##### 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 October 3, 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
    þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the three
and nine month periods ended October 3, 2009 and
September 27, 2008
    
    
    3Consolidated Balance Sheets as of October 3, 2009 and
January 3, 2009
    
    
    4Consolidated Statements of Cash Flow for the nine
month periods ended October 3, 2009 and September
27, 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    29ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    42ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    43PART II
    
    OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    44ITEM 1A.
    
    RISK FACTORS
    
    
    44ITEM 6.
    
    EXHIBITS
    
    
    45SIGNATURES
    
    
    46EXHIBIT INDEX
    
    
    47EX-2.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
   Three Months Ended
    
    
    Nine Months EndedOctober 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008(a)
    
    
    
    
    
    
    (a)Net sales
    
    $
    123,231
    
    
    $
    117,468
    
    
    $
    373,257
    
    
    $
    367,627Cost of sales
    
    
    21,284
    
    
    
    24,863
    
    
    
    66,234
    
    
    
    83,038Gross profit
    
    
    101,947
    
    
    
    92,605
    
    
    
    307,023
    
    
    
    284,589Operating expensesMarketing and selling
    
    
    42,489
    
    
    
    42,226
    
    
    
    128,690
    
    
    
    133,608Research and development
    
    
    12,434
    
    
    
    11,260
    
    
    
    38,411
    
    
    
    33,926In-process research and development
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    7,500General and administrative
    
    
    10,459
    
    
    
    9,728
    
    
    
    32,898
    
    
    
    30,435Amortization of intangibles
    
    
    3,358
    
    
    
    4,334
    
    
    
    10,024
    
    
    
    12,981Total operating expenses
    
    
    68,740
    
    
    
    75,048
    
    
    
    210,023
    
    
    
    218,450Operating income
    
    
    33,207
    
    
    
    17,557
    
    
    
    97,000
    
    
    
    66,139Other income (expense)Royalty income
    
    
    961
    
    
    
    745
    
    
    
    2,768
    
    
    
    3,576Interest income
    
    
    17
    
    
    
    203
    
    
    
    163
    
    
    
    555Interest expense
    
    
    (4,674
    )
    
    
    (6,168
    )
    
    
    (15,050
    )
    
    
    (21,044
    )Amortization of financing costs
    
    
    (4,395
    )
    
    
    (4,935
    )
    
    
    (12,350
    )
    
    
    (13,976
    )Gain on extinguishment of debt
    
    
    5,563
    
    
    
    
    
    
    
    10,125
    
    
    
    Gain on sale of non-strategic assets
    
    
    17,446
    
    
    
    
    
    
    
    17,446
    
    
    
    Other (expense) income
    
    
    (341
    )
    
    
    (957
    )
    
    
    935
    
    
    
    973Total other income (expense)
    
    
    14,577
    
    
    
    (11,112
    )
    
    
    4,037
    
    
    
    (29,916
    )Income before income taxes
    
    
    47,784
    
    
    
    6,445
    
    
    
    101,037
    
    
    
    36,223Provision for income taxes
    
    
    19,163
    
    
    
    2,940
    
    
    
    38,471
    
    
    
    14,813Net income
    
    $
    28,621
    
    
    $
    3,505
    
    
    $
    62,566
    
    
    $
    21,410Net income per shareBasic net earnings
    
    $
    0.39
    
    
    $
    0.05
    
    
    $
    0.85
    
    
    $
    0.29Diluted net earnings
    
    $
    0.38
    
    
    $
    0.05
    
    
    $
    0.84
    
    
    $
    0.29Weighted average common shares used in calculationBasic
    
    
    74,278
    
    
    
    73,095
    
    
    
    73,939
    
    
    
    72,796Diluted
    
    
    74,998
    
    
    
    74,209
    
    
    
    74,456
    
    
    
    73,945
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to the
Companys 2036 Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
  October 3, 2009
    
    
    January 3, 2009(Unaudited)
    
    
    (a)AssetsCurrent assetsCash and cash equivalents
    
    $
    29,746
    
    
    $
    11,642Short-term investments
    
    
    19,765
    
    
    
    31,323Accounts receivable, net
    
    
    88,198
    
    
    
    93,078Inventories, net
    
    
    33,629
    
    
    
    38,500Deferred income taxes
    
    
    13,321
    
    
    
    12,908Other current assets
    
    
    5,148
    
    
    
    6,858Total current assets
    
    
    189,807
    
    
    
    194,309Property, plant and equipment, net
    
    
    44,777
    
    
    
    48,280Goodwill
    
    
    691,017
    
    
    
    690,097Developed and core technology, net
    
    
    54,295
    
    
    
    62,315Other intangibles, net
    
    
    49,728
    
    
    
    47,349Other long-term assets, net
    
    
    6,499
    
    
    
    2,147Total assets
    
    $
    1,036,123
    
    
    $
    1,044,497Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    7,848
    
    
    $
    7,830Income taxes payable
    
    
    7,450
    
    
    
    7,782Accrued compensation expenses
    
    
    23,859
    
    
    
    22,876Accrued warranty expense
    
    
    2,429
    
    
    
    3,287Other accrued expenses
    
    
    26,411
    
    
    
    21,535Total current liabilities
    
    
    67,997
    
    
    
    63,310Long-term debt
    
    
    368,187
    
    
    
    484,582Deferred income taxes
    
    
    63,801
    
    
    
    50,044Long-term income taxes payable
    
    
    16,735
    
    
    
    15,327Long-term employee benefit obligations
    
    
    3,737
    
    
    
    3,752Total liabilities
    
    
    520,457
    
    
    
    617,015Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 74,438,773 shares at October 3, 2009 and
73,668,415 shares at January 3, 2009
    
    
    745
    
    
    
    737Additional paid-in capital
    
    
    393,750
    
    
    
    369,594Accumulated other comprehensive income
    
    
    4,680
    
    
    
    3,226Retained earnings
    
    
    116,491
    
    
    
    53,925Total stockholders equity
    
    
    515,666
    
    
    
    427,482Total liabilities and stockholders equity
    
    $
    1,036,123
    
    
    $
    1,044,497
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to the Companys 2036 Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
   Nine Months EndedOctober 3, 2009
    
    
    September 27, 2008(a)Cash flows from operating activitiesNet income
    
    $
    62,566
    
    
    $
    21,410Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    7,290
    
    
    
    7,530Amortization of intangibles
    
    
    10,024
    
    
    
    12,981Amortization of financing costs
    
    
    12,350
    
    
    
    13,976In-process research and development charges
    
    
    
    
    
    
    7,500Non-cash impairment of available-for-sale securities
    
    
    
    
    
    
    843Excess tax benefit from exercise of stock options
    
    
    (486
    )
    
    
    (1,265
    )Tax benefit on exercised stock option arrangements
    
    
    1,336
    
    
    
    1,187Settlement of derivative contracts, net
    
    
    171
    
    
    
    (560
    )Change in net deferred income taxes
    
    
    3,708
    
    
    
    6,821Gain on extinguishment of debt
    
    
    (10,125
    )
    
    
    Gain on sale of non-strategic assets
    
    
    (17,446
    )
    
    
    Stock-based compensation
    
    
    6,649
    
    
    
    7,135Changes in operating assets and liabilities:Accounts receivable
    
    
    6,276
    
    
    
    13,922Inventories
    
    
    5,714
    
    
    
    15,457Accounts payable and accrued expenses
    
    
    9,466
    
    
    
    (29,021
    )Other assets
    
    
    (308
    )
    
    
    711Net cash provided by operating activities
    
    
    97,185
    
    
    
    78,627Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (3,688
    )
    
    
    (4,139
    )Settlement of derivative contracts, net
    
    
    (171
    )
    
    
    560Disposal of business
    
    
    
    
    
    
    4,690Sale of non-strategic assets, net
    
    
    18,982
    
    
    
    Purchase of investments in technology
    
    
    
    
    
    
    (7,500
    )Purchase of other intangibles
    
    
    (5,392
    )
    
    
    (1,262
    )Purchase of short-term investments
    
    
    (18,743
    )
    
    
    (38,223
    )Sale of short-term investments
    
    
    30,638
    
    
    
