##### 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 March 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 Delaware
    
    41-1978822(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
 
  þ o
  þ o o
  o þ




---



##### 



INDEX
 PagePART I FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for
the three month periods ended March 31,
2007 and April 1, 2006
    
    
    3Consolidated Balance Sheets as of
March 31, 2007 and December 30, 2006
    
    
    4Consolidated Statements of Cash Flow for
the three month periods ended March 31,
2007 and April 1, 2006
    
    
    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
    
    
    37ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    37PART II OTHER INFORMATIONITEM 1A.
    
    RISK FACTORS
    
    
    38ITEM 6.
    
    EXHIBITS
    
    
    38SIGNATURES
    
    
    39EXHIBIT INDEX
    
    
    40Employment Offer Letter with Stephen J. McGillEmployment Agreement with Stephen J. McGillForm of Change in Control Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 Certification
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 American Medical Systems Holdings, Inc.
Consolidated Statements of Operations
 Three Months EndedMarch 31, 2007
    
    
    April 1, 2006Net sales
    
    $
    108,385
    
    
    $
    73,624Cost of sales
    
    
    26,355
    
    
    
    11,730Gross profit
    
    
    82,030
    
    
    
    61,894Operating expensesMarketing and selling
    
    
    39,430
    
    
    
    27,814Research and development
    
    
    11,150
    
    
    
    7,782General and administrative
    
    
    10,989
    
    
    
    6,494Integration costs
    
    
    1,011
    
    
    
    Amortization of intangibles
    
    
    4,704
    
    
    
    1,841Total operating expenses
    
    
    67,284
    
    
    
    43,931Operating income
    
    
    14,746
    
    
    
    17,963Other (expense) incomeRoyalty income
    
    
    679
    
    
    
    453Interest income
    
    
    336
    
    
    
    322Interest expense
    
    
    (9,633
    )
    
    
    (96
    )Financing charges
    
    
    (782
    )
    
    
    Other income (expense)
    
    
    1,623
    
    
    
    (146
    )Total other (expense) income
    
    
    (7,777
    )
    
    
    533Income from continuing operations before income taxes
    
    
    6,969
    
    
    
    18,496Provision for income taxes
    
    
    2,586
    
    
    
    7,024Net income from continuing operations
    
    
    4,383
    
    
    
    11,472Loss from discontinued operations, net of tax benefit of $0.4 million
    
    
    (691
    )
    
    
    Net income
    
    $
    3,692
    
    
    $
    11,472Net income (loss) per shareBasic net earnings from continuing operations
    
    $
    0.06
    
    
    $
    0.16Discontinued operations, net of tax
    
    
    (0.01
    )
    
    
    Basic net earnings
    
    $
    0.05
    
    
    $
    0.16Diluted net earnings from continuing operations
    
    $
    0.06
    
    
    $
    0.16Discontinued operations, net of tax
    
    
    (0.01
    )
    
    
    Diluted net earnings
    
    $
    0.05
    
    
    $
    0.16Weighted average common shares used in calculationBasic
    
    
    71,775
    
    
    
    69,679Diluted
    
    
    74,337
    
    
    
    72,040
 The accompanying notes are an integral part of the consolidated financial statements.
 3




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Consolidated Balance Sheets
 March 31, 2007
    
    
    December 30, 2006(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    37,699
    
    
    $
    29,051Short term investments
    
    
    501
    
    
    
    490Accounts receivable, net
    
    
    98,057
    
    
    
    91,938Inventories, net
    
    
    42,017
    
    
    
    37,974Deferred income taxes
    
    
    11,065
    
    
    
    11,065Other current assets
    
    
    18,287
    
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078Total current assets
    
    
    207,626
    
    
    
    238,168Property, plant and equipment, net
    
    
    52,553
    
    
    
    47,035Goodwill
    
    
    678,382
    
    
    
    677,053Developed and core technology, net
    
    
    106,384
    
    
    
    110,634Other intangibles, net
    
    
    49,657
    
    
    
    50,022Investment in technology and other assets
    
    
    1,582
    
    
    
    1,148Other long-term assets, net
    
    
    2,911
    
    
    
    3,031Total assets
    
    $
    1,099,095
    
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    15,425
    
    
    $
    15,430Accrued compensation expenses
    
    
    12,077
    
    
    
    17,019Accrued warranty expense
    
    
    2,899
    
    
    
    2,715Income taxes payable
    
    
    7,656
    
    
    
    Other accrued expenses
    
    
    32,989
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    71,046
    
    
    
    102,533Long-term debt
    
    
    693,336
    
    
    
    713,456Deferred income taxes
    
    
    22,914
    
    
    
    22,296Long-term income taxes payable
    
    
    4,848
    
    
    
    4,584Long-term employee benefit obligations
    
    
    3,060
    
    
    
    3,060Total liabilities
    
    
    795,204
    
    
    
    845,929Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding:72,003,120 shares at March 31, 2007
and 71,059,312 shares at December 30, 2006
    
    
    720
    
    
    
    711Additional paid-in capital
    
    
    271,790
    
    
    
    253,127Accumulated other comprehensive income
    
    
    4,783
    
    
    
    4,155Retained earnings
    
    
    26,598
    
    
    
    23,169Total stockholders equity
    
    
    303,891
    
    
    
    281,162Total liabilities and stockholders equity
    
    $
    1,099,095
    
    
    $
    1,127,091
 The accompanying notes are an integral part of the consolidated financial statements.
 4




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Consolidated Statements of Cash Flow
 Three Months EndedMarch 31, 2007
    
    
    April 1, 2006Cash flows from operating activitiesNet income
    
    $
    3,692
    
    
    $
    11,472Loss from discontinued operations
    
    
    (691
    )
    
    
    Earnings from continuing operations
    
    
    4,383
    
    
    
    11,472Adjustments to reconcile net earnings from continuing operations to net cash
provided by operating activitiesDepreciation
    
    
    1,884
    
    
    
    823(Gain) loss on asset disposals
    
    
    (5
    )
    
