##### 



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

FORM 10-Q

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2001

or

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 30733

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

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 41-1978822
(I.R.S. Employer Identification No.)

|                                                                              |  |                 
|----------------------------------------------------------------------------- |  | ----------------
|10700 Bren Road West, Minnetonka, MN
(Address of principal executive offices) |  | 55343
(Zip Code)

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

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

[ X ] Yes
[   ] No

As of November 1, 2001, there were 31,904,426 shares of the registrants
$.01 par value Common Stock outstanding.



---



##### 



INDEX

|              |  |                                                                                                      |    |        
|------------- |  | ---------------------------------------------------------------------------------------------------- | -- | -------
|Part I.       |  | FINANCIAL INFORMATION                                                                                |    | Page(s)
|              |  |                                                                                                      |    |        
|Item 1.       |  | Financial Statements                                                                                 |    |        
|             
|              |  | Consolidated Balance Sheets as of September 29, 2001 (Unaudited)
and December 31, 2000               |    | 3      
|             
|              |  | Statements of Operations for the three and nine months ended
September 29, 2001 and 2000 (Unaudited) |    | 4      
|             
|              |  | Statements of Cash Flows for the nine months ended September 29,
2001 and 2000 (Unaudited)           |    | 5      
|             
|              |  | Notes to Consolidated Financial Statements (Unaudited)                                               |    | 6 - 10 
|             
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                |    | 11 - 18
|             
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                                           |    | 18     
|             
|Part II       |  | OTHER INFORMATION                                                                                    |    |        
|             
|Item 2.       |  | Changes in Securities and Use of Proceeds                                                            |    | 19     
|             
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                     |    | 19     
|             
|SIGNATURES    |  |                                                                                                      |    | 20     
|             
|EXHIBIT INDEX |  |                                                                                                      | 21

2



---



##### 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------------------------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                                                                                                                                                                                                                                              |                                  | September 29,             |         | December 31,
|Assets                                                                                                                                                                                                                                                        |                                  | 2001                      |         | 2000        
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |  
|                                                                                                                                                                                                                                                              |                                  |                           |         | (Unaudited)  |         |   |         |       
|Current assets:                                                                                                                                                                                                                                               |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Cash and cash equivalents        |                           | $       | 49,350       |         |   | $       | 12,165 |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Accounts receivable, net         |                           |         | 24,428       |         |   |         | 23,616 |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Inventories                      |                           |         | 13,218       |         |   |         | 9,674  |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Deferred taxes                   |                           |         | 5,124        |         |   |         | 4,366  |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Other current assets             |                           |         | 1,820        |         |   |         | 1,684  |        
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                              |                                  | Total current assets      |         |              | 93,940  |   |         |        | 51,505  | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Property, plant and equipment, net                                                                                                                                                                                                                            |                                  |                           | 23,598  |              |         |   | 24,773  |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Goodwill, net                                                                                                                                                                                                                                                 |                                  |                           | 78,539  |              |         |   | 70,810  |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Intangibles, net                                                                                                                                                                                                                                              |                                  |                           | 21,930  |              |         |   | 26,921  |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Deferred income taxes                                                                                                                                                                                                                                         |                                  |                           | 8,571   |              |         |   | 5,129   |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Investments and other assets                                                                                                                                                                                                                                  |                                  |                           | 6,801   |              |         |   | 2,124   |       
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                              |                                  | Total assets              |         | $            | 233,379 |   |         | $      | 181,262 | 
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|Liabilities and Stockholders Equity                                                                                                                                                                                                                          |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Current liabilities:                                                                                                                                                                                                                                          |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Accounts payable                 |                           | $       | 2,068        |         |   | $       | 2,431  |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Accrued compensation expenses    |                           |         | 14,275       |         |   |         | 13,306 |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Accrued warranty expense         |                           |         | 7,803        |         |   |         | 7,548  |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Other accrued expenses           |                           |         | 5,741        |         |   |         | 3,441  |        
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                              | Current portion of notes payable |                           |         | 4,909        |         |   |         | 6,033  |        
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                              |                                  | Total current liabilities |         |              | 34,796  |   |         |        | 32,759  | 
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Long-term notes payable                                                                                                                                                                                                                                       |                                  |                           | 24,000  |              |         |   | 38,459  |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Other long-term liabilities                                                                                                                                                                                                                                   |                                  |                           | 2,016   |              |         |   |        |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Minority interest                                                                                                                                                                                                                                             |                                  |                           |        |              |         |   | 521     |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Stockholders equity:                                                                                                                                                                                                                                         |                                  |                           |         |              |         |   |         |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Common stock, par value $.01 per share; authorized 95,000,000
shares; issued and outstanding 29,519,993 voting shares and
2,372,941 non-voting shares for September 29, 2001; 16,166,887
voting shares and 11,597,941 non-voting shares for December 31, 2000 |                                  |                           | 318     |              |         |   | 278     |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Additional paid-in capital                                                                                                                                                                                                                                    |                                  |                           | 194,194 |              |         |   | 135,449 |       
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Deferred compensation                                                                                                                                                                                                                                         |                                  |                           | (565    | )            |         |   | (996    | )     
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Accumulated other comprehensive loss                                                                                                                                                                                                                          |                                  |                           | (2,190  | )            |         |   | (1,073  | )     
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                             
|Accumulated deficit                                                                                                                                                                                                                                           |                                  |                           | (19,190 | )            |         |   | (24,135 | )     
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|Total stockholders equity                                                                                                                                                                                                                                    |                                  |                           | 172,567 |              |         |   | 109,523 |       
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       
|Total liabilities and stockholders equity                                                                                                                                                                                                                    |                                  | $                         | 233,379 |              |         | $ | 181,262 |       
|                                                                                                                                                                                                                                                              |                                  |                           |         |              |         |   |         |       

