
    2,865Income taxes payable
    
    
    (607
    )
    
    
    7,019
    
    
    
    1,733
    
    
    
    
    
    
    
    8,145Other accrued expenses
    
    
    2,605
    
    
    
    16,883
    
    
    
    3,628
    
    
    
    
    
    
    
    23,116Total current liabilities
    
    
    36,429
    
    
    
    505,846
    
    
    
    101,471
    
    
    
    (583,317
    )
    
    
    60,429Non-current liabilitiesLong-term debt
    
    
    244,243
    
    
    
    214,393
    
    
    
    
    
    
    
    
    
    
    
    458,636Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    14,949
    
    
    
    (14,949
    )
    
    
    Deferred income taxes
    
    
    20,599
    
    
    
    29,729
    
    
    
    205
    
    
    
    
    
    
    
    50,533Long-term income taxes payable
    
    
    
    
    
    
    15,557
    
    
    
    
    
    
    
    
    
    
    
    15,557Long-term employee benefit obligations
    
    
    
    
    
    
    3,737
    
    
    
    
    
    
    
    
    
    
    
    3,737Total non-current liabilities
    
    
    264,842
    
    
    
    263,416
    
    
    
    15,154
    
    
    
    (14,949
    )
    
    
    528,463Total liabilities
    
    
    301,271
    
    
    
    769,261
    
    
    
    116,626
    
    
    
    (598,266
    )
    
    
    588,892Stockholders equityCommon stock
    
    
    738
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    738Additional paid-in capital
    
    
    369,525
    
    
    
    3,424
    
    
    
    67,368
    
    
    
    (70,792
    )
    
    
    369,525Accumulated other comprehensive income
    
    
    2,340
    
    
    
    (951
    )
    
    
    3,060
    
    
    
    (2,109
    )
    
    
    2,340Retained earnings (deficit)
    
    
    71,005
    
    
    
    148,562
    
    
    
    (59,007
    )
    
    
    (89,555
    )
    
    
    71,005Total stockholders equity
    
    
    443,608
    
    
    
    151,035
    
    
    
    11,430
    
    
    
    (162,465
    )
    
    
    443,608Total liabilities and stockholders equity
    
    $
    744,879
    
    
    $
    920,296
    
    
    $
    128,056
    
    
    $
    (760,731
    )
    
    $
    1,032,500
 16




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of January 3, 2009(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    3,143
    
    
    $
    8,499
    
    
    $
    
    
    
    $
    11,642Short-term investments
    
    
    15,756
    
    
    
    15,433
    
    
    
    134
    
    
    
    
    
    
    
    31,323Accounts receivable, net
    
    
    618,891
    
    
    
    68,158
    
    
    
    24,817
    
    
    
    (618,788
    )
    
    
    93,078Inventories, net
    
    
    
    
    
    
    36,521
    
    
    
    5,226
    
    
    
    (3,247
    )
    
    
    38,500Deferred income taxes
    
    
    
    
    
    
    12,412
    
    
    
    496
    
    
    
    
    
    
    
    12,908Other current assets
    
    
    
    
    
    
    5,832
    
    
    
    1,026
    
    
    
    
    
    
    
    6,858Total current assets
    
    
    634,647
    
    
    
    141,499
    
    
    
    40,198
    
    
    
    (622,035
    )
    
    
    194,309Property, plant and equipment, net
    
    
    
    
    
    
    46,751
    
    
    
    1,529
    
    
    
    
    
    
    
    48,280Goodwill
    
    
    
    
    
    
    628,193
    
    
    
    85,925
    
    
    
    (24,021
    )
    
    
    690,097Developed and core technology, net
    
    
    
    
    
    
    62,315
    
    
    
    
    
    
    
    
    
    
    
    62,315Other intangibles, net
    
    
    
    
    
    
    47,349
    
    
    
    
    
    
    
    
    
    
    
    47,349Investment in subsidiaries
    
    
    110,868
    
    
    
    32,824
    
    
    
    
    
    
    
    (143,692
    )
    
    
    Other long-term assets, net
    
    
    578
    
    
    
    1,418
    
    
    
    151
    
    
    
    
    
    
    
    2,147Total assets
    
    $
    746,093
    
    
    $
    960,349
    
    
    $
    127,803
    
    
    $
    (789,748
    )
    