    
    322Amortization of intangibles
    
    
    4,704
    
    
    
    1,841Amortization of deferred financing costs
    
    
    782
    
    
    
    Excess tax benefit from excercise of stock options
    
    
    (133
    )
    
    
    (279
    )Tax benefit on exercised stock option arrangements
    
    
    490
    
    
    
    681Change in net deferred income taxes
    
    
    361
    
    
    
    32Stock based compensation
    
    
    3,036
    
    
    
    2,699Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,782
    )
    
    
    (874
    )Inventories
    
    
    (7,551
    )
    
    
    1,125Accounts payable and accrued expenses
    
    
    (15,799
    )
    
    
    7,296Other assets
    
    
    19,060
    
    
    
    (4,248
    )Net cash provided by operating activities
    
    
    8,430
    
    
    
    20,890Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (6,459
    )
    
    
    (3,419
    )Purchase of business, net of cash acquired
    
    
    (781
    )
    
    
    (23,986
    )Disposal of business
    
    
    21,675
    
    
    
    Purchase of other intangibles
    
    
    (85
    )
    
    
    Purchase of short-term investments
    
    
    (18
    )
    
    
    (100
    )Sale of short-term investments
    
    
    10
    
    
    
    14Net cash provided by (used in) investing activities
    
    
    14,342
    
    
    
    (27,491
    )Cash flows from financing activitiesIssuance of common stock
    
    
    7,740
    
    
    
    2,285Excess tax benefit from exercise of stock options
    
    
    133
    
    
    
    279Payments on long-term debt
    
    
    (21,377
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (13,504
    )
    
    
    2,564Cash provided by (used in) continuing operations
    
    
    9,268
    
    
    
    (4,037
    )Cash used in discontinued operationsOperating activities
    
    
    (691
    )
    
    
    Cash used in discontinued operations
    
    
    (691
    )
    
    
    Effect of currency exchange rates on cash
    
    
    71
    
    
    
    (47
    )Net increase (decrease) in cash and cash equivalents
    
    
    8,648
    
    
    
    (4,084
    )Cash and cash equivalents at beginning of period
    
    
    29,051
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    37,699
    
    
    $
    26,801Supplemental disclosureCash paid for interest
    
    $
    7,554
    
    
    $
    96Cash (refunded) paid for taxes
    
    $
    (11,998
    )
    
    $
    3,778Stock issued to settle contingent liabilities under InnovaQuartz purchase agreement
    
    $
    7,371
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements.
 5




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. Basis of Presentation
     NOTE 2. Acquisitions
 Laserscope
    Note 3, Discontinued Operations and Sale of
Aesthetics Business
 Financing
 Note 11, Debt.
 6




---



##### Table of Contents



Purchase Accounting
  (in thousands)
    
    AmountDeveloped and core technology
    
    $
    88,700Trademarks
    
    
    40,800In-process research and development
    
    
    62,100Assets sold, net of tax
    
    
    20,727Tangible assets acquired, net of liabilities assumed
    
    
    17,131Deferred tax liability on assets acquired, net of deferred tax assets
    
    
    (17,976
    )Goodwill
    
    
    506,510Estimated fair value of identifiable tangible and intangible assets
and goodwill, net of cash
acquired and liabilites assumed
    
    $
    717,992
   Restructuring Costs
  7




---



##### Table of Contents



Restructuring
    
    
    
    
    
    RestructuringLiability as of
    
    
    
    
    
    Liability as ofDecember 30, 2006
    
    Cash Payments
    
    March 31, 2007Severance and benefits
    
    $
    7,204
    
    
    $
    (1,966
    )
    
    $
    5,238
  Integration Costs
   Three Months Ended(in thousands except per share data)
    
    April 1, 2006Revenues from continuing operations
    
    $
    96,288Revenues from discontinued operations
    
    
    9,345Total revenues
    
    $
    105,633Net income
    
    $
    6,312Net income per share:Basic
    
    $
    0.09Diluted
    
    $
    0.09
  Solarant Medical, Inc.
    (in thousands)
    
    AmountIn-process research and development (including $0.8 million in acquisition costs)
    
    $
    2,054Liabilities assumed, net of tangible assets acquired
    
    
    (88
    )Deferred tax asset acquired
    
    
    981Initial purchase price, net of cash acquired through March 31, 2007
    
    $
    2,947
 Goodwill and Other Intangible Assets
 8




---



##### Table of Contents



BioControl Medical, Ltd.
  Goodwill and Other Intangible Assets
    Ovion Inc.
  Ovion
  9




---



##### Table of Contents



(in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    13,554Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,970Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (385
    )Initial purchase price, net of cash acquired through March 31, 2007
    
    $
    15,407
 Goodwill and Other Intangible Assets
  TherMatrx, Inc.
 TherMatrx®
 TherMatrx
  (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
    
    
    (7,190
    )Goodwill
    
    
    69,722Purchase price, including earned contingent payments, net of cash acquired
    
    $
    134,253
  10




---



##### Table of Contents



NOTE 3. Discontinued Operations and Sale of Aesthetics Business
 Note 2, Acquisitions
  Accounting for
the Impairment or Disposal of Long-Lived Assets
  Period fromDecember 31, 2006(in thousands)
    
    to January 16, 2007Net sales
    
    $
    515Loss from discontinued operations before income
taxes
    
    
    (1,075
    )Income tax benefit
    
    
    384Loss from discontinued operations, net of taxes
    
    $
    (691
    )
  Allocation of Interest to
Discontinued Operations
  11




---



##### Table of Contents



Applying
the Conditions in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report
Discontinued Operations
  NOTE 4. Stock-Based Compensation
 Share-Based
Payment
  Three Months Ended
    
    
    Three Months Ended(in thousands)
    
    March 31, 2007
    
    
    April 1, 2006Stock-option awards
    
    $
    1,518
    
    
    $
    2,525Restricted stock awards
    
    
    1,288
    
    
    
    3Employee stock purchase plan
    
    
    230
    
    
    