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

3



---



##### 



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.STATEMENTS OF OPERATIONS

(In thousands, except per share data)(Unaudited)

|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|--------------------------------- |  | ------------------ | ------ | ----------------- |  | ------------- | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                  |  | Three months ended |        | Nine months ended
|                                  |  |                    |        |                  
|                                  |  | September 29,      |        | September 30,     |  | September 29, |        | September 30,
|                                  |  | 2001               |        | 2000              |  | 2001          |        | 2000         
|                                  |  |                    |        |                   |  |               |        |              
|Net sales                         |  | $                  | 28,637 |                   |  | $             | 23,539 |               |  | $ | 84,623 |   |  | $ | 73,618 |  
|                                 
|                                 
|                                 
|                                 
|Cost of sales                     |  |                    | 5,438  |                   |  |               | 4,911  |               |  |   | 16,622 |   |  |   | 16,426 |  
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Gross profit                      |  |                    | 23,199 |                   |  |               | 18,628 |               |  |   | 68,001 |   |  |   | 57,192 |  
|                                 
|                                 
|                                 
|                                 
|Operating expenses:               |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|                                 
|                                 
|                                 
|                                 
|Marketing and sales               |  |                    | 10,732 |                   |  |               | 9,059  |               |  |   | 33,352 |   |  |   | 28,942 |  
|                                 
|                                 
|                                 
|                                 
|General and administrative        |  |                    | 2,646  |                   |  |               | 3,105  |               |  |   | 8,449  |   |  |   | 8,734  |  
|                                 
|                                 
|                                 
|                                 
|Research and development          |  |                    | 3,046  |                   |  |               | 3,021  |               |  |   | 9,127  |   |  |   | 9,014  |  
|                                 
|                                 
|                                 
|                                 
|Transition and reorganization     |  |                    | 1,000  |                   |  |               |       |               |  |   | 1,000  |   |  |   | 1,000  |  
|                                 
|                                 
|                                 
|                                 
|Amortization of intangibles       |  |                    | 2,356  |                   |  |               | 2,234  |               |  |   | 6,917  |   |  |   | 6,235  |  
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Total operating expenses          |  |                    | 19,780 |                   |  |               | 17,419 |               |  |   | 58,845 |   |  |   | 53,925 |  
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Operating income                  |  |                    | 3,419  |                   |  |               | 1,209  |               |  |   | 9,156  |   |  |   | 3,267  |  
|                                 
|                                 
|                                 
|                                 
|Royalty and other income          |  |                    | 692    |                   |  |               | 801    |               |  |   | 2,542  |   |  |   | 2,228  |  
|                                 
|                                 
|                                 
|                                 
|Interest expense, net             |  |                    | (369   | )                 |  |               | (1,823 | )             |  |   | (2,412 | ) |  |   | (5,904 | )
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Income (loss) before income
taxes |  |                    | 3,742  |                   |  |               | 187    |               |  |   | 9,286  |   |  |   | (409   | )
|                                 
|                                 
|                                 
|                                 
|Income tax expense                |  |                    | (1,735 | )                 |  |               | (535   | )             |  |   | (4,341 | ) |  |   | (495   | )
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Net income (loss)                 |  | $                  | 2,007  |                   |  |               | ($348  | )             |  | $ | 4,945  |   |  |   | ($904  | )
|                                  |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|Earnings per share:               |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|                                 
|                                 
|                                 
|                                 
|Basic                             |  | $                  | 0.06   |                   |  |               | ($0.02 | )             |  | $ | 0.17   |   |  |   | ($0.06 | )
|                                 
|                                 
|                                 
|                                 
|Diluted                           |  | $                  | 0.06   |                   |  |               | ($0.02 | )             |  | $ | 0.16   |   |  |   | ($0.06 | )
|                                 
|                                 
|                                 
|                                 
|Weighted average common
shares:   |  |                    |        |                   |  |               |        |               |  |   |        |   |  |   |        |  
|                                 
|                                 
|                                 
|                                 
|Basic                             |  |                    | 31,491 |                   |  |               | 14,056 |               |  |   | 29,101 |   |  |   | 14,056 |  
|                                 
|                                 
|                                 
|                                 
|Diluted                           |  |                    | 34,193 |                   |  |               | 14,056 |               |  |   | 31,631 |   |  |   | 14,056 |  