    $
    1,044,497Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    11,461
    
    
    $
    556,362
    
    
    $
    70,944
    
    
    $
    (630,937
    )
    
    $
    7,830Accrued compensation expenses
    
    
    
    
    
    
    19,252
    
    
    
    3,624
    
    
    
    
    
    
    
    22,876Accrued warranty expense
    
    
    
    
    
    
    3,300
    
    
    
    (13
    )
    
    
    
    
    
    
    3,287Income taxes payable
    
    
    (980
    )
    
    
    6,657
    
    
    
    2,105
    
    
    
    
    
    
    
    7,782Other accrued expenses
    
    
    91
    
    
    
    18,504
    
    
    
    2,940
    
    
    
    
    
    
    
    21,535Total current liabilities
    
    
    10,572
    
    
    
    604,075
    
    
    
    79,600
    
    
    
    (630,937
    )
    
    
    63,310Non-current liabilitiesLong-term debt
    
    
    262,094
    
    
    
    222,488
    
    
    
    
    
    
    
    
    
    
    
    484,582Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    15,119
    
    
    
    (15,119
    )
    
    
    Deferred income taxes
    
    
    45,945
    
    
    
    3,839
    
    
    
    260
    
    
    
    
    
    
    
    50,044Long-term income taxes payable
    
    
    
    
    
    
    15,327
    
    
    
    
    
    
    
    
    
    
    
    15,327Long-term employee benefit obligations
    
    
    
    
    
    
    3,752
    
    
    
    
    
    
    
    
    
    
    
    3,752Total non-current liabilities
    
    
    308,039
    
    
    
    245,406
    
    
    
    15,379
    
    
    
    (15,119
    )
    
    
    553,705Total liabilities
    
    
    318,611
    
    
    
    849,481
    
    
    
    94,979
    
    
    
    (646,056
    )
    
    
    617,015Stockholders equityCommon stock
    
    
    737
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    737Additional paid-in capital
    
    
    369,594
    
    
    
    3,424
    
    
    
    67,368
    
    
    
    (70,792
    )
    
    
    369,594Accumulated other comprehensive income
    
    
    3,226
    
    
    
    (1,334
    )
    
    
    4,367
    
    
    
    (3,033
    )
    
    
    3,226Retained earnings (deficit)
    
    
    53,925
    
    
    
    108,778
    
    
    
    (38,920
    )
    
    
    (69,858
    )
    
    
    53,925Total stockholders equity
    
    
    427,482
    
    
    
    110,868
    
    
    
    32,824
    
    
    
    (143,692
    )
    
    
    427,482Total liabilities and stockholders equity
    
    $
    746,093
    
    
    $
    960,349
    
    
    $
    127,803
    
    
    $
    (789,748
    )
    
    $
    1,044,497
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP, for
the change in accounting related to
the Companys Convertible Notes. See Note 2. 17




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended April 4, 2009AmericanMedical
    
    
    
    
    
    Non-Systems
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    20,207
    
    
    $
    7,547
    
    
    $
    454
    
    
    $
    
    
    
    $
    28,208Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (1,020
    )
    
    
    (88
    )
    
    
    
    
    
    
    (1,108
    )Purchase of short-term investments
    
    
    
    
    
    
    (18,124
    )
    
    
    
    
    
    
    
    
    
    
    (18,124
    )Sale of short-term investments
    
    
    
    
    
    
    21,500
    
    
    
    
    
    
    
    
    
    
    
    21,500Net payments from settlement of derivative
contracts
    
    
    
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    680Net cash provided by (used in) investing activities
    
    
    
    
    
    
    3,036
    
    
    
    (88
    )
    
    
    
    
    
    
    2,948Cash flows from financing activitiesIssuance of common stock
    
    
    918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918Payments on senior secured credit facility
    
    
    
    
    
    
    (8,585
    )
    
    
    
    
    
    
    
    
    
    
    (8,585
    )Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,125
    )Net cash used in financing activities
    
    
    (20,207
    )
    
    
    (8,585
    )
    
    
    
    
    
    
    
    
    
    
    (28,792
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    
    
    
    
    520Net increase in cash and cash equivalents
    
    
    
    
    
    
    1,998
    
    
    
    886
    
    
    
    
    
    
    
    2,884Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,143
    
    
    
    8,499
    
    
    
    
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    5,141
    
    
    $
    9,385
    
    
    $
    
    
    
    $
    14,526
 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended March 29, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating
activities
    