    69Total share-based compensation expense
    
    $
    3,036
    
    
    $
    2,597
  Three Months Ended
    
    
    Three Months Ended(in thousands)
    
    March 31, 2007
    
    
    April 1, 2006Cost of sales
    
    $
    664
    
    
    $
    45Marketing and selling
    
    
    1,148
    
    
    
    874Research and development
    
    
    787
    
    
    
    500General and administrative
    
    
    437
    
    
    
    1,178Stock-based compensation expense
    
    $
    3,036
    
    
    $
    2,597
    12




---



##### Table of Contents



Weighted averageOptions
    
    
    exercise priceoutstanding
    
    
    per shareBalance at December 30, 2006
    
    
    7,255,574
    
    
    $
    14.25Granted
    
    
    630,000
    
    
    
    20.32Exercised
    
    
    (498,342
    )
    
    
    14.64Cancelled or expired
    
    
    (131,919
    )
    
    
    19.10Balance at March 31, 2007
    
    
    7,255,313
    
    
    $
    14.67
  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  $8.68
    
    
    1,838,628
    
    
    4.2 years
    
    $
    5.56
    
    
    
    1,830,787
    
    
    $
    5.54$10.15  $17.36
    
    
    1,916,299
    
    
    6.4 years
    
    
    14.11
    
    
    
    1,310,688
    
    
    
    13.25$17.82  $19.72
    
    
    1,915,535
    
    
    6.4 years
    
    
    18.96
    
    
    
    754,242
    
    
    
    19.21$19.95  $21.68
    
    
    1,584,851
    
    
    6.4 years
    
    
    20.71
    
    
    
    355,191
    
    
    
    20.83Total
    
    
    7,255,313
    
    
    5.9 years
    
    $
    14.67
    
    
    
    4,250,908
    
    
    $
    11.62
   Three Months EndedMarch 31, 2007
    
    
    April 1, 2006Fair value of options granted
    
    $
    7.43
    
    
    $
    8.03Risk free interest rate
    
    
    4.76
    %
    
    
    4.54
    %Expected dividend rate
    
    
    
    
    
    
    Stock price volatility
    
    
    33.44
    %
    
    
    35.52
    %Expected life of option
    
    4.7 years
    
    4.7 years
 13




---



##### Table of Contents



Expected life
 Expected volatility
 Risk-free rate of return
 Dividend yield
   Restricted Stock
   Unvested Shares
    
    
    Weighted averageoutstanding
    
    
    grant priceBalance at December 30, 2006
    
    
    120,526
    
    
    $
    18.49Granted
    
    
    125,263
    
    
    
    19.34Vested
    
    
    (45,150
    )
    
    
    19.07Cancelled
    
    
    (7,968
    )
    
    
    18.74Balance at March 31, 2007
    
    
    192,671
    
    
    $
    18.89
 Employee Stock Purchase Plan
  14




---



##### Table of Contents



NOTE 5. Earnings per Share
  Three Months Ended(in thousands, except per share data)
    
    March 31, 2007
    
    
    April 1, 2006Net income from continuing operations
    
    $
    4,383
    
    
    $
    11,472Weighted-average shares
outstanding for basic net income per share
    
    
    71,775
    
    
    
    69,679Dilutive effect of stock options
and restricted shares
    
    
    1,688
    
    
    
    2,361Dilutive effect of Convertible Notes
    
    
    874
    
    
    
    Adjusted weighted-average shares outstanding for
diluted net income per share
    
    
    74,337
    
    
    
    72,040Net income per shareBasic net earnings from continuing operations
    
    $
    0.06
    
    
    $
    0.16Diluted net earnings from continuing operations
    
    $
    0.06
    
    
    $
    0.16
  NOTE 6. Inventories
  (in thousands)
    
    March 31, 2007
    
    
    December 30, 2006Raw materials
    
    $
    20,207
    
    
    $
    13,321Work in process
    
    
    9,363
    
    
    
    10,878Finished goods
    
    
    15,097
    
    
    
    16,279Obsolescence reserve
    
    
    (2,650
    )
    
    
    (2,504
    )Net inventories
    
    $
    42,017
    
    
    $
    37,974
 NOTE 7. Warranties
   Three Months Ended(in thousands)
    
    March 31, 2007
    
    April 1, 2006Balance, beginning of period
    
    $
    2,715
    
    
    $
    1,618Provisions for warranty
    
    
    873
    
    
    
    161Claims processed
    
    
    (689
    )
    
    
    (82
    )Balance, end of period
    
    $
    2,899
    
    
    $
    1,697
 15




---



##### Table of Contents



NOTE 8. Comprehensive Income
  Three Months Ended(in thousands)
    
    March 31, 2007
    
    
    April 1, 2006Net income
    
    $
    3,692
    
    
    $
    11,472Foreign currency translation gain (loss), net of taxes
    
    
    628
    
    
    
    (279
    )Comprehensive income
    
    $
    4,320
    
    
    $
    11,193
 NOTE 9. Industry Segment Information and Foreign Operations
 Note 3, Discontinued Operations and Sale of Aesthetics Business).
   Three Months Ended(in thousands)
    
    March 31, 2007
    
    April 1, 2006United StatesNet sales
    
    $
    78,940
    
    
    $
    56,999Long-lived assets
    
    
    875,159
    
    
    
    218,485InternationalNet sales
    
    
    29,445
    
    
    
    16,625Long-lived assets
    
    
    16,310
    
    
    
    14,463
 NOTE 10. Goodwill and Intangible Assets
  Three Months Ended(in thousands)
    
    March 31, 2007Goodwill, beginning of the period
    
    $
    677,053Additions and adjustments
    
    
    1,114Effect of currency translation
    
    
    215Goodwill, end of the period
    
    $
    678,382
 16




---



##### Table of Contents



March 31, 2007
    
    
    December 30, 2006Gross carrying
    
    
    Accumulated
    
    
    Net book
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Net book(in thousands)
    
    amount
    
    
    amortization
    
    
    value
    
    
    amount
    
    
    amortization
    
    
    valueDeveloped and core technology
    
    $
    137,568
    
    
    $
    (31,184
    )
    