    16,563Net cash provided by (used in) investing activities
    
    
    21,626
    
    
    
    (29,311
    )Cash flows from financing activitiesIssuance of common stock
    
    
    6,416
    
    
    
    7,358Excess tax benefit from exercise of stock options
    
    
    486
    
    
    
    1,265Debt issuance costs
    
    
    (7,697
    )
    
    
    Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    Payments on senior secured credit facility
    
    
    (78,173
    )
    
    
    (79,018
    )Proceeds from short-term borrowings
    
    
    
    
    
    
    12,000Repayments of short-term borrowings
    
    
    
    
    
    
    (12,000
    )Net cash used in financing activities
    
    
    (100,093
    )
    
    
    (70,395
    )Effect of currency exchange rates on cash
    
    
    (614
    )
    
    
    (152
    )Net increase (decrease) in cash and cash equivalents
    
    
    18,104
    
    
    
    (21,231
    )Cash and cash equivalents at beginning of period
    
    
    11,642
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    29,746
    
    
    $
    12,813Supplemental disclosureCash paid for interest
    
    $
    12,353
    
    
    $
    27,432Cash paid for taxes
    
    $
    28,915
    
    
    $
    8,189
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to the
Companys 2036 Convertible Notes. See Note 2. The accompanying notes are an integral part of the consolidated financial statements.
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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
 The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
 Fair Value Measurements and Disclosures Note 11, Fair Value
Measurements,
  Business Combinations
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Business Combinations
 Business Combinations,
 Derivatives and Hedging Activities Note 12, Derivative Instruments and Hedging Activities
 Debt Accounting Changes and Error Corrections.
  Three Months Ended October 3, 2009
    
    Three Months Ended September 27, 2008Previous
    
    Effect of
    
    Current
    
    As
    
    Effect of
    
    As(in thousands, except per share data)
    
    Method
    
    Change
    
    Method
    
    Reported
    
    Change
    
    AdjustedNet income
    
    $
    22,456
    
    
    $
    6,165
    
    
    $
    28,621
    
    
    $
    5,734
    
    
    $
    (2,229
    )
    
    $
    3,505Basic net income per share
    
    $
    0.30
    
    
    
    0.09
    
    
    $
    0.39
    
    
    $
    0.08
    
    
    
    (0.03
    )
    
    $
    0.05Diluted net income per share
    
    $
    0.30
    
    
    
    0.08
    
    
    $
    0.38
    
    
    $
    0.08
    
    
    
    (0.03
    )
    
    $
    0.05
 Nine Months Ended October 3, 2009
    
    Nine Months Ended September 27, 2008Previous
    
    Effect of
    
    Current
    
    As
    
    Effect of
    
    As(in thousands, except per share data)
    
    Method
    
    Change
    
    Method
    
    Reported
    
    Change
    
    AdjustedNet income
    
    $
    60,962
    
    
    $
    1,604
    
    
    $
    62,566
    
    
    $
    27,939
    
    
    $
    (6,529
    )
    
    $
    21,410Basic net income per share
    
    $
    0.82
    
    
    $
    0.03
    
    
    $
    0.85
    
    
    $
    0.38
    
    
    $
    (0.09
    )
    
    $
    0.29Diluted net income per share
    
    $
    0.82
    
    
    $
    0.02
    
    
    $
    0.84
    
    
    $
    0.38
    
    
    $
    (0.09
    )
    
    $
    0.29
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##### Table of Contents



Financial Instruments Note 11, Fair
Value Measurements
 Subsequent Events Note 1, Basis of Presentation
 3. Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008Cost of sales
    
    $
    230
    
    
    $
    452
    
    
    $
    716
    
    
    $
    1,455Marketing and selling
    
    
    489
    
    
    
    848
    
    
    
    1,456
    
    
    
    2,539Research and development
    
    
    296
    
    
    
    559
    
    
    
    885
    
    
    
    1,675General and administrative
    
    
    1,158
    
    
    
    665
    
    
    
    3,592
    
    
    
    1,466Total stock-based
compensation expense
    
    $
    2,173
    
    
    $
    2,524
    
    
    $
    6,649
    
    
    $
    7,135
    Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at January 3, 2009
    
    
    7,020,341
    
    
    $
    15.50Granted
    
    
    1,681,874
    
    
    
    12.01Exercised
    
    
    (508,839
    )
    
    
    8.53Cancelled or expired
    
    
    (688,685
    )
    
    
    16.60Balance at October 3, 2009
    
    
    7,504,691
    
    
    $
    15.09
    
    
    $
    17,230Options exercisable at
October 3, 2009
    
    
    4,482,840
    
    
    $
    15.92
    
    
    $
    8,954
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##### Table of Contents



4. Earnings per Share
  Three Months Ended
    
    
    Nine Months Ended(in thousands, except per share data)
    
    October 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008Net income
    
    $
    28,621
    
    
    $
    3,505
    
    
    $
    62,566
    
    
    $
    21,410Weighted-average shares outstanding for basic net income per share
    
    
    74,278
    
    
    
    73,095
    
    
    
    73,939
    
    
    
    72,796Dilutive effect of stock options and restricted shares
    
    
    720
    
    
    
    1,114
    
    
    
    517
    
    
    
    1,149Adjusted weighted-average shares outstanding for diluted net income per
share
    
    
    74,998
    
    
    
    74,209
    
    
    
    74,456
    
    
    
    73,945Net income per shareBasic net earnings
    
    $
    0.39
    
    
    $
    0.05
    
    
    $
    0.85
    
    
    $
    0.29Diluted net earnings
    
    $
    0.38
    
    
    $
    0.05
    
    
    $
    0.84
    
    
    $
    0.29
 Note 10, Debt)
 5. Inventories
  (in thousands)
    
    October 3, 2009
    
    
    January 3, 2009Raw materials
    
    $
    7,628
    
    
    $
    11,611Work in process
    
    
    3,845
    
    
    
    4,841Finished goods
    
    
    28,568
    
    
    
    26,283Obsolescence reserve
    
    
    (6,412
    )
    
    
    (4,235
    )Net inventories
    
    $
    33,629
    
    
    $
    38,500
 6. Warranties
   Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008Balance, beginning of period
    
    $
    2,469
    
    
    $
    3,598
    
    
    $
    3,287
    
    
    $
    3,001Provisions for warranty
    
    
    313
    
    
    
    1,122
    
    
    
    1,276
    
    
    
    4,856Claims processed
    
    
    (353
    )
    
    
    (1,242
    )
    
    
    (2,134
    )
    
    
    (4,379
    )Balance, end of period
    
    $
    2,429
    
    
    $
    3,478
    
    
    $
    2,429
    
    
    $
    3,478
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##### Table of Contents



7. Comprehensive Income
 Note 12, Derivative Instruments and Hedging
Activities
 Three Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008Net income
    
    $
    28,621
    
    
    $
    3,505Foreign currency translation gain (loss), net of taxes
of ($0) and $71, respectively
    
    
    927
    
    
    
    (1,786
    )Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of $822 and ($350), respectively
    
    
    (1,321
    )
    
    
    579Reclassification adjustments on cash flow hedges settled and included
in net income, net of tax of ($582) and $159, respectively
    
    
    1,071
    
    
    
    (263
    )Unrealized gain on available-for-sale securities, net of taxes
of ($48) and ($62), respectively
    
    
    80
    
    
    
    102Comprehensive income
    
    $
    29,378
    
    
    $
    2,137
 Nine Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008Net income
    
    $
    62,566
    
    
    $
    21,410Foreign currency translation gain, net of taxes
of ($7) and ($255), respectively
    
    
    2,221
    
    
    
    6Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of $1,735 and ($673), respectively
    
    
    (2,867
    )
    
    
    1,112Reclassification adjustments on cash flow hedges settled and included
in net income, net of tax of ($1,144) and $237, respectively
    
    
    1,891
    
    
    
    (392
    )Recognition of previously unrealized losses on available-for-sale
securities, net of taxes of ($263)
    
    
    
    
    
    
    433Unrealized gain on available-for-sale securities, net of taxes
of ($123) and ($127), respectively
    
    
    209
    
    
    
    210Comprehensive income
    
    $
    64,020
    
    
    $
    22,779
  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 October 3, 2009
    