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

4



---



##### 



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.STATEMENTS OF CASH FLOWS

(In thousands, except share data)(Unaudited)

|                                                                                         |                        |                                                     |                                       |       |                           |        |               |       |         |        |  
|---------------------------------------------------------------------------------------- | ---------------------- | --------------------------------------------------- | ------------------------------------- | ----- | ------------------------- | ------ | ------------- | ----- | ------- | ------ | -
|                                                                                         |                        |                                                     |                                       |       | For the nine months ended
|                                                                                         |                        |                                                     |                                       |       |                          
|                                                                                         |                        |                                                     |                                       |       | September 29,             |        | September 30,
|                                                                                         |                        |                                                     |                                       |       | 2001                      |        | 2000         
|                                                                                         |                        |                                                     |                                       |       |                           |        |              
|Cash flows from operating activities:                                                    |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net income (loss)                                                                        |                        | $                                                   | 4,945                                 |       |                           |        | ($904         | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Depreciation                                        |                                       |       | 2,755                     |        |               |       | 2,817   |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Amortization of intangibles                         |                                       |       | 6,917                     |        |               |       | 6,251   |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Deferred financing costs                            |                                       |       | 203                       |        |               |       | 107     |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Noncash pension charge                              |                                       |       | 890                       |        |               |       | 1,295   |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Noncash deferred compensation                       |                                       |       | 344                       |        |               |       | 318     |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Noncash transition and reorganization               |                                       |       | 747                       |        |               |       |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Income tax benefit related to stock option plan     |                                       |       | 175                       |        |               |       |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Change in net deferred taxes                        |                                       |       | (882                      | )      |               |       | 726     |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Changes in operating assets and liabilities:        |                                       |       |                           |        |               |       |         |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        |                                                     | Accounts receivable                   |       |                           | (930   | )             |       |         | (1,836 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        |                                                     | Inventories                           |       |                           | (3,703 | )             |       |         | (98    | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        |                                                     | Accounts payable and accrued expenses |       |                           | 2,223  |               |       |         | (2,253 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        |                                                     | Other assets                          |       |                           | (311   | )             |       |         | 239    |  
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                         |                        | Net cash provided by operating activities           |                                       |       | 13,373                    |        |               |       | 6,662   |       
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Cash flows from investing activities:                                                    |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Purchase of property, plant and equipment           |                                       |       | (1,580                    | )      |               |       | (1,310  | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Purchase of business                                |                                       |       | (13,653                   | )      |               |       | (4,111  | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Purchase of investments in technology               |                                       |       | (4,500                    | )      |               |       |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Purchase of other intangibles                       |                                       |       |                          |        |               |       | (3,135  | )     
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                         |                        | Net cash used in investing activities               |                                       |       | (19,733                   | )      |               |       | (8,556  | )     
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Cash flows from financing activities:                                                    |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Issuance of common stock                            |                                       |       | 57,950                    |        |               |       | 63,306  |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Borrowings on long-term debt                        |                                       |       |                          |        |               |       | 4,700   |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                        | Payments on long-term debt                          |                                       |       | (15,583                   | )      |               |       | (60,000 | )     
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                         |                        | Net cash provided by (used in) financing activities |                                       |       | 42,367                    |        |               |       | 8,006   |       
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Effect of exchange rates                                                                 |                        |                                                     | 1,178                                 |       |                           |        | (944          | )    
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Net increase in cash and cash equivalents                                                |                        |                                                     | 37,185                                |       |                           |        | 5,168         |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cash and cash equivalents at beginning of period                                         |                        |                                                     | 12,165                                |       |                           |        | 6,940         |      
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Cash and cash equivalents at end of period                                               |                        | $                                                   | 49,350                                |       |                           | $      | 12,108        |      
|                                                                                         |                        |                                                     |                                       |       |                           |        |               |      
|Supplemental disclosure:                                                                 |                        |                                                     |                                       |       |                           |        |               |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Cash paid for interest |                                                     | $                                     | 2,744 |                           |        | $             | 6,331 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Cash paid for taxes    |                                                     | $                                     | 2,075 |                           |        | $             | 50    |        