    $
    106,384
    
    
    $
    137,553
    
    
    $
    (26,919
    )
    
    $
    110,634Other intangiblesAmortizedPatents
    
    
    10,213
    
    
    
    (8,807
    )
    
    
    1,406
    
    
    
    10,127
    
    
    
    (8,761
    )
    
    
    1,366Licenses
    
    
    8,962
    
    
    
    (5,652
    )
    
    
    3,310
    
    
    
    8,962
    
    
    
    (5,453
    )
    
    
    3,509Royalty agreement
    
    
    2,970
    
    
    
    (481
    )
    
    
    2,489
    
    
    
    2,970
    
    
    
    (385
    )
    
    
    2,585Trademarks
    
    
    2,208
    
    
    
    (556
    )
    
    
    1,652
    
    
    
    
    
    
    
    
    
    
    
    Total amortized other intangible assets
    
    
    24,353
    
    
    
    (15,496
    )
    
    
    8,857
    
    
    
    22,059
    
    
    
    (14,599
    )
    
    
    7,460UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    42,562
    
    
    
    
    
    
    
    42,562Total other intangibles
    
    
    65,153
    
    
    
    (15,496
    )
    
    
    49,657
    
    
    
    64,621
    
    
    
    (14,599
    )
    
    
    50,022Total intangible assets
    
    $
    202,721
    
    
    $
    (46,680
    )
    
    $
    156,041
    
    
    $
    202,174
    
    
    $
    (41,518
    )
    
    $
    160,656
 Three Months Ended(in thousands)
    
    March 31, 2007
    
    April 1, 2006Amortization expense
    
    $
    4,704
    
    
    $
    1,841
  NOTE 11. Debt
 Secured Credit Facility
    17




---



##### Table of Contents



Convertible Senior Subordinated Notes; Supplemental Guarantor Information
    18




---



##### Table of Contents



19




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended March 31, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    99,276
    
    
    $
    22,612
    
    
    $
    (13,503
    )
    
    $
    108,385Cost of sales
    
    
    
    
    
    
    25,202
    
    
    
    14,030
    
    
    
    (12,877
    )
    
    
    26,355Gross profit
    
    
    
    
    
    
    74,074
    
    
    
    8,582
    
    
    
    (626
    )
    
    
    82,030Operating expensesMarketing and selling
    
    
    
    
    
    
    31,447
    
    
    
    7,983
    
    
    
    
    
    
    
    39,430Research and development
    
    
    
    
    
    
    11,150
    
    
    
    
    
    
    
    
    
    
    
    11,150General and administrative
    
    
    
    
    
    
    10,950
    
    
    
    39
    
    
    
    
    
    
    
    10,989Integration costs
    
    
    
    
    
    
    1,011
    
    
    
    
    
    
    
    
    
    
    
    1,011Amortization of intangibles
    
    
    
    
    
    
    3,834
    
    
    
    870
    
    
    
    
    
    
    
    4,704Total operating expenses
    
    
    
    
    
    
    58,392
    
    
    
    8,892
    
    
    
    
    
    
    
    67,284Operating income (loss)
    
    
    
    
    
    
    15,682
    
    
    
    (310
    )
    
    
    (626
    )
    
    
    14,746Other (expense) incomeRoyalty income
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    679Interest income
    
    
    
    
    
    
    326
    
    
    
    10
    
    
    
    
    
    
    
    336Interest expense
    
    
    (3,022
    )
    
    
    (6,464
    )
    
    
    (147
    )
    
    
    
    
    
    
    (9,633
    )Financing charge
    
    
    (103
    )
    
    
    (679
    )
    
    
    
    
    
    
    
    
    
    
    (782
    )Other income (expense)
    
    
    
    
    
    
    1,714
    
    
    
    (83
    )
    
    
    (8
    )
    
    
    1,623Total other (expense) income
    
    
    (3,125
    )
    
    
    (4,424
    )
    
    
    (220
    )
    
    
    (8
    )
    
    
    (7,777
    )(Loss) income from continuing operations
before income taxes
    
    
    (3,125
    )
    
    
    11,258
    
    
    
    (530
    )
    
    
    (634
    )
    
    
    6,969Provision for income taxes
    
    
    (1,159
    )
    
    
    4,177
    
    
    
    (197
    )
    
    
    (235
    )
    
    
    2,586Net (loss) income from continuing operations
    
    
    (1,966
    )
    
    
    7,081
    
    
    
    (333
    )
    
    
    (399
    )
    
    
    4,383Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Equity in earnings (loss) of subsidiary
    
    
    6,057
    
    
    
    (333
    )
    
    
    
    
    
    
    (5,724
    )
    
    
    Net income (loss)
    
    $
    4,091
    
    
    $
    6,057
    
    
    $
    (333
    )
    
    $
    (6,123
    )
    
    $
    3,692
 20




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended April 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    68,751
    
    
    $
    14,477
    
    
    $
    (9,604
    )
    
    $
    73,624Cost of sales
    
    
    
    
    
    
    11,978
    
    
    
    8,919
    
    
    
    (9,167
    )
    
    
    11,730Gross profit
    
    
    
    
    
    
    56,773
    
    
    
    5,558
    
    
    
    (437
    )
    
    
    61,894Operating expensesMarketing and selling
    
    
    
    
    
    
    22,474
    
    
    
    5,340
    
    
    
    
    
    
    
    27,814Research and development
    
    
    
    
    
    
    7,782
    
    
    
    
    
    
    
    
    
    
    
    7,782General and
administrative
    
    
    
    
    
    
    6,493
    
    
    
    1
    
    
    
    
    
    
    
    6,494Amortization of
intangibles
    
    
    
    
    
    
    876
    
    
    
    965
    
    
    
    
    
    
    
    1,841Total operating expenses
    
    
    
    
    
    
    37,625
    
    
    