    $
    (2,958
    )
    
    $
    (180
    )
    
    $
    7,711
    
    
    $
    107
    
    
    $
    4,680
 10




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##### Table of Contents



8. Goodwill and Intangible Assets
  Nine Months Ended(in thousands)
    
    October 3, 2009|Goodwill, beginning of the period
    
    $
    690,097Effect of currency translation
    
    
    920Goodwill, end of the period
    
    $
    691,017
  October 3, 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
    
    
    $
    (83,258
    )
    
    $
    54,295
    
    
    $
    137,553
    
    
    $
    (75,238
    )
    
    $
    62,315Other intangiblesAmortizedPatents
    
    
    11,510
    
    
    
    (9,600
    )
    
    
    1,910
    
    
    
    11,510
    
    
    
    (9,317
    )
    
    
    2,193Licenses
    
    
    15,231
    
    
    
    (8,764
    )
    
    
    6,467
    
    
    
    9,312
    
    
    
    (7,659
    )
    
    
    1,653Royalty agreement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,970
    
    
    
    (1,148
    )
    
    
    1,822Trademarks
    
    
    2,233
    
    
    
    (1,682
    )
    
    
    551
    
    
    
    2,208
    
    
    
    (1,327
    )
    
    
    881Total amortized other
intangible assets
    
    
    28,974
    
    
    
    (20,046
    )
    
    
    8,928
    
    
    
    26,000
    
    
    
    (19,451
    )
    
    
    6,549UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    69,774
    
    
    
    (20,046
    )
    
    
    49,728
    
    
    
    66,800
    
    
    
    (19,451
    )
    
    
    47,349Total intangible assets
    
    $
    207,327
    
    
    $
    (103,304
    )
    
    $
    104,023
    
    
    $
    204,353
    
    
    $
    (94,689
    )
    
    $
    109,664
 Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008Amortization expense
    
    $
    3,358
    
    
    $
    4,334
    
    
    $
    10,024
    
    
    $
    12,981
    9. Litigation Settlements
  11




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##### Table of Contents



Her Option ®
 10. Debt
 Senior Secured Credit Facility
  Note 9, Litigation Settlements
     12




---



##### Table of Contents



Amendment of Credit Facility
  Convertible Senior Subordinated Notes Due 2036
  Note 2, Recently Issued and Adopted Accounting Pronouncements,
     13




---



##### Table of Contents



Convertible Senior Subordinated Notes Due 2041
      14




---



##### Table of Contents



Supplemental Guarantor Information
  (see Note 2, Recently Issued and Adopted Accounting
Pronouncements).
 15




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended October 3, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    115,207
    
    
    $
    23,770
    
    
    $
    (15,746
    )
    
    $
    123,231Cost of sales
    
    
    
    
    
    
    21,203
    
    
    
    15,643
    
    
    
    (15,562
    )
    
    
    21,284Gross profit
    
    
    
    
    
    
    94,004
    
    
    
    8,127
    
    
    
    (184
    )
    
    
    101,947Operating expensesMarketing and selling
    
    
    
    
    
    
    32,831
    
    
    
    9,658
    
    
    
    
    
    
    
    42,489Research and development
    
    
    
    
    
    
    12,450
    
    
    
    (16
    )
    
    
    
    
    
    
    12,434General and administrative
    
    
    
    
    
    
    10,459
    
    
    
    
    
    
    
    
    
    
    
    10,459Amortization of intangibles
    
    
    
    
    
    
    3,358
    
    
    
    
    
    
    
    
    
    
    
    3,358Total operating expenses
    
    
    
    
    
    
    59,098
    
    
    
    9,642
    
    
    
    
    
    
    
    68,740Operating income
    
    
    
    
    
    
    34,906
    
    
    
    (1,515
    )
    
    
    (184
    )
    
    
    33,207Other (expense) incomeRoyalty income
    
    
    
    
    
    
    961
    
    
    
    
    
    
    
    
    
    
    
    961Interest income
    
    
    
    
    
    
    39
    
    
    
    12
    
    
    
    (34
    )
    
    
    17Interest expense
    
    
    (2,609
    )
    
    
    (2,058
    )
    
    
    (41
    )
    
    
    34
    
    
    
    (4,674
    )Amortization of financing costs
    
    
    (3,290
    )
    
    
    (1,105
    )
    
    
    
    
    
    
    
    
    
    
    (4,395
    )Gain on extinguishment of debt
    
    
    5,563
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,563Gain on sale of non-strategic assets
    
    
    
    
    
    
    17,446
    
    
    
    
    
    
    
    
    
    
    
    17,446Other income (expense)
    
    
    
    
    
    
    (584
    )
    
    
    224
    
    
    
    19
    
    
    
    (341
    )Total other (expense) income
    
    
    (336
    )
    
    
    14,699
    
    
    
    195
    
    
    
    19
    
    
    
    14,577(Loss) income before income taxes
    
    
    (336
    )
    
    
    49,605
    
    
    
    (1,320
    )
    
    
    (165
    )
    
    
    47,784Provision for income taxes
    
    
    (127
    )
    
    
    19,813
    
    
    
    (460
    )
    
    
    (63
    )
    
    
    19,163Equity in earnings of subsidiary
    
    
    28,932
    
    
    
    (860
    )
    
    
    
    
    
    
    (28,072
    )
    
    
    Net income (loss)
    
    $
    28,723
    
    
    $
    28,932
    
    
    $
    (860
    )
    
    $
    (28,174
    )
    
    $
    28,621
 16




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended October 3, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    340,272
    
    
    $
    79,111
    
    
    $
    (46,126
    )
    
    $
    373,257Cost of sales
    
    
    
    
    
    
    65,623
    
    
    
    46,960
    
    
    
    (46,349
    )
    
    
    66,234Gross profit
    
    
    
    
    
    
    274,649
    
    
    
    32,151
    
    
    
    223
    
    
    
    307,023Operating expensesMarketing and selling
    
    
    
    
    
    
    100,368
    
    
    
    28,322
    
    
    
    
    
    
    
    128,690Research and development
    
    
    
    
    
    
    38,434
    
    
    
    (23
    )
    
    
    
    
    
    
    38,411General and administrative
    
    
    
    
    
    
    32,898
    
    
    
    
    
    
    
    
    
    
    
    32,898Amortization of intangibles
    
    
    
    
    
    
    10,024
    
    
    
    
    
    
    
    
    
    
    
    10,024Total operating expenses
    
    
    
    
    
    
    181,724
    
    
    
    28,299
    
    
    
    
    
    
    
    210,023Operating income
    
    
    
    
    
    
    92,925
    
    
    
    3,852
    
    
    
    223
    
    
    
    97,000Other (expense) incomeRoyalty income
    
    
    
    
    
    
    2,768
    
    
    
    
    
    
    
    
    
    
    
    2,768Interest income
    
    
    
    
    
    
    247
    
    
    
    48
    
    
    
    (132
    )
    
    
    163Interest expense
    
    
    (7,858
    )
    
    
    (7,168
    )
    
    
    (156
    )
    
    
    132
    
    
    
    (15,050
    )Amortization of financing costs
    
    
    (10,052
    )
    
    
    (2,298
    )
    
    
    
    
    
    
    
    
    
    
    (12,350
    )Gain on extinguishment of debt
    
    
    10,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,125Gain on sale of non-strategic assets
    
    
    
    
    
    
    17,446
    
    
    
    
    
    
    
    
    
    
    
    17,446Other income (expense)
    
    
    
    
    
    
    566
    
    
    
    348
    
    
    
    21
    
    
    
    935Total other (expense) income
    
    
    (7,785
    )
    
    
    11,561
    
    
    
    240
    
    
    
    21
    
    
    
    4,037(Loss) income before income taxes
    
    
    (7,785
    )
    
    
    104,486
    
    
    
    4,092
    
    
    
    244
    
    
    
    101,037Provision for income taxes
    
    
    (2,936
    )
    
    
    39,893
    
    
    
    1,424
    
    
    
    90
    
    
    
    38,471Equity in earnings of subsidiary
    
    
    67,261
    
    
    
    2,668
    
    
    
    
    
    
    