    $
    (3,280
    )
    
    $
    5,933
    
    
    $
    4,755
    
    
    $
    
    
    
    $
    7,408Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (1,080
    )
    
    
    (42
    )
    
    
    
    
    
    
    (1,122
    )Disposal of business
    
    
    
    
    
    
    1,610
    
    
    
    
    
    
    
    
    
    
    
    1,610Purchase of other intangibles
    
    
    
    
    
    
    (1,052
    )
    
    
    
    
    
    
    
    
    
    
    (1,052
    )Purchase of short-term investments
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (28
    )Sale of short-term investments
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Net cash used in investing activities
    
    
    
    
    
    
    (516
    )
    
    
    (42
    )
    
    
    
    
    
    
    (558
    )Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    7,854
    
    
    
    (7,854
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    2,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,425Excess tax benefit from exercise of
stock options
    
    
    855
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    855Payments on long-term debt
    
    
    
    
    
    
    (5,793
    )
    
    
    
    
    
    
    
    
    
    
    (5,793
    )Proceeds from short-term borrowings
    
    
    
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    12,000Repayments of short-term borrowings
    
    
    
    
    
    
    (12,000
    )
    
    
    
    
    
    
    
    
    
    
    (12,000
    )Net cash provided by (used in) financing
activities
    
    
    3,280
    
    
    
    2,061
    
    
    
    (7,854
    )
    
    
    
    
    
    
    (2,513
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (1,222
    )
    
    
    
    
    
    
    (1,222
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    7,478
    
    
    
    (4,363
    )
    
    
    
    
    
    
    3,115Cash and cash equivalents at beginning of period
    
    
    32
    
    
    
    21,671
    
    
    
    12,341
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    32
    
    
    $
    29,149
    
    
    $
    7,978
    
    
    $
    
    
    
    $
    37,159
 
 (a)
    
    Retroactively adjusted to reflect the adoption of FSP No. APB 14-1, as required by GAAP,
for the change in accounting related to the Companys Convertible Notes. See Note 2. 19




---



##### Table of Contents



11. Fair Value Measurements
 Fair Value Measurements,
  Level 1
 Level 2
 
    
    Quoted prices for similar assets or liabilities in active markets;
    
    Quoted prices for identical or similar assets or liabilities in non-active markets;
    
    Inputs other than quoted prices that are observable for substantially the full term of
the asset or liability; and
    
    Inputs that are derived principally from or corroborated by observable market data for
substantially the full term of the asset or liability.
 Level 3
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDescription
    
    Identical Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)AssetsMoney market funds
    
    $
    27,440
    
    
    $
    
    
    
    $
    Available-for-sale securities
    
    
    267
    
    
    
    
    
    
    
    Other short-term investments
    
    
    108
    
    
    
    126
    
    
    
    Total
    
    $
    27,815
    
    
    $
    126
    
    
    $
    LiabilitiesDerivatives
    
    $
    
    
    
    $
    2,764
    
    
    $
    
    20




---



##### Table of Contents



Note 12, Derivative Instruments and Hedging Activities
 12. Derivative Instruments and Hedging Activities
  Accounting for
Derivative Instruments and Hedging Activity
   21




---



##### Table of Contents



Fair Values of Derivative Instruments
 Asset Derivatives
    
    
    Liability DerivativesApril 4, 2009
    
    
    January 3, 2009
    
    
    April 4, 2009
    
    
    January 3, 2009Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceSheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair(in thousands)
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    ValueDerivatives designated as hedging
instruments under SFAS 133Interest rate swap contracts
    
    Other current assets
    
    $
    
    
    
    Other current assets
    
    $
    
    
    
    Other accrued expenses
    
    $
    2,035
    
    
    Other accrued expenses
    
    $
    2,663Foreign exchange forward
contracts
    
    Other current assets
    
    
    
    
    
    Other current assets
    
    
    659
    
    
    Other accrued expenses
    
    
    554
    
    
    Other accrued expenses
    
    
    1,729Total derivatives designated as hedging
instruments under SFAS 133
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    659
    
    
    
    
    
    
    $
    2,589
    
    
    
    
    
    
    $
    4,392Derivatives not designated as hedging
instruments under SFAS 133Foreign exchange forward
contracts
    
    Other current assets
    
    $
    
    
    