    6,306
    
    
    
    
    
    
    
    43,931Operating income
    
    
    
    
    
    
    19,148
    
    
    
    (748
    )
    
    
    (437
    )
    
    
    17,963Other income (expense)Royalty income
    
    
    
    
    
    
    453
    
    
    
    
    
    
    
    
    
    
    
    453Interest income
    
    
    
    
    
    
    453
    
    
    
    10
    
    
    
    (141
    )
    
    
    322Interest expense
    
    
    
    
    
    
    (96
    )
    
    
    (141
    )
    
    
    141
    
    
    
    (96
    )Other income (expense)
    
    
    
    
    
    
    (66
    )
    
    
    (34
    )
    
    
    (46
    )
    
    
    (146
    )Total other income
(expense)
    
    
    
    
    
    
    744
    
    
    
    (165
    )
    
    
    (46
    )
    
    
    533Income before income taxes
    
    
    
    
    
    
    19,892
    
    
    
    (913
    )
    
    
    (483
    )
    
    
    18,496Provision for income taxes
    
    
    
    
    
    
    7,554
    
    
    
    (347
    )
    
    
    (183
    )
    
    
    7,024Equity in earnings of subsidiary
    
    
    11,772
    
    
    
    (566
    )
    
    
    
    
    
    
    (11,206
    )
    
    
    Net income
    
    $
    11,772
    
    
    $
    11,772
    
    
    $
    (566
    )
    
    $
    (11,506
    )
    
    $
    11,472
 21




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of March 31, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,350
    
    
    $
    29,023
    
    
    $
    7,326
    
    
    $
    
    
    
    $
    37,699Short term investments
    
    
    
    
    
    
    292
    
    
    
    209
    
    
    
    
    
    
    
    501Accounts receivable, net
    
    
    618,561
    
    
    
    65,435
    
    
    
    32,447
    
    
    
    (618,386
    )
    
    
    98,057Inventories, net
    
    
    
    
    
    
    40,874
    
    
    
    5,945
    
    
    
    (4,802
    )
    
    
    42,017Deferred income taxes
    
    
    
    
    
    
    10,608
    
    
    
    457
    
    
    
    
    
    
    
    11,065Other current assets
    
    
    6,125
    
    
    
    9,236
    
    
    
    2,608
    
    
    
    318
    
    
    
    18,287Total current assets
    
    
    626,036
    
    
    
    155,468
    
    
    
    48,992
    
    
    
    (622,870
    )
    
    
    207,626Property, plant and equipment, net
    
    
    
    
    
    
    51,603
    
    
    
    950
    
    
    
    
    
    
    
    52,553Goodwill
    
    
    
    
    
    
    593,974
    
    
    
    84,929
    
    
    
    (521
    )
    
    
    678,382Developed and core technology, net
    
    
    
    
    
    
    83,181
    
    
    
    23,203
    
    
    
    
    
    
    
    106,384Other intangibles, net
    
    
    
    
    
    
    71,267
    
    
    
    1,890
    
    
    
    (23,500
    )
    
    
    49,657Investment in subsidiaries
    
    
    65,578
    
    
    
    14,580
    
    
    
    
    
    
    
    (80,158
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    1,428
    
    
    
    154
    
    
    
    
    
    
    
    1,582Other long-term assets, net
    
    
    1,384
    
    
    
    1,527
    
    
    
    
    
    
    
    
    
    
    
    2,911Total assets
    
    $
    692,998
    
    
    $
    973,028
    
    
    $
    160,118
    
    
    $
    (727,049
    )
    
    $
    1,099,095Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    23,281
    
    
    $
    506,158
    
    
    $
    110,812
    
    
    $
    (624,826
    )
    
    $
    15,425Accrued compensation expenses
    
    
    
    
    
    
    11,519
    
    
    
    558
    
    
    
    
    
    
    
    12,077Accrued warranty expense
    
    
    
    
    
    
    2,946
    
    
    
    (47
    )
    
    
    
    
    
    
    2,899Income taxes payable
    
    
    
    
    
    
    7,517
    
    
    
    139
    
    
    
    
    
    
    
    7,656Other accrued expenses
    
    
    3,003
    
    
    
    27,166
    
    
    
    2,820
    
    
    
    
    
    
    
    32,989Total current liabilities
    
    
    26,284
    
    
    
    555,306
    
    
    
    114,282
    
    
    
    (624,826
    )
    
    
    71,046Non-current liabilitiesLong-term debt
    
    
    362,823
    
    
    
    330,513
    
    
    
    
    
    
    
    
    
    
    
    693,336Intercompany loans payable
    
    
    
    
    
    
    (1,175
    )
    
    
    23,240
    
    
    
    (22,065
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,898
    
    
    
    8,016
    
    
    
    
    
    
    
    22,914Long-term income taxes payable
    
    
    
    
    
    
    4,848
    
    
    
    
    
    
    
    
    
    
    
    4,848Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,823
    
    
    
    352,144
    
    
    
    31,256
    
    
    
    (22,065
    )
    
    
    724,158Total liabilities
    
    
    389,107
    
    
    
    907,450
    
    
    
    145,538
    
    
    
    (646,891
    )
    
    
    795,204Stockholders equityCommon stock
    
    
    720
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    720Additional paid-in capital
    
    
    271,790
    
    
    
    3,893
    
    
    
    67,332
    
    
    
    (71,225
    )
    
    
    271,790Accumulated other comprehensive income
    
    
    4,783
    
    
    
    396
    
    
    
    4,751
    
    
    
    (5,147
    )
    
    
    4,783Retained earnings (deficit)
    
    
    26,598
    
    
    
    61,289
    
    
    
    (57,512
    )
    
    
    (3,777
    )
    
    
    26,598Total stockholders equity
    
    
    303,891
    
    
    
    65,578
    
    
    
    14,580
    
    
    
    (80,158
    )
    
    
    303,891Total liabilities and stockholders equity
    
    $
    692,998
    
    
    $
    973,028
    
    
    $
    160,118
    
    
    $
    (727,049
    )
    