    (69,929
    )
    
    
    Net income
    
    $
    62,412
    
    
    $
    67,261
    
    
    $
    2,668
    
    
    $
    (69,775
    )
    
    $
    62,566
 17




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended September 27, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    106,020
    
    
    $
    25,737
    
    
    $
    (14,289
    )
    
    $
    117,468Cost of sales
    
    
    
    
    
    
    25,099
    
    
    
    14,486
    
    
    
    (14,722
    )
    
    
    24,863Gross profit
    
    
    
    
    
    
    80,921
    
    
    
    11,251
    
    
    
    433
    
    
    
    92,605Operating expensesMarketing and selling
    
    
    
    
    
    
    32,483
    
    
    
    9,743
    
    
    
    
    
    
    
    42,226Research and development
    
    
    
    
    
    
    11,260
    
    
    
    
    
    
    
    
    
    
    
    11,260In-process research and
development
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    7,500General and administrative
    
    
    
    
    
    
    9,728
    
    
    
    
    
    
    
    
    
    
    
    9,728Amortization of intangibles
    
    
    
    
    
    
    3,465
    
    
    
    869
    
    
    
    
    
    
    
    4,334Total operating expenses
    
    
    
    
    
    
    64,436
    
    
    
    10,612
    
    
    
    
    
    
    
    75,048Operating income
    
    
    
    
    
    
    16,485
    
    
    
    639
    
    
    
    433
    
    
    
    17,557Other (expense) incomeRoyalty income
    
    
    
    
    
    
    745
    
    
    
    
    
    
    
    
    
    
    
    745Interest income
    
    
    
    
    
    
    228
    
    
    
    31
    
    
    
    (56
    )
    
    
    203Interest expense
    
    
    (3,037
    )
    
    
    (3,129
    )
    
    
    (58
    )
    
    
    56
    
    
    
    (6,168
    )Amortization of financing costs
    
    
    (3,682
    )
    
    
    (1,253
    )
    
    
    
    
    
    
    
    
    
    
    (4,935
    )Other income (expense)
    
    
    
    
    
    
    (468
    )
    
    
    (473
    )
    
    
    (16
    )
    
    
    (957
    )Total other (expense) income
    
    
    (6,719
    )
    
    
    (3,877
    )
    
    
    (500
    )
    
    
    (16
    )
    
    
    (11,112
    )(Loss) income before income taxes
    
    
    (6,719
    )
    
    
    12,608
    
    
    
    139
    
    
    
    417
    
    
    
    6,445Provision for income taxes
    
    
    (3,115
    )
    
    
    5,664
    
    
    
    203
    
    
    
    188
    
    
    
    2,940Equity in earnings of subsidiary
    
    
    6,880
    
    
    
    (64
    )
    
    
    
    
    
    
    (6,816
    )
    
    
    Net income (loss)
    
    $
    3,276
    
    
    $
    6,880
    
    
    $
    (64
    )
    
    $
    (6,587
    )
    
    $
    3,505
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to our 2036 Convertible Notes. See Note 2. 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.  Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Nine Months Ended September 27, 2008(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (a)AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    332,505
    
    
    $
    84,572
    
    
    $
    (49,450
    )
    
    $
    367,627Cost of sales
    
    
    
    
    
    
    82,277
    
    
    
    50,567
    
    
    
    (49,806
    )
    
    
    83,038Gross profit
    
    
    
    
    
    
    250,228
    
    
    
    34,005
    
    
    
    356
    
    
    
    284,589Operating expensesMarketing and selling
    
    
    
    
    
    
    102,647
    
    
    
    30,961
    
    
    
    
    
    
    
    133,608Research and development
    
    
    
    
    
    
    33,926
    
    
    
    
    
    
    
    
    
    
    
    33,926In-process research and
development
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    7,500General and administrative
    
    
    
    
    
    
    30,434
    
    
    
    1
    
    
    
    
    
    
    
    30,435Amortization of intangibles
    
    
    
    
    
    
    10,372
    
    
    
    2,609
    
    
    
    
    
    
    
    12,981Total operating expenses
    
    
    
    
    
    
    184,879
    
    
    
    33,571
    
    
    
    
    
    
    
    218,450Operating income
    
    
    
    
    
    
    65,349
    
    
    
    434
    
    
    
    356
    
    
    
    66,139Other (expense) incomeRoyalty income
    
    
    
    
    
    
    2,076
    
    
    
    1,500
    
    
    
    
    
    
    
    3,576Interest income
    
    
    
    
    
    
    1,269
    
    
    
    64
    
    
    
    (778
    )
    
    
    555Interest expense
    
    
    (9,111
    )
    
    
    (11,921
    )
    
    
    (790
    )
    
    
    778
    
    
    
    (21,044
    )Amortization of financing costs
    
    
    (10,793
    )
    
    
    (3,183
    )
    
    
    
    
    
    
    
    
    
    
    (13,976
    )Other income (expense)
    
    
    
    
    
    
    1,476
    
    
    
    (512
    )
    
    
    9
    
    
    
    973Total other (expense) income
    
    
    (19,904
    )
    
    
    (10,283
    )
    
    
    262
    
    
    
    9
    
    
    
    (29,916
    )(Loss) income before income taxes
    
    
    (19,904
    )
    
    
    55,066
    
    
    
    696
    
    
    
    365
    
    
    
    36,223Provision for income taxes
    
    
    (7,858
    )
    
    
    22,234
    
    
    
    287
    
    
    
    150
    
    
    
    14,813Equity in earnings of subsidiary
    
    
    33,241
    
    
    
    409
    
    
    
    
    
    
    
    (33,650
    )
    
    
    Net income (loss)
    
    $
    21,195
    
    
    $
    33,241
    
    
    $
    409
    
    
    $
    (33,435
    )
    
    $
    21,410
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to our 2036 Convertible Notes. See Note 2. 19




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of October 3, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    16,554
    
    
    $
    13,192
    
    
    $
    
    
    
    $
    29,746Short-term investments
    
    
    4,831
    
    
    
    14,339
    
    
    
    595
    
    
    
    
    
    
    
    19,765Accounts receivable, net
    
    
    630,736
    
    
    
    50,958
    
    
    
    23,835
    
    
    
    (617,331
    )
    
    
    88,198Inventories, net
    
    
    
    
    
    
    31,042
    
    
    
    6,255
    
    
    
    (3,668
    )
    
    
    33,629Deferred income taxes
    
    
    
    
    
    
    12,596
    
    
    
    725
    
    
    
    
    
    
    
    13,321Other current assets
    
    
    
    
    
    
    3,989
    
    
    
    1,159
    
    
    
    
    
    
    
    5,148Total current assets
    
    
    635,567
    
    
    
    129,478
    
    
    
    45,761
    
    
    
    (620,999
    )
    
    
    189,807Property, plant and equipment, net
    
    
    
    
    
    
    43,243
    
    
    
    1,534
    
    
    
    
    
    
    
    44,777Goodwill
    
    
    
    
    
    
    628,193
    
    
    
    86,845
    
    
    
    (24,021
    )
    
    
    691,017Developed and core technology, net
    
    
    
    
    
    
    54,295
    
    
    
    
    
    
    
    
    
    
    
    54,295Other intangibles, net
    
    
    
    
    
    
    49,728
    
    
    
    
    
    
    
    
    
    
    
    49,728Investment in subsidiaries
    
    
    177,348
    
    
    
    38,366
    
    
    
    
    
    
    
    (215,714
    )
    
    
    Other long-term assets, net
    
    
    5,334
    
    
    
    964
    
    
    
    201
    
    
    
    
    
    
    
    6,499Total assets
    
    $
    818,249
    
    
    $
    944,267
    
    
    $
    134,341
    
    
    $
    (860,734
    )
    
    $
    1,036,123Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    9,070
    
    
    $
    559,089
    
    
    $
    72,503
    
    
    $
    (632,814
    )
    
    $
    7,848Accrued compensation expenses
    
    
    
    
    
    
    19,770
    
    
    
    4,089
    
    
    
    
    
    
    
    23,859Accrued warranty expense
    
    
    
    
    
    
    2,449
    
    
    
    (20
    )
    
    
    