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

5



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##### 



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

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

The consolidated interim financial statements presented herein as of September
29, 2001, and for the three and nine-month periods then ended, reflect, in the
opinion of management, all adjustments necessary for a fair presentation of
financial position and the results of operations and cash flows for the periods
presented. The results of operations for any interim period are not
necessarily indicative of results for the full year.

2. Organization

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

The consolidated financial statements include the accounts of American Medical
Systems Holdings, Inc. and its subsidiaries.

6



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3. Inventories

Inventories consist of the following (in thousands):

|                           |  |               |        |              |  |   |        |  
|-------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
|                           |  | September 29, |        | December 31,
|                           |  | 2001          |        | 2000        
|                           |  |               |        |             
|                           |  | (unaudited)   |        |              |  |  
|Raw materials              |  | $             | 3,400  |              |  | $ | 3,079  |  
|                          
|                          
|                          
|                          
|Work-in-process            |  |               | 1,968  |              |  |   | 2,699  |  
|                          
|                          
|                          
|                          
|Finished goods             |  |               | 10,622 |              |  |   | 7,036  |  
|                          
|                          
|                          
|                          
|Allowance for obsolescence |  |               | (2,772 | )            |  |   | (3,140 | )
|                           |  |               |        |              |  |   |        |  
|                           |  | $             | 13,218 |              |  | $ | 9,674  |  
|                           |  |               |        |              |  |   |        |  

4. Industry Segment Information

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

The Company distributes its products through its direct sales force in the United
States, Canada, and most of Europe and through distributors in other countries.
No one customer or distributor accounted for 10% or more of the Companys net
sales for the three or nine-month periods ended September 29, 2001, or
September 30, 2000.

Total export sales from the United States to unaffiliated entities (primarily
to Europe and payable in U.S. dollars) were $1,118,000 and $4,281,000 for the
three and nine-month periods ended September 29, 2001, respectively, compared
to $1,043,000 and $3,750,000 for the three and nine-month periods ended
September 30, 2000. Foreign subsidiary sales are predominantly from customers
in Western Europe. Substantially all of the Companys foreign subsidiary
assets are located in Western Europe.

At September 29, 2001 and December 31, 2000, consolidated accounts receivable
included $7,274,000 and $7,200,000 due from foreign customers.

5. Investment in Technology

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

7



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##### 



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

6. Adoption of Statement of Financial Standards No. 133

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

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

As of September 29, 2001, all of the Companys derivatives, designated as
hedges, are interest rate swaps which qualify for evaluation using the short
cut method for assessing effectiveness. As such, there is an assumption of no
ineffectiveness. The Company hedged a portion of its original $65.0 million
variable rate term note, as required by its senior credit facility, by entering
into an interest rate swap agreement in which the Company agrees to exchange,
at specified intervals, the calculated difference between the fixed interest
rate of the swap and the variable interest rate on a portion of its debt. This
interest rate swap agreement expires June 30, 2003. The Company expects that
pre-tax losses totaling approximately $1,152,000, which are recorded in OCI at
September 29, 2001 and represent the difference between the fixed rate of the
swap agreement and variable interest of the term note, will be recognized
within the next twelve months as part of interest expense. At September 29,
2001, the fair value of the interest rate swap, based upon quoted market prices
for contracts with similar maturities, was approximately $2,016,000. During
the nine-months ended September 29, 2001, unrealized net losses totaling
$1,707,000, after taxes, were recorded in OCI. Pre-tax realized losses of
$457,000 were transferred to interest expense.

8



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##### 



7. New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an
increase in net income of approximately $4.0 million ($0.10 to $0.12 per share)
starting in fiscal year 2002. During 2002, the Company will perform the first
of the required impairment tests of goodwill and indefinite lived intangible
assets as of December 30, 2001 and has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.