    Other current assets
    
    $
    223
    
    
    Other accrued expenses
    
    $
    175
    
    
    Other accrued expenses
    
    $
    Total derivatives not designated as hedging
instruments under SFAS 133
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    223
    
    
    
    
    
    
    $
    175
    
    
    
    
    
    
    $
    Total derivatives
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    882
    
    
    
    
    
    
    $
    2,764
    
    
    
    
    
    
    $
    4,392
   22




---



##### Table of Contents



The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Three Months Ended April 4, 2009
  Location of
    
    
    Gain or (Loss)Gain or (Loss)
    
    
    Recognized inRecognized in
    
    
    Income onIncome on
    
    
    DerivativeAmount of Gain
    
    
    Location of
    
    
    Amount of Gain or
    
    
    Derivative
    
    
    (IneffectiveDerivatives in
    
    or (Loss) Recognized
    
    
    Gain or (Loss)
    
    
    (Loss) Reclassified
    
    
    (Ineffective
    
    
    Portion andSFAS 133
    
    in OCI on
    
    
    Reclassified from
    
    
    from Accumulated
    
    
    Portion and
    
    
    Amount ExcludedCash Flow
    
    Derivative
    
    
    Accumulated OCI
    
    
    OCI into Income
    
    
    Amount Excluded
    
    
    from EffectivenessHedging
    
    (Effective Portion)
    
    
    into Income
    
    
    (Effective Portion)
    
    
    from Effectiveness
    
    
    Testing)Relationships
    
    April 4, 2009
    
    
    (Effective Portion)

    
    April 4, 2009
    
    
    Testing)

    
    April 4, 2009Interest rate swap
contracts
    
    $
    628
    
    
    Interest expense
    
    $
    (1,033
    )
    
    Other income
    
    $
    Foreign exchange
contracts
    
    
    124
    
    
    Other income
    
    
    717
    
    
    Other income
    
    
    Total
    
    $
    752
    
    
    
    
    
    
    $
    (316
    )
    
    
    
    
    
    $
    
 Derivatives not
    
    Location ofDesignated
    
    Gain or (Loss)
    
    
    Amount of Gain oras Hedging
    
    Recognized
    
    
    (Loss) Recognized inInstruments
    
    in Income on
    
    
    Income on Derivativeunder SFAS 133
    
    Derivative

    
    April 4, 2009Foreign exchange contracts
    
    Other income
    
    $
    353Total
    
    
    
    
    
    $
    353
 13. Industry Segment Information and Foreign Operations
    Three Months Ended(in thousands)
    
    April 4, 2009
    
    March 29, 2008United StatesNet sales
    
    $
    89,670
    
    
    $
    84,393Long-lived assets
    
    
    828,389
    
    
    
    866,600InternationalNet sales
    
    
    33,968
    
    
    
    35,969Long-lived assets
    
    
    16,204
    
    
    
    19,304
 23




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements. Any statements not of historical fact may be considered
forward-looking statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially from those expressed in such
forward-looking statements as a result of many factors, including, but not limited to, those
discussed under the heading Forward-Looking Statements below.
 Critical Accounting Policies and Estimates
  Overview
    www.AmericanMedicalSystems.com.
 24




---



##### Table of Contents



Results of Operations
  Three Months Ended(in thousands)
    
    April 4, 2009
    March 29, 2008
    $ Increase

    
    % IncreaseNet SalesProduct LineMens health
    
    $
    59,459
    
    
    $
    52,675
    
    
    $
    6,784
    
    
    
    12.9
    %BPH therapy
    
    
    25,453
    
    
    
    30,933
    
    
    
    (5,480
    )
    
    
    -17.7
    %Womens health
    
    
    38,726
    
    
    
    36,754
    
    
    
    1,972
    
    
    
    5.4
    %Total
    
    $
    123,638
    
    
    $
    120,362
    
    
    $
    3,276
    
    
    
    2.7
    %GeographyUnited States
    
    $
    89,670
    
    
    $
    84,393
    
    
    $
    5,277
    
    
    
    6.3
    %International
    
    
    33,968
    
    
    
    35,969
    
    
    
    (2,001
    )
    
    
    -5.6
    %Total
    
    $
    123,638
    
    
    $
    120,362
    
    
    $
    3,276
    
    
    