    
    
    
    2,429Income taxes payable
    
    
    11,935
    
    
    
    (5,909
    )
    
    
    1,424
    
    
    
    
    
    
    
    7,450Other accrued expenses
    
    
    886
    
    
    
    20,881
    
    
    
    4,644
    
    
    
    
    
    
    
    26,411Total current liabilities
    
    
    21,891
    
    
    
    596,280
    
    
    
    82,640
    
    
    
    (632,814
    )
    
    
    67,997Non-current liabilitiesLong-term debt
    
    
    221,249
    
    
    
    146,938
    
    
    
    
    
    
    
    
    
    
    
    368,187Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    12,206
    
    
    
    (12,206
    )
    
    
    Deferred income taxes
    
    
    59,443
    
    
    
    3,229
    
    
    
    1,129
    
    
    
    
    
    
    
    63,801Long-term income taxes payable
    
    
    
    
    
    
    16,735
    
    
    
    
    
    
    
    
    
    
    
    16,735Long-term employee benefit
obligations
    
    
    
    
    
    
    3,737
    
    
    
    
    
    
    
    
    
    
    
    3,737Total non-current liabilities
    
    
    280,692
    
    
    
    170,639
    
    
    
    13,335
    
    
    
    (12,206
    )
    
    
    452,460Total liabilities
    
    
    302,583
    
    
    
    766,919
    
    
    
    95,975
    
    
    
    (645,020
    )
    
    
    520,457Stockholders equityCommon stock
    
    
    745
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    745Additional paid-in capital
    
    
    393,750
    
    
    
    3,424
    
    
    
    67,368
    
    
    
    (70,792
    )
    
    
    393,750Accumulated other
comprehensive income
    
    
    4,680
    
    
    
    (2,114
    )
    
    
    7,243
    
    
    
    (5,129
    )
    
    
    4,680Retained earnings (deficit)
    
    
    116,491
    
    
    
    176,038
    
    
    
    (36,254
    )
    
    
    (139,784
    )
    
    
    116,491Total stockholders equity
    
    
    515,666
    
    
    
    177,348
    
    
    
    38,366
    
    
    
    (215,714
    )
    
    
    515,666Total liabilities and stockholders equity
    
    $
    818,249
    
    
    $
    944,267
    
    
    $
    134,341
    
    
    $
    (860,734
    )
    
    $
    1,036,123
 20




---



##### 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, as required by U.S. GAAP, for the change in accounting related to our 2036 Convertible Notes. See Note 2. 21




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended October 3, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    21,920
    
    
    $
    69,205
    
    
    $
    6,060
    
    
    $
    
    
    
    $
    97,185Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,391
    )
    
    
    (297
    )
    
    
    
    
    
    
    (3,688
    )Sale of non-strategic assets, net
    
    
    
    
    
    
    18,982
    
    
    
    
    
    
    
    
    
    
    
    18,982Purchase of other intangibles
    
    
    
    
    
    
    (5,392
    )
    
    
    
    
    
    
    
    
    
    
    (5,392
    )Purchase of short-term investments
    
    
    
    
    
    
    (18,149
    )
    
    
    (594
    )
    
    
    
    
    
    
    (18,743
    )Sale of short-term investments
    
    
    
    
    
    
    30,500
    
    
    
    138
    
    
    
    
    
    
    
    30,638Settlement of derivative contracts, net
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    
    
    
    
    (171
    )Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    22,379
    
    
    
    (753
    )
    
    
    
    
    
    
    21,626Cash flows from financing activitiesIssuance of common stock
    
    
    6,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,416Excess tax benefit from exercise of stock
options
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486Debt issuance costs
    
    
    (7,697
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,697
    )Payments on senior secured credit facility
    
    
    
    
    
    
    (78,173
    )
    
    
    
    
    
    
    
    
    
    
    (78,173
    )Repurchase of convertible senior
subordinated notes
    
    
    (21,125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,125
    )Net cash used in financing activities
    
    
    (21,920
    )
    
    
    (78,173
    )
    
    
    
    
    
    
    
    
    
    
    (100,093
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (614
    )
    
    
    
    
    
    
    (614
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    13,411
    
    
    
    4,693
    
    
    
    
    
    
    
    18,104Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,143
    
    
    
    8,499
    
    
    
    
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    16,554
    
    
    $
    13,192
    
    
    $
    
    
    
    $
    29,746
 22




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Nine Months Ended September 27, 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
    
    $
    (8,655
    )
    
    $
    88,124
    
    
    $
    (842
    )
    
    $
    
    
    
    $
    78,627Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,734
    )
    
    
    (405
    )
    
    
    
    
    
    
    (4,139
    )Disposal of business
    
    
    
    
    
    
    4,690
    
    
    
    
    
    
    
    
    
    
    
    4,690Purchase of investments in technology
    
    
    
    
    
    
    (7,500
    )
    
    
    
    
    
    
    
    
    


    
    (7,500
    )Purchase of other intangibles
    
    
    
    
    
    
    (1,262
    )
    
    
    
    
    
    
    
    
    
    
    (1,262
    )Purchase of short-term investments
    
    

    
    
    
    
    (38,158
    )
    
    
    (65
    )
    
    
   
    
    

    
    (38,223
    )Sale of short-term investments
    
    
    
    
    
    
    16,563
    
    
    
    
    
    
    
   
    
    
    
    16,563Settlement of derivative contracts, net
    
    
    
    
    
    
    560
    
    
    
    
    
    
    
    
    
    
    
    560Net cash used in investing activities
    
    
    
    
    
    
    (28,841
    )
    
    
    (470
    )
    
    
    
    
    
    
    (29,311
    )Cash flows from financing activitiesIntercompany notes
    
    
    
    
    
    
    3,255
    
    
    
    (3,255
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    7,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,358Excess tax benefit from exercise of stock options
    
    
    1,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,265Payments on long-term debt
    
    
    
    
    
    
    (79,018
    )
    
    
    
    
    
    
    
    
    
    
    (79,018
    )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
    
    
    8,623
    
    
    
    (75,763
    )
    
    
    (3,255
    )
    
    
    
    
    
    
    (70,395
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Net (decrease) in cash and cash equivalents
    
    
    (32
    )
    
    
    (16,480
    )
    
    
    (4,719
    )
    
    
    
    
    
    
    (21,231
    )Cash and cash equivalents at beginning of period
    
    
    32
    
    
    
    21,671
    
    
    
    12,341
    
    
    
    
    
    
    
    34,044Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    5,191
    
    
    $
    7,622
    
    
    $
    
    
    
    $
    12,813
 
 (a)
    
    Retroactively adjusted, as required by U.S. GAAP, for the change in accounting related to our 2036 Convertible Notes. See Note 2. 23




---



##### Table of Contents



11. Fair Value Measurements
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDescription
    
    Identical Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)AssetsMoney market funds
    
    $
    18,496
    
    
    $
    
    
    
    $
    Available-for-sale securities
    
    
    512
    
    
    
    
    
    
    
    Other short-term investments
    
    
    162
    
    
    
    595
    
    
    
    Derivatives
    
    
    
    
    
    
    39
    
    
    
    Total
    
    $
    19,170
    
    
    $
    634
    
    
    $
    LiabilitiesDerivatives
    
    $
    
    
    
    $
    4,362
    
    
    $
    
    Note 12, Derivative Instruments and Hedging Activities
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  Fair Value of Debt
 Note 10, Debt)
 24




---



##### Table of Contents



October 3, 2009
    
    
    January 3, 2009Principal Outstanding
    
    
    Fair Value
    
    
    Principal Outstanding
    
    
    Fair Value2036 Convertible Notes
    
    $
    61,985
    
    
    $
    64,654
    
    
    $
    339,250
    
    
    $
    229,9442041 Convertible Notes
    
    
    250,000
    
    
    
    271,145
    
    
    
    
    
    
    
    Credit Facility
    
    
    150,643
    
    
    
    146,013
    
    
    
    228,817
    
    
    
    193,003$
    462,628
    
    
    $
    481,812
    
    
    $
    568,067
    
    
    $
    422,947
 12. Derivative Instruments and Hedging Activities
      25




---



##### Table of Contents



Fair Values of Derivative InstrumentsAsset Derivatives
    
    
    Liability DerivativesOctober 3, 2009
    
    
    January 3, 2009
    
    
    October 3, 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 instrumentsInterest rate swap contracts
    