In August 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rule, a single accounting model is
established for long-lived assets to be disposed of by sale. In addition,
implementation issues are resolved in regards to previously issued statements.
The Company does not anticipate that the adoption of the new Statement will
have a significant effect on earnings or the financial position of the Company.

7. Change in Accounting Periods

Effective January 1, 2001, the Company changed its fiscal year end from a
calendar year ending on December 31 to a 52 or 53-week fiscal year ending on
the Saturday nearest December 31. Accordingly, the 2001 fiscal year will end
on December 29, 2001, whereas previous fiscal years ended on December 31. The
effect of this change was not material to the Companys financial condition or
results of operations. No report was filed to cover the transition period as
activity during this period was deemed to be immaterial. All fiscal quarters
will end on the Saturday nearest the end of the calendar quarter.

9



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##### 



8. Comprehensive Income (Loss)

Comprehensive income (loss) for the Company includes net income, changes in
value on derivative financial instruments, and foreign currency translation.
Comprehensive income for the nine-month period ended September 29, 2001 and
September 30, 2000, was as follows:

|                                                                                                                   |  |                    |       |                    |  |  |         |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | ------------------ |  |  | ------- | -
|                                                                                                                   |  | Nine Months Ended 
|                                                                                                                   |  |                   
|                                                                                                                   |  | September 29, 2001 |       | September 30, 2000
|                                                                                                                   |  |                    |       |                   
|Net income (loss)                                                                                                  |  | $                  | 4,945 |                    |  |  | ($904   | )
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Cumulative effect of change in
accounting principle for
derivative and hedging
activities (SFAS 133), net of
taxes |  |                    | (712  | )                  |  |  |        |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Net loss on derivative
financial instruments, net of
taxes                                                         |  |                    | (995  | )                  |  |  |        |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Amounts reclassified to
interest expense during the
period from derivative and
hedging activities, net of
taxes    |  |                    | 457   |                    |  |  |        |  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Foreign currency translation
adjustments                                                                           |  |                    | 133   |                    |  |  | (389    | )
|                                                                                                                   |  |                    |       |                    |  |  |         |  
|Comprehensive income (loss)                                                                                        |  | $                  | 3,828 |                    |  |  | ($1,293 | )
|                                                                                                                   |  |                    |       |                    |  |  |         |  

10



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

The following is a discussion of the results of operations and financial
condition for the three and nine-month periods ended September 29, 2001,
compared with the three and nine-month periods ended September 30, 2000, and
should be read in conjunction with the Companys Consolidated Financial
Statements and Notes thereto.

Results of Operations

Three Months Through September 29, 2001 Compared to the Three Months Through September 30, 2000

Net Sales

Net sales increased $5.1 million, or 21.7%, from $23.5 million in the third
quarter of 2000 to $28.6 million in the third quarter of 2001. Incontinence
sales increased 19% due to greater penetration of existing products and the
launch of the Male Sling and SPARC products. Erectile dysfunction sales
increased 25.7% compared to 2000 due to volume increases, the launch of
Inhibizone, and selected price increases. Prostate disease products sales
increased 8.6% in the third quarter of 2001 versus the same period in 2000 due
to both volume and price increases.

Sales in the United States increased $4.8 million, or 24.1%, from $19.7 million
in the third quarter of 2000 to $24.5 million in the same period in 2001. This
increase is attributable to higher sales in all product lines resulting from
volume increases, price increases and the launch of Inhibizone and SPARC.

Foreign sales increased $350,000, or 9.2%, from $3.8 million in the third
quarter of 2000 to $4.2 million in the same period in 2001. Higher sales were
recorded in the incontinence and erectile dysfunction product lines. The net
increase in sales was negatively impacted by currency translation of
approximately $154,000 in the third quarter of 2001 versus the same period in
2000.

Cost of Goods Sold

Cost of goods sold in the period increased to approximately 10.3% of the sales
increase from the comparable period last year as a result of higher labor and
raw materials costs to support the higher volume production.

Operating Expenses

Marketing and selling costs increased $1.7 million, or 18.5%, from $9.0 million
in the third quarter of 2000 to $10.7 million in the same period in 2001. These
cost increases are partially attributable to a $370,000 increase in sales
commissions supporting the increase in sales and marketing and sales expenses
associated with training programs, strategy and promotional activities
supporting recently launched new products.

11



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General and administrative costs decreased $459,000 or 14.7%, from $3.1 million
in the third quarter of 2000 versus $2.6 million in the same period in 2000.
Most of this decrease is attributable to a $350,000 reduction in legal expense
due to the settlement of certain litigation with Boston Scientific Corporation
and reduced expenditures on information technology activities.