    $
    1,099,095
 22




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,138
    
    
    $
    22,905
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    29,051Short term investments
    
    
    
    
    
    
    274
    
    
    
    216
    
    
    
    
    
    
    
    490Accounts receivable, net
    
    
    606,821
    
    
    
    71,346
    
    
    
    20,520
    
    
    
    (606,749
    )
    
    
    91,938Inventories, net
    
    
    
    
    
    
    36,472
    
    
    
    5,592
    
    
    
    (4,090
    )
    
    
    37,974Deferred income taxes
    
    
    
    
    
    
    10,608
    
    
    
    457
    
    
    
    
    
    
    
    11,065Other current assets
    
    
    4,965
    
    
    
    14,544
    
    
    
    2,220
    
    
    
    (157
    )
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078
    
    
    
    
    
    
    
    
    
    
    
    46,078Total current assets
    
    
    612,924
    
    
    
    202,227
    
    
    
    34,013
    
    
    
    (610,996
    )
    
    
    238,168Property, plant and equipment, net
    
    
    
    
    
    
    46,454
    
    
    
    581
    
    
    
    
    
    
    
    47,035Goodwill
    
    
    
    
    
    
    593,641
    
    
    
    83,933
    
    
    
    (521
    )
    
    
    677,053Developed and core technology, net
    
    
    
    
    
    
    86,601
    
    
    
    24,033
    
    
    
    
    
    
    
    110,634Other intangibles, net
    
    
    
    
    
    
    71,591
    
    
    
    1,931
    
    
    
    (23,500
    )
    
    
    50,022Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,804
    
    
    
    (1,804
    )
    
    
    Investment in subsidiaries
    
    
    59,073
    
    
    
    14,449
    
    
    
    
    
    
    
    (73,522
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    987
    
    
    
    161
    
    
    
    
    
    
    
    1,148Other long-term assets, net
    
    
    1,329
    
    
    
    1,702
    
    
    
    
    
    
    
    
    
    
    
    3,031Total assets
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    23,259
    
    
    $
    508,468
    
    
    $
    96,553
    
    
    $
    (612,850
    )
    
    $
    15,430Accrued compensation expenses
    
    
    
    
    
    
    15,433
    
    
    
    1,586
    
    
    
    
    
    
    
    17,019Accrued warranty expense
    
    
    
    
    
    
    2,715
    
    
    
    
    
    
    
    
    
    
    
    2,715Income taxes payable
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    (240
    )
    
    
    Other accrued expenses
    
    
    6,175
    
    
    
    39,835
    
    
    
    1,881
    
    
    
    
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478
    
    
    
    
    
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    29,434
    
    
    
    585,929
    
    
    
    100,260
    
    
    
    (613,090
    )
    
    
    102,533Non-current liabilitiesLong term debt
    
    
    362,730
    
    
    
    350,726
    
    
    
    
    
    
    
    
    
    
    
    713,456Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    21,927
    
    
    
    (21,927
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,280
    
    
    
    9,820
    
    
    
    (1,804
    )
    
    
    22,296Long-term income taxes payable
    
    
    
    
    
    
    4,584
    
    
    
    
    
    
    
    
    
    
    
    4,584Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,730
    
    
    
    372,650
    
    
    
    31,747
    
    
    
    (23,731
    )
    
    
    743,396Total liabilities
    
    
    392,164
    
    
    
    958,579
    
    
    
    132,007
    
    
    
    (636,821
    )
    
    
    845,929Stockholders equityCommon stock
    
    
    711
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    711Additional paid-in capital
    
    
    253,127
    
    
    
    3,431
    
    
    
    67,332
    
    
    
    (70,763
    )
    
    
    253,127Accumulated other comprehensive income
    
    
    4,155
    
    
    
    146
    
    
    
    4,287
    
    
    
    (4,433
    )
    
    
    4,155Retained earnings (deficit)
    
    
    23,169
    
    
    
    55,496
    
    
    
    (57,179
    )
    
    
    1,683
    
    
    
    23,169Total stockholders equity
    
    
    281,162
    
    
    
    59,073
    
    
    
    14,449
    
    
    
    (73,522
    )
    
    
    281,162Total liabilities and stockholders equity
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091
 23




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended March 31, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (7,661
    )
    
    $
    12,629
    
    
    $
    3,462
    
    
    $
    
    
    
    $
    8,430Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (6,015
    )
    
    
    (444
    )
    
    
    
    
    
    
    (6,459
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    
    
    
    
    21,675
    
    
    
    
    
    
    
    
    
    
    
    21,675Purchase of other intangibles
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    (85
    )Purchase of short-term investments
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Net cash provided by (used in) investing activities
    
    
    
    
    
    
    15,557
    
    
    
    (1,215
    )
    
    
    
    
    
    
    14,342Cash flows from financing activitiesIssuance of common stock
    
    
    7,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,740Excess tax benefit from exercise of stock options
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Payments on long-term debt
    
    
    
    
    
    
    (21,377
    )
    
    
    
    
    
    
    
    
    
    
    (21,377
    )Net cash provided by (used in) financing activities
    
    
    7,873
    
    
    
    (21,377
    )
    
    
    
    
    
    
    
    
    
    
    (13,504
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Effect of exchange rates on cash
    
        
    
    

    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Net increase (decrease) in cash and cash equivalents
    
    
    212
    
    
    
    6,118
    
    
    
    2,318
    
    
    
    
    
    
    
    8,648Cash and cash equivalents at beginning of period
    
    
    1,138
    
    
    
    22,905
    
    
    
    5,008
    
    
    
    
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    1,350
    
    
    $
    29,023
    
    
    $
    7,326
    
    
    $
    
    
    
    $
    37,699
 24




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended April 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (685
    )
    
    $
    21,415
    
    
    $
    160
    
    
    $
    
    
    
    $
    20,890Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,392
    )
    
    
    (27
    )
    
    
    
    
    
    
    (3,419
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (23,986
    )
    