    Other current assets
    
    $
    
    
    
    Other current assets
    
    $
    
    
    
    Other accrued expenses
    
    $
    921
    
    
    Other accrued expenses
    
    $
    2,663Foreign exchange forward contracts
    
    Other current assets
    
    
    
    
    
    Other current assets
    
    
    659
    
    
    Other accrued expenses
    
    
    3,441
    
    
    Other accrued expenses
    
    
    1,729Total derivatives designated as
hedging instruments
    
    
    
    $
    
    
    
    
    
    $
    659
    
    
    
    
    $
    4,362
    
    
    
    
    $
    4,392Derivatives not designated as
hedging instrumentsForeign exchange forward contracts
    
    Other current assets
    
    $
    39
    
    
    Other current assets
    
    $
    223
    
    
    Other accrued expenses
    
    $
    
    
    
    Other accrued expenses
    
    $
    Total derivatives not designated as
hedging instruments
    
    
    
    $
    39
    
    
    
    
    $
    223
    
    
    
    
    $
    
    
    
    
    
    $
    Total derivatives
    
    
    
    $
    39
    
    
    
    
    $
    882
    
    
    
    
    $
    4,362
    
    
    
    
    $
    4,392
   26




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##### Table of Contents



The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Three Months Ended October 3, 2009
  Amount of Gain
    
    
    Location of
    
    Amount of Gain oror (Loss)Recognized
    
    
    Gain or (Loss)
    
    (Loss) ReclassifiedDerivatives in
    
    in OCI on
    
    
    Reclassified from
    
    from AccumulatedCash Flow
    
    Derivatives
    
    
    Accumulated OCI
    
    OCI into IncomeHedging
    
    (Effective Portion)
    
    
    into Income
    
    (Effective Portion)Relationships
    
    October 3, 2009
    
    
    (Effective Portion)
    
    October 3, 2009Interest rate swap contracts
    
    $
    612
    
    
    Interest expense
    
    $
    (772
    )Foreign exchange contracts
    
    
    (1,102
    )
    
    Other income
    
    
    (880
    )Total
    
    $
    (490
    )
    
    
    
    $
    (1,652
    )
 Location ofDerivatives not
    
    Gain or (Loss)
    
    Amount of Gain orDesignated
    
    Recognized
    
    (Loss) Recognized inas Hedging
    
    in Income on
    
    Income on DerivativesInstruments
    
    Derivatives
    
    October 3, 2009Foreign exchange contracts
    
    Other income
    
    $
    (306
    )Total
    
    
    
    $
    (306
    )
 The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Nine Months Ended October 3, 2009
  Amount of Gain
    
    
    Location of
    
    Amount of Gain oror (Loss) Recognized
    
    
    Gain or (Loss)
    
    (Loss) ReclassifiedDerivatives in
    
    in OCI on
    
    
    Reclassified from
    
    from AccumulatedCash Flow
    
    Derivatives
    
    
    Accumulated OCI
    
    OCI into IncomeHedging
    
    (Effective Portion)
    
    
    into Income
    
    (Effective Portion)Relationships
    
    October 3, 2009
    
    
    (Effective Portion)
    
    October 3, 2009Interest rate swap contracts
    
    $
    1,773
    
    
    Interest expense
    
    $
    (2,683
    )Foreign exchange contracts
    
    
    (3,340
    )
    
    Other income
    
    
    (352
    )Total
    
    $
    (1,567
    )
    
    
    
    $
    (3,035
    )
 Location ofDerivatives not
    
    Gain or (Loss)
    
    Amount of Gain orDesignated
    
    Recognized
    
    (Loss) Recognized inas Hedging
    
    in Income on
    
    Income on DerivativesInstruments
    
    Derivatives
    
    October 3, 2009Foreign exchange contracts
    
    Other income
    
    $
    (512
    )Total
    
    
    
    $
    (512
    )
 27




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##### Table of Contents



13. Industry Segment Information and Foreign Operations
    Three Months Ended
    
    
    Nine Months Ended(in thousands)
    
    October 3, 2009
    
    
    September 27, 2008
    
    
    October 3, 2009
    
    
    September 27, 2008United StatesNet sales
    
    $
    92,262
    
    
    $
    84,489
    
    
    $
    271,336
    
    
    $
    258,700Long-lived assets
    
    
    828,248
    
    
    
    854,908
    
    
    
    828,248
    
    
    
    854,908InternationalNet sales
    
    
    30,969
    
    
    
    32,979
    
    
    
    101,921
    
    
    
    108,927Long-lived assets
    
    
    18,067
    
    
    
    18,302
    
    
    
    18,067
    
    
    
    18,302
 28




---



##### 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.
 29




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months Ended(in thousands)
    
    October 3, 2009
    
    September 27, 2008
    
    $ Increase
    
    % Increase
    
    October 3, 2009
    

September 27, 2008
    
    $ Increase
    
    % IncreaseNet SalesProduct LineMens health
    
    $
    54,666
    
    
    $
    51,303
    
    
    $
    3,363
    
    
    
    6.6
    %
    
    $
    171,090
    
    
    $
    160,548
    
    
    $
    10,542
    
    
    
    6.6
    %BPH therapy
    
    
    27,686
    
    
    
    26,862
    
    
    
    824
    
    
    
    3.1
    %
    
    
    81,159
    
    
    
    86,157
    
    
    
    (4,998
    )
    
    
    -5.8
    %Womens health
    
    
    40,879
    
    
    
    39,303
    
    
    
    1,576
    
    
    
    4.0
    %
    
    
    121,008
    
    
    
    120,922
    
    
    
    86
    
    
    
    0.1
    %Total
    
    $
    123,231
    
    
    $
    117,468
    
    
    $
    5,763
    
    
    
    4.9
    %
    
    $
    373,257
    
    
    $
    367,627
    
    
    $
    5,630
    
    
    
    1.5
    %GeographyUnited States
    
    $
    92,262
    
    
    $
    84,489
    
    
    $
    7,773
    
    
    
    9.2
    %
    
    $
    271,336
    
    
    $
    258,700
    
    
    $
    12,636
    
    
    
    4.9
    %International
    
    
    30,969
    
    
    
    32,979
    
    
    
    (2,010
    )
    
    
    -6.1
    %
    
    
    101,921
    
    
    
    108,927
    
    
    
    (7,006
    )
    
    
    -6.4
    %Total
    
    $
    123,231
    
    
    $
    117,468
    
    
    $
    5,763
    
    
    
    4.9
    %
    
    $
    373,257
    
    
    $
    367,627
    
    
    $
    5,630
    
    
    
    1.5
    %
 Three Months Ended
    
    Nine Months EndedOctober 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Percent of net salesMens health
    
    
    44.4
    %
    
    
    43.7
    %
    
    
    45.8
    %
    
    
    43.7
    %BPH therapy
    
    
    22.5
    %
    
    
    22.9
    %
    
    
    21.7
    %
    
    
    23.4
    %Womens health
    
    
    33.2
    %
    
    
    33.5
    %
    
    
    32.4
    %
    
    
    32.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    74.9
    %
    
    
    71.9
    %
    
    
    72.7
    %
    
    
    70.4
    %International
    
    
    25.1
    %
    
    
    28.1
    %
    
    
    27.3
    %
    
    
    29.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 30




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase
    
    Nine Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    October 3, 2009
    
    September 27, 2008
    
    (Decrease)
    
    (Decrease)
    
    October 3, 2009
    
    September 27, 2008
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    123,231
    
    
    $
    117,468
    
    
    $
    5,763
    
    
    
    4.9
    %
    
    $
    373,257
    
    
    $
    367,627
    
    
    $
    5,630
    
    
    
    1.5
    %Cost of sales
    
    
    21,284
    
    
    
    24,863
    
    
    
    (3,579
    )
    
    
    -14.4
    %
    
    
    66,234
    
    
    
    83,038
    
    
    
    (16,804
    )
    
    
    -20.2
    %Gross profit
    
    
    101,947
    
    
    