    2.7
    %
 Three Months EndedPercent of net sales
    
    April 4, 2009

    
    March 29, 2008Mens health
    
    
    48.1
    %
    
    
    43.8
    %BPH therapy
    
    
    20.6
    %
    
    
    25.7
    %Womens health
    
    
    31.3
    %
    
    
    30.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    72.5
    %
    
    
    70.1
    %International
    
    
    27.5
    %
    
    
    29.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 25




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    April 4, 2009
    
    March 29, 2008
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    123,638
    
    
    $
    120,362
    
    
    $
    3,276
    
    
    
    2.7
    %Cost of sales
    
    
    23,342
    
    
    
    28,990
    
    
    
    (5,648
    )
    
    
    -19.5
    %Gross profit
    
    
    100,296
    
    
    
    91,372
    
    
    
    8,924
    
    
    
    9.8
    %Operating expensesMarketing and selling
    
    
    43,348
    
    
    
    45,081
    
    
    
    (1,733
    )
    
    
    -3.8
    %Research and development
    
    
    12,811
    
    
    
    11,300
    
    
    
    1,511
    
    
    
    13.4
    %General and administrative
    
    
    10,779
    
    
    
    10,155
    
    
    
    624
    
    
    
    6.1
    %Amortization of intangibles
    
    
    3,265
    
    
    
    4,347
    
    
    
    (1,082
    )
    
    
    -24.9
    %Total operating expenses
    
    
    70,203
    
    
    
    70,883
    
    
    
    (680
    )
    
    
    -1.0
    %Operating income
    
    
    30,093
    
    
    
    20,489
    
    
    
    9,604
    
    
    
    46.9
    %Royalty income
    
    
    933
    
    
    
    355
    
    
    
    578
    
    
    
    162.8
    %Interest income
    
    
    103
    
    
    
    195
    
    
    
    (92
    )
    
    
    -47.2
    %Interest expense
    
    
    (5,410
    )
    
    
    (8,057
    )
    
    
    (2,647
    )
    
    
    -32.9
    %Amortization of financing costs
    
    
    (3,981
    )
    
    
    (4,120
    )
    
    
    (139
    )
    
    
    -3.4
    %Gain on extinguishment of debt
    
    
    4,562
    
    
    
    
    
    
    
    (4,562
    )
    
    
    n/aOther income
    
    
    552
    
    
    
    1,345
    
    
    
    (793
    )
    
    
    -59.0
    %Income before taxes
    
    
    26,852
    
    
    
    10,207
    
    
    
    16,645
    
    
    
    163.1
    %Provision for income taxes
    
    
    9,772
    
    
    
    4,120
    
    
    
    5,652
    
    
    
    137.2
    %Net income
    
    $
    17,080
    
    
    $
    6,087
    
    
    $
    10,993
    
    
    
    180.6
    %
 Percent of SalesFor the Three Months EndedApril 4, 2009
    
    March 29, 2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    18.9
    %
    
    
    24.1
    %Gross profit
    
    
    81.1
    %
    
    
    75.9
    %Operating expensesMarketing and selling
    
    
    35.1
    %
    
    
    37.5
    %Research and development
    
    
    10.4
    %
    
    
    9.4
    %General and administrative
    
    
    8.7
    %
    
    
    8.4
    %Amortization of intangibles
    
    
    2.6
    %
    
    
    3.6
    %Total operating expenses
    
    
    56.8
    %
    
    
    58.9
    %Operating income
    
    
    24.3
    %
    
    
    17.0
    %Royalty income
    
    
    0.8
    %
    
    
    0.3
    %Interest income
    
    
    0.1
    %
    
    
    0.2
    %Interest expense
    
    
    -4.4
    %
    
    
    -6.7
    %Amortization of financing costs
    
    
    -3.2
    %
    
    
    -3.4
    %Gain on extinguishment of debt
    
    
    3.7
    %
    
    
    0.0
    %Other income
    
    
    0.4
    %
    
    
    1.1
    %Income before taxes
    
    
    21.7
    %
    
    
    8.5
    %Provision for income taxes
    
    
    7.9
    %
    
    
    3.4
    %Net income
    
    
    13.8
    %
    
    
    5.1
    %
 26




---



##### Table of Contents



Comparison of the Three Months Ended April 4, 2009 to the Three Months Ended March 29, 2008
 Net sales. AdVance ® MiniArc ® Single-Incision Sling InhibiZone ® AMS 800 ®
 Mens health products. AdVance ® AMS 800 ® InhibiZone ®
 BPH therapy products. Thermatrx ®
 Womens health products. MiniArc ® Her Option ®
 Net sales by geography and foreign exchange effects.
 Gross profit.
 Marketing and selling.
 Research and development.
 27