In the third quarter of 2001, an assessment was completed of management
personnel needs. Transition and reorganization costs of $1.0 million were recorded for
employee termination costs.

Amortization of intangibles increased $122,000, or 5.5%, from $2.2 million in
the third quarter of 2000 to $2.4 million in the same period in 2001. The
increase is attributable to additional amortization of intangibles related to
milestone payments and contingent purchase price payments made throughout 2000
and early 2001 in conjunction with the Influence acquisition.

Royalty and Other Income

We license our stent delivery technology to a former subsidiary of Pfizer for
medical use outside of the urology field. Receipts from this royalty license
are based on sales of applicable products and are variable. We entered into
this agreement in September 1998 in connection with our acquisition from
Pfizer. All of our royalty income is from this license.

Interest Expense

Net interest expense decreased from 2000 because average borrowings under notes payable
were $36.4 million lower in the third quarter of 2001 than the comparable
period in 2000. Interest income was $450,000 in 2001 due to investment of
receipts from our follow-on common stock offering completed in July 2001.
Interest income was $230,000 in 2000 due to the investment of receipts from our
initial public offering completed in August 2000.

Income Tax Expense

Income tax expense increased $1.2 million in the third quarter of 2001 compared
to the same period in 2000 as income before income taxes in 2001 was $3.7
million compared to income before income taxes of $187,000 in 2000. Effective
tax rate comparisons between periods are not meaningful, as permanent
non-deductible expenses are abnormally high in comparison to income before
income taxes in both 2001 and 2000.

Net Income (Loss)

Net income was $2.0 million in the third quarter of 2001, versus a net loss of
$348,000 in the same period in 2000. The increase in net income resulted from
the increase in revenues described above while maintaining control over our
operating costs.

12



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##### 



Nine Months Through September 29, 2001 Compared to the Nine Months Through
September 30, 2000

Net sales

Net sales increased $11.0 million, or 14.9%, from $73.6 million in the first
nine months of 2000 to $84.6 million in the first nine months of 2001. Of this
increase, 56.3%, or $6.2 million, was attributable to growth across all the
major products within our incontinence product line.

Incontinence sales increased 20.1% due to greater penetration of existing products and
the launch of the Male Sling and SPARC products. Erectile dysfunction sales
increased 12.1% due to volume increases, the launch of Inhibizone, and selected
price increases. Prostate disease products sales increased 4.6% in the first
nine months of 2001 versus the same period in 2000.

Sales in the United States increased $10.4 million from $59.8 million in the
first nine months of 2000 to $70.2 million in the first nine months of 2001. Of
this increase, $5.5 million was attributable to increased sales of incontinence
products and $4.8 million from increased sales of erectile dysfunction
products.

Foreign sales increased $622,000 from $13.8 million in the first nine months of
2000 to $14.5 million in the first nine months of 2001. The net increase in
foreign sales was negatively impacted by currency translation of approximately
$692,000 in the first nine months of 2001 versus the same period in 2000.
Increased sales on incontinence products along with sales from the recently
launched SPARC sling system and Prostaject were offset by slightly lower sales
of erectile disfunction products.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales decreased from 22.3% in the
first nine months of 2000 to 19.6% in the same period in 2001. Cost of sales in
2001 benefited from higher volumes of production to support higher sales while
producing in a relatively fixed-cost manufacturing plant.

Operating Expenses

Marketing and selling costs increased $4.4 million, or 15.2%, from $28.9
million in the first nine months of 2000 to $33.4 million in the same period in
2001. These cost increases are partially attributable to a $1.1 million
increase in sales commissions supporting the increase in sales and marketing
and sales expenses associated with training programs and materials, promotional
literature and advertising necessary to launch new products.

General and administrative costs decreased $285,000, or 3.3%, from $8.7 million
in the first nine months of 2000 to $8.4 million in the same period in 2001.
Most of this decrease is attributable to lower spending in information
technology and legal activities. Offsetting these decreases were severance and
retention costs for Israeli employees which were approximately $300,000 in
2001.

13



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In the first nine months of 2000 and 2001 assessments were completed of
management personnel needs. Transition and reorganization costs of $1.0
million were incurred for employee termination benefits.

Amortization of intangibles increased $682,000, or 10.9%, from $6.2 million in
the first nine months of 2000 to $6.9 million in the same period in 2001. The
increase is attributable to additional amortization of intangibles related to
milestone payments and contingent purchase price payments following the
Influence acquisition. Substantially all potential milestone payments and all
contingent purchase price payments relating to the Influence acquisition have
been made.