    92,605
    
    
    
    9,342
    
    
    
    10.1
    %
    
    
    307,023
    
    
    
    284,589
    
    
    
    22,434
    
    
    
    7.9
    %Operating expensesMarketing and selling
    
    
    42,489
    
    
    
    42,226
    
    
    
    263
    
    
    
    0.6
    %
    
    
    128,690
    
    
    
    133,608
    
    
    
    (4,918
    )
    
    
    -3.7
    %Research and development
    
    
    12,434
    
    
    
    11,260
    
    
    
    1,174
    
    
    
    10.4
    %
    
    
    38,411
    
    
    
    33,926
    
    
    
    4,485
    
    
    
    13.2
    %In-process research and development
    
    
    
    
    
    
    7,500
    
    
    
    (7,500
    )
    
    
    n/a
    
    
    
    
    
    
    
    7,500
    
    
    
    (7,500
    )
    
    
    n/aGeneral and administrative
    
    
    10,459
    
    
    
    9,728
    
    
    
    731
    
    
    
    7.5
    %
    
    
    32,898
    
    
    
    30,435
    
    
    
    2,463
    
    
    
    8.1
    %Amortization of intangibles
    
    
    3,358
    
    
    
    4,334
    
    
    
    (976
    )
    
    
    -22.5
    %
    
    
    10,024
    
    
    
    12,981
    
    
    
    (2,957
    )
    
    
    -22.8
    %Total operating expenses
    
    
    68,740
    
    
    
    75,048
    
    
    
    (6,308
    )
    
    
    -8.4
    %
    
    
    210,023
    
    
    
    218,450
    
    
    
    (8,427
    )
    
    
    -3.9
    %Operating income
    
    
    33,207
    
    
    
    17,557
    
    
    
    15,650
    
    
    
    89.1
    %
    
    
    97,000
    
    
    
    66,139
    
    
    
    30,861
    
    
    
    46.7
    %Royalty income
    
    
    961
    
    
    
    745
    
    
    
    216
    
    
    
    29.0
    %
    
    
    2,768
    
    
    
    3,576
    
    
    
    (808
    )
    
    
    -22.6
    %Interest income
    
    
    17
    
    
    
    203
    
    
    
    (186
    )
    
    
    -91.6
    %
    
    
    163
    
    
    
    555
    
    
    
    (392
    )
    
    
    -70.6
    %Interest expense
    
    
    (4,674
    )
    
    
    (6,168
    )
    
    
    (1,494
    )
    
    
    -24.2
    %
    
    
    (15,050
    )
    
    
    (21,044
    )
    
    
    (5,994
    )
    
    
    -28.5
    %Amortization of financing costs
    
    
    (4,395
    )
    
    
    (4,935
    )
    
    
    (540
    )
    
    
    -10.9
    %
    
    
    (12,350
    )
    
    
    (13,976
    )
    
    
    (1,626
    )
    
    
    -11.6
    %Gain on extinguishment of debt
    
    
    5,563
    
    
    
    
    
    
    
    (5,563
    )
    
    
    n/a
    
    
    
    10,125
    
    
    
    
    
    
    
    (10,125
    )
    
    
    n/aGain on sale of non-strategic assets
    
    
    17,446
    
    
    
    
    
    
    
    (17,446
    )
    
    
    n/a
    
    
    
    17,446
    
    
    
    
    
    
    
    (17,446
    )
    
    
    n/aOther (expense) income
    
    
    (341
    )
    
    
    (957
    )
    
    
    616
    
    
    
    -64.4
    %
    
    
    935
    
    
    
    973
    
    
    
    (38
    )
    
    
    -3.9
    %Income before taxes
    
    
    47,784
    
    
    
    6,445
    
    
    
    41,339
    
    
    
    641.4
    %
    
    
    101,037
    
    
    
    36,223
    
    
    
    64,814
    
    
    
    178.9
    %Provision for income taxes
    
    
    19,163
    
    
    
    2,940
    
    
    
    16,223
    
    
    
    551.8
    %
    
    
    38,471
    
    
    
    14,813
    
    
    
    23,658
    
    
    
    159.7
    %Net income
    
    $
    28,621
    
    
    $
    3,505
    
    
    $
    25,116
    
    
    
    716.6
    %
    
    $
    62,566
    
    
    $
    21,410
    
    
    $
    41,156
    
    
    
    192.2
    %
 Percent of Sales
    
    Percent of SalesFor the Three Months Ended
    
    For the Nine Months EndedOctober 3, 2009
    
    September 27, 2008
    
    October 3, 2009
    
    September 27, 2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    17.3
    %
    
    
    21.2
    %
    
    
    17.7
    %
    
    
    22.6
    %Gross profit
    
    
    82.7
    %
    
    
    78.8
    %
    
    
    82.3
    %
    
    
    77.4
    %Operating expensesMarketing and selling
    
    
    34.5
    %
    
    
    35.9
    %
    
    
    34.5
    %
    
    
    36.3
    %Research and development
    
    
    10.1
    %
    
    
    9.6
    %
    
    
    10.3
    %
    
    
    9.2
    %In-process research and development
    
    
    0.0
    %
    
    
    6.4
    %
    
    
    0.0
    %
    
    
    2.0
    %General and administrative
    
    
    8.5
    %
    
    
    8.3
    %
    
    
    8.8
    %
    
    
    8.3
    %Amortization of intangibles
    
    
    2.7
    %
    
    
    3.7
    %
    
    
    2.7
    %
    
    
    3.5
    %Total operating expenses
    
    
    55.8
    %
    
    
    63.9
    %
    
    
    56.3
    %
    
    
    59.4
    %Operating income
    
    
    26.9
    %
    
    
    14.9
    %
    
    
    26.0
    %
    
    
    18.0
    %Royalty income
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    1.0
    %Interest income
    
    
    0.0
    %
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    0.2
    %Interest expense
    
    
    -3.8
    %
    
    
    -5.3
    %
    
    
    -4.0
    %
    
    
    -5.7
    %Amortization of financing costs
    
    
    -3.6
    %
    
    
    -4.2
    %
    
    
    -3.3
    %
    
    
    -3.8
    %Gain on extinguishment of debt
    
    
    4.5
    %
    
    
    0.0
    %
    
    
    2.7
    %
    
    
    0.0
    %Gain on sale of non-strategic assets
    
    
    14.2
    %
    
    
    0.0
    %
    
    
    4.7
    %
    
    
    0.0
    %Other income
    
    
    -0.3
    %
    
    
    -0.8
    %
    
    
    0.3
    %
    
    
    0.3
    %Income before taxes
    
    
    38.8
    %
    
    
    5.5
    %
    
    
    27.1
    %
    
    
    9.9
    %Provision for income taxes
    
    
    15.6
    %
    
    
    2.5
    %
    
    
    10.3
    %
    
    
    4.0
    %Net income
    
    
    23.2
    %
    
    
    3.0
    %
    
    
    16.8
    %
    
    
    5.8
    %
 31




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##### Table of Contents



Comparison of the Three Months Ended October 3, 2009 to the Three Months Ended September 27, 2008
 Net sales.
 Mens health products. InhibiZone ®
 BPH therapy products. Greenlight ® Thermatrx ®
 Womens health products. Elevate ® Her Option ®
 Net sales by geography and foreign exchange effects.
 Gross profit.
 Marketing and selling.
 Research and development.
 32




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##### Table of Contents



In-process research and development.
 General and administrative.
 Amortization of intangibles. Thermatrx ® GreenLight PV ®
 Royalty income.
 Interest income.
 Interest expense. Debt
 Note 2, Recently Issued and Adopted Accounting Pronouncements
 Amortization of financing costs.
 Gain on extinguishment of debt
 Gain on sale of non-strategic assets
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##### Table of Contents



Other expense
 Provision for income taxes.
 Comparison of the Nine Months Ended October 3, 2009 to the Nine Months Ended September 27, 2008
 Net sales. Elevate ® MiniArc ® Single-Incision Sling Thermatrx ® Net sales
 Mens health products.
 BPH therapy products. ® Thermatrx ®
 Womens health products. Elevate ® MiniArc ® Her Option ®
 Net sales by geography and foreign exchange effects.
 34