---



##### Table of Contents



General and administrative.
 Amortization of intangibles. Thermatrx GreenLight PV
 Royalty income.
 Interest income.
 Interest expense.
 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) Note 2, Recently Issued and Adopted Accounting Pronouncements
 Amortization of financing costs.
 Other income
 Provision for income taxes.
 Liquidity and Capital Resources
  28




---



##### Table of Contents



Cash flows from operating activities. Note 9, Litigation Settlements).
 Cash flows from investing activities.
 Cash flows from financing activities.
    If the market price of our
    
    The number of shares issued uponour stock is:
    
    full conversion would be (1):$25.00
    
    3.6   million$30.00
    
    5.7   million$35.00
    
    7.2   million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes
is as follows: (
    
    $312.0 million principal
    
    x
    
    Market price of stock at time of
    
    
    
    $312.0 million
    
    )
    
    =
    
    Shares issued$19.406 conversion price
    
    
    conversion
    
    

    principal

    
    

    
    upon fullMarket price of stock at time of conversion
    
    
    
    
    
    conversion
  29




---



##### Table of Contents



The number of common share equivalentsIf the average market
    
    potentially included in the computation of
    
    Percentprice of our stock is:
    
    diluted EPS would be (1):
    
    Dilution (2)$19.00
    

     (anti-dilutive
    )
    
    
    0.0
    %$25.00
    

    3.6      million
    
    
    
    4.6
    %$30.00
    

    5.7      million
    
    
    
    7.1
    %$35.00
    

    7.2      million
    
    
    
    8.8
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method, in accordance with EITF 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.(2)
    
    The percent dilution is based on 73,808,389 outstanding shares as of April 4, 2009.   Note 9, Litigation Settlements
   30




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For The Fiscal
    
    AmendedFinancial
    
    Periods Ending
    
    RequiredCovenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    3/31/09
    
    4.25:1.00 (maximum)6/30/09
    
    4.00:1.009/30/09
    
    3.75:1.0012/31/09
    
    3.50:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    3/31/09
    
    2.00:1.00 (maximum)Thereafter
    
    2.00:1.00Interest Coverage Ratio
    
    3/31/09
    
    3.75:1.00 (minimum)6/30/09
    
    3.75:1.009/30/09
    
    4.00:1.00Thereafter
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    3/31/09
    
    1.50:1.00 (minimum)Thereafter
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/09
    
    $17.5 million12/31/10
    
    $20.0 million
  Financial Covenant
    
    Required Covenant
    Actual ResultTotal Leverage Ratio (1)
    
    4.25:1.00 (maximum)
    
    3.32Senior Leverage Ratio (2)
    
    2.00:1.00 (maximum)
    
    1.37Interest Coverage Ratio (3)
    
    3.75:1.00 (minimum)
    
    6.48Fixed Charge Coverage Ratio (4)
    
    1.50:1.00 (minimum)
    
    2.63Maximum Capital Expenditures (5)
    
    $17.5 million
    
    $1.11
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to cash interest expense for such period.(4)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to fixed charges (cash interest expense,
scheduled principal payments on debt, capital expenditures, income taxes paid, earn-out and
milestone payments) for such period.(5)
    
    Limit of capital expenditures for the full year.   31




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Note 9, Debt.
 Cash commitments.
   Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 Forward-Looking Statements
  32




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33




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rates
  Currency
    Credit Risk
    34




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Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  35




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PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 ItemNo.
    
    Item
    
    Method of Filing10.1
    
    2005
Stock Incentive Plan (As Amended and Restated)
    
    Filed with this Quarterly
Report on Form 10-Q.31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 36




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS HOLDINGS, INCMay 13, 2009
    
    By
    
    /s/ Anthony P. Bihl, IIIDate
    
    
    
    Anthony P. Bihl, IIIPresident and Chief Executive Officer(Principal Executive Officer)May 13, 2009
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    Mark A. HeggestadExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 37




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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 April 4, 2009
 ItemNo.
    
    Item
    
    Method of Filing10.1
    
    2005 Stock Incentive Plan (As Amended and Restated)
    
    Filed with this Quarterly
Report on Form 10-Q.31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 38