Royalty and Other Income

We license our stent delivery technology to a former subsidiary of Pfizer for
medical use outside of the urology field. Receipts from this royalty license
are base on sales of applicable products and are variable. We entered
into this agreement in September 1998 in connection with our acquisition from
Pfizer. All of our royalty income is from this license.

Royalty and other income increased $314,000 in 2001 compared to 2000. The
increase is mainly due to a non-recurring payment of $375,000 we received in
2001 representing reimbursement to resolve a quality issue with a materials
suppler dating back to the fourth quarter of 1999. Exclusive of this payment,
royalty and other income decreased $61,000 or 2.7%.

Interest Expense

Net interest expense decreased for 2001 because average borrowings under notes
payable were $52.1 million lower in 2001 than the comparable period in 2000. A
portion of the benefit from lower borrowing levels was offset by higher
interest rates, as our debt is no longer guaranteed by a major shareholder.
Interest income was $550,000 in 2001 due to investment of receipts from our
follow-on common stock offering completed in July 2001. Interest income was
$265,000 in 2000 due to the investment of receipts from our initial public
offering completed in August 2000.

Income Tax Benefit

Income tax expense increased $3.8 million in the first nine months of 2001
compared to the same period in 2000 as income before income taxes in 2001 was
$9.3 million compared to a loss before income tax benefits of $409,000 in 2000.
Effective tax rate comparisons between 2000 and 2001 are not meaningful as
permanent non-deductible expenses are abnormally high in comparison to income
(loss) before income taxes in both 2000 and 2001.

Net Income (Loss)

Net income was $4.9 million in the first nine months of 2001, versus a net loss
of $904,000 in the same period in 2000. The increase in net income resulted
from the increase in revenues described above while maintaining control over
our operating costs.

14



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Liquidity and Capital Resources

Cash and cash equivalents were $49.4 million as of September 29, 2001 as
compared to $12.2 million as of December 31, 2000. The net increase in cash
and cash equivalents is due to cash flows provided by operation and financing
activities and partially offset by investing activities as described below.

Cash flows from operating activities

In the first nine months of 2001, our operations provided $13.4 million of cash
as compared to $6.7 million in the first nine months of 2000. Our net income
plus depreciation and amortization of intangibles provided $14.6 million of
cash in the first nine months of 2001 versus $8.2 million in the first nine
months of 2000. We incurred a non-cash expense of $747,000 due to the
acceleration of stock option vesting for a terminated employee. Our income tax
expense of $4.3 million in 2001 was partially offset by tax loss carryforwards
included in deferred tax assets. In the first nine months of 2001, accounts
receivable and inventories increased $4.6 million due to higher sales in the
first half of 2001 and inventories being built to support product rollouts in
the last half of 2001. Accounts payable and accrued expenses increased $2.2
million in the first nine months of 2001 due to higher payable levels related
to higher inventory levels and increased compensation accruals for bonuses,
commissions, and pension liability.

Cash flows from investing activities

In an effort to secure a more dependable supply of cadaveric dermis tissue, on
January 5, 2001, we made a $3.0 million equity investment in Collagenesis Corp.
At the time of the investment, Collagenesis was working with its existing debt
holders to exchange its outstanding debt into equity and raise additional
capital. Pursuant to the terms of our agreement with Collagenesis, we converted
our equity position into a $3.0 million 10% Senior Subordinated Convertible
Voting Promissory Note in April 2001. Each quarter we review the long-term
viability of investments. Generally accepted accounting principles require that
investments, such as our investment in Collagenesis, be reviewed for
impairment whenever events or circumstances indicate the carrying amount of an
asset may not be recoverable. We consider Collagenesiss inability to raise
additional capital and exchange its debt for equity an event requiring such a
review. Based on our review, we are uncertain of the probability or possible
amount of impairment, if any, in our Collagenesis investment. Accordingly, we
are currently carrying our Collagenesis investment at cost.

Through issuance of common stock valued at $3.2 million, we purchased the
interest of a minority shareholder from the Influence acquisition. In the
first nine months of 2001, we paid additional contingent purchase price
payments and milestone payments of $10.9 million relating to the acquisition of
Influence. We made a $1.5 million milestone payment to InjecTx.

Cash flows from financing activities

In the first nine months of 2001, we received $902,000 from issuance of common
stock related to our Employee Stock Purchase Plan and exercise of options
issued under our Equity Incentive Plan.