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##### Table of Contents



Gross profit.
 Marketing and selling.
 Research and development.
 In-process research and development.
 General and administrative.
 Amortization of intangibles. Thermatrx ® GreenLight PV ®
 Royalty income.
 Interest income.
 Interest expense.
  35




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##### Table of Contents



Note 2,
Recently Issued and Adopted Accounting Pronouncements
 Amortization of financing costs.
 Gain on extinguishment of debt.
 Gain on sale of non-strategic assets
 Other income
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities. Note 9, Litigation Settlements)
 Cash flows from investing activities.
 36




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##### Table of Contents



Cash flows from financing activities. Debt
 2036 Notes.
    2041 Notes.
   37




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##### Table of Contents



2036 Notes and 2041 Notes  Potential Dilution
  If the average
    
    The number of common share equivalents potentiallymarket price of our stock is:
    
    included in the computation of diluted EPS would be (1):
    
    Percent Dilution (2)2036 Notes
    
    2041 Notes
    
    2036 Notes
    
    2041 Notes$19.00
    
    - (anti-dilutive)
    
    - (anti-dilutive)
    
    0.0%
    
    0.0%$20.00
    
    0.1 million
    
    0.4 million
    
    0.1%
    
    0.5%$25.00
    
    0.7 million
    
    2.9 million
    
    1.0%
    
    3.7%$30.00
    
    1.1 million
    
    4.5 million
    
    1.5%
    
    5.8%
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method(2)
    
    The percent dilution is based on 74,438,773 outstanding shares as of October 3, 2009.  Credit Facility.
 Note 9, Litigation Settlements Item 3. Quantitative and Qualitative
Disclosures About Market Risk, Credit Risk
  38




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##### Table of Contents



Note 10, Debt)
  Financial Covenant
    
    Required Covenant
    
    
    Actual ResultTotal Leverage Ratio (1)
    
    3.75:1.00 (maximum)
    
    
    2.72Senior Leverage Ratio (2)
    
    2.00:1.00 (maximum)
    
    
    0.89Interest Coverage Ratio (3)
    
    4.00:1.00 (minimum)
    
    
    7.95Fixed Charge Coverage Ratio (4)
    
    1.50:1.00 (minimum)
    
    
    2.67Maximum Capital Expenditures (5)
    
    $17.5 million
    
    $3.69 million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the
trailing four quarters.(3)
    
    Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to cash interest
expense for such period.(4)
    
    Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to fixed charges
(cash interest expense, scheduled principal payments on debt, capital expenditures,
income taxes paid, earn-out and milestone payments) for such period.(5)
    
    Limit of capital expenditures for the full year.   Note 10, Debt.
 Cash commitments.
  39




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##### Table of Contents



Additional Information
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 Forward-Looking Statements
    40




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##### Table of Contents



41




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rates
  Currency
    Credit Risk
    42




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##### Table of Contents



Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  43




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM IA. RISK FACTORS
  The impact of healthcare reform in the U.S. on us is uncertain.
  44




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##### Table of Contents



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing2.1
    
    Asset Purchase Agreement, dated as of
September 30, 2009, between American Medical
Systems, Inc. and Conceptus, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.4.1
    
    Form of Indenture for Senior Debt Securities.
    
    Incorporated by
reference to
Exhibit 4.2 of the
Companys Form S-3
filed on August 12,
2009 (File No.
333-161290).4.2
    
    Form of Senior Debt.
    
    Incorporated by
reference to
Exhibit 4.3 of the
Companys Form S-3
filed on August 12,
2009 (File No.
333-161290).4.3
    
    Form of Indenture for Subordinated Debt
Securities.
    
    Incorporated by
reference to
Exhibit 4.4 of the
Companys Form S-3
filed on August 12,
2009 (File No.
333-161290).4.4
    
    Form of Subordinated Debt Security.
    
    Incorporated by
reference to
Exhibit 4.5 of the
Companys Form S-3
filed on August 12,
2009 (File No.
333-161290).4.5
    
    Indenture, dated as of September 21, 2009,
between American Medical Systems Holdings,
Inc., the Subsidiary Guarantors (as defined
therein), and U.S. Bank National
Association, as trustee.
    
    Incorporated by
reference to
Exhibit 4.1 of the
Companys Form 8-K
filed on September
22, 2009 (File No.
000-30733).4.6
    
    Form of 4.00% Convertible Senior
Subordinated Note due 2041.
    
    Incorporated by
reference to
Exhibit 4.2 of the
Companys Form 8-K
filed on September
22, 2009 (File No.
000-30733).4.7
    
    Form of Subsidiary Guarantee entered into by
each of the Subsidiary Guarantors.
    
    Incorporated by
reference to
Exhibit 4.3 of the
Companys Form 8-K
filed on September
22, 2009 (File No.
000-30733).10.1
    
    Consent and Second Amendment to Credit and
Guaranty Agreement by and among American
Medical Systems, Inc., each of the other
Credit Parties which is a signatory thereto
and CIT Healthcare LLC.
    
    Incorporate by
reference to
Exhibit 99.1 of the
Companys Form 8-K
filed on August 14,
2009 (File No.
000-30733).10.2
    
    Employment Agreement, effective as of August
3, 2009, between Maximillian Fiore and
American Medical Systems, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.10.3
    
    Separation Agreement, dated June 9, 2009, by
and between Jan Dick and American Medical
Systems, Inc.
    
    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.
 45




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS
HOLDINGS, INCNovember 10, 2009
    By
    /s/  Anthony P. Bihl, IIIDate
    
    Anthony P. Bihl, IIIPresident and Chief Executive Officer
(Principal Executive Officer)November 10, 2009
    By
    /s/  Mark A. HeggestadDate
    
    Mark A. HeggestadExecutive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer) 46




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended October 3, 2009
 Item No.
    
    Item
    
    Method of Filing2.1
    
    Asset Purchase Agreement, dated as
of September 30, 2009, between
American Medical Systems, Inc. and
Conceptus, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.4.1
    
    Form of Indenture for Senior Debt
Securities.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form S-3 filed on
August 12, 2009 (File
No. 333-161290).4.2
    
    Form of Senior Debt.
    
    Incorporated by
reference to Exhibit
4.3 of the Companys
Form S-3 filed on
August 12, 2009 (File
No. 333-161290).4.3
    
    Form of Indenture for Subordinated
Debt Securities.
    
    Incorporated by
reference to Exhibit
4.4 of the Companys
Form S-3 filed on
August 12, 2009 (File
No. 333-161290).4.4
    
    Form of Subordinated Debt Security.
    
    Incorporated by
reference to Exhibit
4.5 of the Companys
Form S-3 filed on
August 12, 2009 (File
No. 333-161290).4.5
    
    Indenture, dated as of September 21,
2009, between American Medical
Systems Holdings, Inc., the
Subsidiary Guarantors (as defined
therein), and U.S. Bank National
Association, as trustee.
    
    Incorporated by
reference to Exhibit
4.1 of the Companys
Form 8-K filed on
September 22, 2009
(File No. 000-30733).4.6
    
    Form of 4.00% Convertible Senior
Subordinated Note due 2041.
    
    Incorporated by
reference to Exhibit
4.2 of the Companys
Form 8-K filed on
September 22, 2009
(File No. 000-30733).4.7
    
    Form of Subsidiary Guarantee entered
into by each of the Subsidiary
Guarantors.
    
    Incorporated by
reference to Exhibit
4.3 of the Companys
Form 8-K filed on
September 22, 2009
(File No. 000-30733).10.1
    
    Consent and Second Amendment to
Credit and Guaranty Agreement by and
among American Medical Systems,
Inc., each of the other Credit
Parties which is a signatory thereto
and CIT Healthcare LLC.
    
    Incorporate by
reference to Exhibit
99.1 of the Companys
Form 8-K filed on
August 14, 2009 (File
No. 000-30733).10.2
    
    Employment Agreement, effective as
of August 3, 2009, between
Maximillian Fiore and American
Medical Systems, Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.10.3
    
    Separation Agreement, dated June 9,
2009, by and between Jan Dick and
American Medical Systems, Inc.
    
    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.
 47