    
    
    
    
    
    
    
    
    
    (23,986
    )Purchase of short-term investments
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Net cash used in investing activities
    
    
    
    
    
    
    (27,478
    )
    
    
    (13
    )
    
    
    
    
    
    
    (27,491
    )Cash flows from financing activitiesIssuance of common stock
    
    
    2,285
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,285Excess tax benefit from exercise of stock options
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279Net cash provided by financing activities
    
    
    2,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,564Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (47
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,879
    
    
    
    (6,063
    )
    
    
    100
    
    
    
    
    
    
    
    (4,084
    )Cash and cash equivalents at beginning of period
    
    
    1,567
    
    
    
    21,751
    
    
    
    7,567
    
    
    
    
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    3,446
    
    
    $
    15,688
    
    
    $
    7,667
    
    
    $
    
    
    
    $
    26,801
 25




---



##### Table of Contents



NOTE 12. Income Taxes
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 Accounting for Income Taxes
      NOTE 13. Other Contingencies
 Her Option® Her Option
 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 30, 2006,
as updated by Item 1A of this report. 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
  Overview
  www.AmericanMedicalSystems.com.
 27




---



##### Table of Contents



Laserscope Acquisition
   Notes to Consolidated Financial Statements  No. 2, Acquisitions.
 Results of Operations
  Three Months Ended(in thousands)
    
    March 31, 2007
    
    April 1, 2006
    
    $ Increase
    
    % IncreaseSalesProduct LineMens health
    
    $
    73,671
    
    
    $
    44,658
    
    
    $
    29,013
    
    
    
    65.0
    %Womens health
    
    
    34,714
    
    
    
    28,966
    
    
    
    5,748
    
    
    
    19.8
    %Total
    
    $
    108,385
    
    
    $
    73,624
    
    
    $
    34,761
    
    
    
    47.2
    %GeographyUnited States
    
    $
    78,940
    
    
    $
    56,999
    
    
    $
    21,941
    
    
    
    38.5
    %International
    
    
    29,445
    
    
    
    16,625
    
    
    
    12,820
    
    
    
    77.1
    %Total
    
    $
    108,385
    
    
    $
    73,624
    
    
    $
    34,761
    
    
    
    47.2
    %
 Three Months EndedMarch 31, 2007
    
    April 1, 2006Percent of total salesProduct LineMens health
    
    
    68.0
    %
    
    
    60.7
    %Womens health
    
    
    32.0
    %
    
    
    39.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    72.8
    %
    
    
    77.4
    %International
    
    
    27.2
    %
    
    
    22.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 28




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    March 31, 2007
    
    April 1, 2006
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    108,385
    
    
    $
    73,624
    
    
    $
    34,761
    
    
    
    47.2
    %Cost of sales
    
    
    26,355
    
    
    
    11,730
    
    
    
    14,625
    
    
    
    124.7
    %Gross profit
    
    
    82,030
    
    
    
    61,894
    
    
    
    20,136
    
    
    
    32.5
    %Operating expensesMarketing and selling
    
    
    39,430
    
    
    
    27,814
    
    
    
    11,616
    
    
    
    41.8
    %Research and development
    
    
    11,150
    
    
    
    7,782
    
    
    
    3,368
    
    
    
    43.3
    %General and administrative
    
    
    10,989
    
    
    
    6,494
    
    
    
    4,495
    
    
    
    69.2
    %Integration costs
    
    
    1,011
    
    
    
    
    
    
    
    1,011
    
    
    
    0.0
    %Amortization of intangibles
    
    
    4,704
    
    
    
    1,841
    
    
    
    2,863
    
    
    
    155.5
    %Total operating expenses
    
    
    67,284
    
    
    
    43,931
    
    
    
    23,353
    
    
    
    53.2
    %Operating income
    
    
    14,746
    
    
    
    17,963
    
    
    
    (3,217
    )
    
    
    -17.9
    %Royalty income
    
    
    679
    
    
    
    453
    
    
    
    226
    
    
    
    49.9
    %Interest income
    
    
    336
    
    
    
    322
    
    
    
    14
    
    
    
    4.3
    %Interest expense
    
    
    (9,633
    )
    
    
    (96
    )
    
    
    (9,537
    )
    
    
    9934.4
    %Financing charges
    
    
    (782
    )
    
    
    
    
    
    
    (782
    )
    
    
    0.0
    %Other income (expense)
    
    
    1,623
    
    
    
    (146
    )
    
    
    1,769
    
    
    
    -1211.6
    %Income from
continuing operations before income taxes
    
    
    6,969
    
    
    
    18,496
    
    
    
    (11,527
    )
    
    
    -62.3
    %Provision for income taxes
    
    
    2,586
    
    
    
    7,024
    
    
    
    (4,438
    )
    
    
    -63.2
    %Income from continuing operations
    
    
    4,383
    
    
    
    11,472
    
    
    
    (7,089
    )
    
    
    -61.8
    %Loss from discontinued operations,
net of tax of $0.4 million
    
    
    (691
    )
    
    
    
    
    
    
    (691
    )
    
    
    0.0
    %Net income
    
    $
    3,692
    
    
    $
    11,472
    
    
    $
    (7,780
    )
    
    
    -67.8
    %
 Percent of SalesFor the Three Months EndedMarch 31, 2007
    
    April 1, 2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    24.3
    %
    
    
    15.9
    %Gross profit
    
    
    75.7
    %
    
    
    84.1
    %Operating expensesMarketing and selling
    
    
    36.4
    %
    
    
    37.8
    %Research and development
    
    
    10.3
    %
    
    
    10.6
    %General and administrative
    
    
    10.1
    %
    
    
    8.8
    %Integration costs
    
    
    0.9
    %
    
    
    0.0
    %Amortization of intangibles
    
    
    4.3
    %
    
    
    2.5
    %Total operating expenses
    
    
    62.1
    %
    
    
    59.7
    %Operating income
    
    
    13.6
    %
    
    
    24.4
    %Royalty income
    
    
    0.6
    %
    
    
    0.6
    %Interest income
    
    
    0.3
    %
    
    
    0.4
    %Interest expense
    
    
    -8.9
    %
    
    
    -0.1
    %Financing charges
    
    
    -0.7
    %
    
    
    0.0
    %Other income (expense)
    