15



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##### 



On July 2, 2001, we received approximately $54.0 million in net proceeds
related to the completion of a follow-on public stock offering, in which we
sold 3,500,000 shares of common stock, and Warburg Pincus, our principal
shareholder, sold 3,500,000 shares. With these proceeds, we made an approximate
$11.5 million prepayment on our term debt under our senior credit facility. On
March 30, June 29, 2001 and September 28, 2001 we made quarterly principal
payments of $1.5 million, $1.5 million and $1.1 million, respectively, on our
senior credit facility. The term note now requires quarterly principal
payments of $1.1 million through March 2002, $1.4 million from June 2002
through March 2003, $1.6 million from June 2003 through March 2004 and $1.8
million from June 2004 through March 2006. We continue to maintain a $15.0
million revolving line of credit.

Cash commitments

On January 1, 2002 we plan to terminate the AMS Retirement Annuity Plan and
expect to distribute the plans assets to participants in the first quarter
2002. We expect to make an approximate $4.3 million additional cash payment to
the plan prior to distribution of the assets. The ultimate amount of this
additional cash payment is dependent upon the 30-year Treasury Rate and the
prevailing annuity purchase rate on November 20, 2001. We further expect to
record a net pre-tax gain of approximately $2.1 million as other income in the
first quarter of 2002 due to plan termination.

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

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

Acquired In-Process Research and Development

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

The InVance Male Sling System, a male sling fixation system has been released
into the market. Product development and market release is currently on hold
for the TransFix Sutureless Sling Fixation System, a pull-in anchoring system
that is sutureless; No-Tac, a next generation female sling system that does not
require a bone screw in the pubic bone; Flast, a device to harvest human fascia
lata tissue for sling procedures; and Clip-In, a clip around the suture in
place of a knot.

NexTus is a soft tissue-anchoring device. We received 510(k) clearance for this
device in the second quarter of 2001. We are now clinically evaluating the
product with a select physician

16



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##### 



group. Our launch plans will depend on both the clinical success with the
product and our ability to manufacture the product economically.

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

Certain Important Factors

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

Successful Introduction of New Products and Product Improvements

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

Continued Use of Non-Invasive Treatment Alternatives

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

Continued Physician Use and Endorsement of our Products

In order for us to sell our products, physicians must recommend and endorse
them. We may not obtain the necessary recommendations or endorsements from
physicians. Many of the products we recently acquired or are developing are
based on new treatment methods. Acceptance of our products is dependent on
educating the medical community as to the distinctive characteristics,
perceived benefits, clinical efficacy and cost-effectiveness of our products
compared to competitive products, and on training physicians in the proper
application of our products.

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Increased Supply of Sling Material

We provide human cadaveric tissue as a service in conjunction with the sale of
our sling procedure kits for urinary incontinence. Currently, the available
supply of human tissue is not predictable and consistent. If our supply proves
inadequate, or we are unable to purchase enough dermal tissue, sales of our
sling procedure kits could decline.

Increasing Growth of the Penile Implant Market

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

Actions Related to Reimbursement for our Products

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

Potential Product Recalls

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Hedging and Currency Fluctuations

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

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

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PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

Recent Sales of Unregistered Securities.

Pursuant to an Exchange Agreement the Company entered into in December 1999 in
connection with its acquisition of Influence, Inc., the Company issued 211,352
shares of its voting common stock, $0.01 par value per share, on September 26,
2001, to a former shareholder of Influence in exchange for 225,000 shares of
the common stock of Influence, par value $0.001 per share, which the former
shareholder retained in the acquisition of Influence. The shares were issued
in a transaction exemption from registration under the Securities Act of 1933,
as amended (the Act) pursuant to Section 4(2) of the Act.

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

|    |  |                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits:                                                                                                              
|   
|    |  | The exhibits to this Quarterly Report on Form 10-Q are listed
in the Exhibit Index beginning on page 21 of this Report.
|   
|(b) |  | Reports on Form 8-K:                                                                                                   
|   
|    |  | No report on Form 8-K was filed by the Company during the quarter
ended September 29, 2001.                            

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SIGNATURES

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

|                      |  |    |  |                                                                                                                                 
|--------------------- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------
|                      |  |    |  | AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC.                                                                                         
|                     
|November 13, 2001Date |  | By |  | /s/ Douglas W. KohrsDouglas W. Kohrs
Chief Executive Officer                                                                    
|                     
|November 13, 2001Date |  | By |  | /s/ M. James CallM. James Call
Executive Vice-President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)

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|Item No. |  | Description                                |  | Method of Filing              
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|3.2      |  | Bylaws, as amended through January 1, 2001 |  | Filed herewith electronically.