    
    1.5
    %
    
    
    -0.2
    %Income from continuing operations
before income taxes
    
    
    6.4
    %
    
    
    25.1
    %Provision for income taxes
    
    
    2.4
    %
    
    
    9.5
    %Income from continuing operations
    
    
    4.0
    %
    
    
    15.6
    %Loss from discontinued operations,
net of tax
    
    
    -0.6
    %
    
    
    0.0
    %Net income
    
    
    3.4
    %
    
    
    15.6
    %
 29




---



##### Table of Contents



Comparison of the Three Months Ended March 31, 2007 to the Three Months Ended April 1, 2006
 Net sales. Greenlight HPS AdVance Male Sling AMS 700 MS Her Option
 Net sales mens health products. Greenlight TherMatrx AMS 700  AdVance Male Sling, AdVance Male Sling
 Net sales womens health products. Apogee® Perigee® Her Option Monarc®, BioArc SP®, BioArc TO®, Monarc BioArc TO
 Net sales by geography and foreign exchange effects.
 Cost of sales Greenlight HPS
 Marketing and selling.
 Research and development. GreenLight HPS
 30




---



##### Table of Contents



General and administrative.
 Integration costs
 Amortization of intangibles. Notes
to Consolidated Financial Statements  No. 2, Acquisitions.)
 Royalty income. Prolieve ®
 Interest income.
 Interest expense and financing charges.
 Other income (expense)
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities.
 31




---



##### Table of Contents



Cash flows from investing activities.
 Cash flows from financing activities.
   If the market price of
    
    The number of shares issued uponour stock is:
    
    full conversion would be (1):$25.00
    
    4.3 million$30.00
    
    6.8 million$35.00
    
    8.6 million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as follows: (
    
    $373.8 million principal
    
    x
    
    Market price of stock at time of conversion
    
    
    
    $373.8 million
principal
    
    )
    
    =
    
    Shares issued
upon full
conversion$19.406 conversion priceMarket price of stock at time of conversion
     32




---



##### Table of Contents



The number of common share equivalentsIf the market price
    
    potentially included in the computation ofof our stock is:
    
    diluted EPS would be (1):
    
    Percent Dilution (2)$19.00
    
    
    (anti-dilutive)
    
    
    0.0
    %$25.00
    
    4.3
    million
    
    
    5.6
    %$30.00
    
    6.8
    million
    
   
    8.6
    %$35.00
    
    8.6
    million
    
    
    10.6
    %
 
 (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 72,003,120 outstanding shares as of March 31, 2007.    33




---



##### Table of Contents



For The FiscalPeriods Ending
    
    RequiredFinancial Covenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    3/31/07
    
    6.50:1.00 (maximum)6/30/07
    
    6.00:1.009/30/07
    
    5.50:1.0012/31/07
    
    5.00:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    3/31/07
    
    3.25:1.00 (maximum)6/30/07
    
    3.00:1.009/30/07
    
    2.75:1.0012/31/07
    
    2.50:1.00Reductions continuing until 3/31/09
    
    2.00:1.00Interest Coverage Ratio
    
    3/31/07
    
    2.75:1.00 (minimum)6/30/07
    
    3.00:1.009/30/07
    
    3.25:1.0012/31/07
    
    3.50:1.00Increases continuing until 9/30/09
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    3/31/07
    
    1.05:1.00 (minimum)6/30/07
    
    1.15:1.009/30/07
    
    1.15:1.0012/31/07
    
    1.25:1.00Increases continuing until 9/30/08
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/07
    
    $15 million12/31/08
    
    $15 million
  Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    6.50:1.00 (maximum)
    
    
    5.89Senior Leverage Ratio (2)
    
    3.25:1.00 (maximum)
    
    
    2.80Interest Coverage Ratio (3)
    
    2.75:1.00 (minimum)
    
    
    3.09Fixed Charge Coverage Ratio (4)
    
    1.05:1.00 (minimum)
    
    
    1.60Maximum Capital Expenditures (5)
    
    $15 million
    
    $6.459 million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four
quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to 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)
    
    Includes expenditures of $2.5 million for the planned expansion of our corporate headquarters
building and $1.9 million for the implementation of a new enterprise resource planning system.
These projects are scheduled for completion in the second quarter of 2007.  34




---



##### Table of Contents



Notes to Consolidated Financial Statement 
No. 11, Debt.
 Cash commitments.
 TherMatrx
   Ovion
   35




---



##### Table of Contents



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 36




---



##### 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
  37




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  Our efforts to manage inventory levels may lead to production shortfalls and lost revenues.
  
 ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Employment Offer Letter dated
March 31, 2005 between
Stephen J. McGill and
American Medical Systems,
Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.2
    
    Employment Agreement dated
April 7, 2005 between Stephen
J. McGill and American
Medical Systems, Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.3
    
    Form of Change in Control
Agreement with Executive
Officers.
    
    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




---



##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS HOLDINGS, INCMay 10, 2007
    
    
    
    By
    
    /s/ Martin J. EmersonDate
    
    
    
    
    
    Martin J. EmersonPresident and Chief Executive OfficerMay 10, 2007
    
    
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    
    
    Mark A. HeggestadExecutive Vice President and Chief Financial Officer
 39




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended March 31, 2007
 Item No.
    
    Item
    
    Method of Filing10.1
    
    Employment Offer Letter dated
March 31, 2005 between
Stephen J. McGill and
American Medical Systems,
Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.2
    
    Employment Agreement dated
April 7, 2005 between Stephen
J. McGill and American
Medical Systems, Inc.
    
    Filed with this Quarterly
Report on Form 10-Q.10.3
    
    Form of Change in Control
Agreement with Executive
Officers.
    
    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.
 40