##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended July 2, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to
 Commission
File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
 
   þ o
  þ o




---



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Balance Sheets as of July 2, 2005 and January 1, 2005
    
    3Consolidated Statements of Operations for the three and six month periods ended July 2, 2005 and July 3, 2004
    
    4Consolidated Statements of Cash Flow for the six month periods ended July 2, 2005 and July 3, 2004
    
    5Notes to Consolidated Financial Statements
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    12ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    20ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    21PART II
    
    OTHER INFORMATIONITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    22ITEM 5.
    
    OTHER INFORMATION
    
    22ITEM 6.
    
    EXHIBITS
    
    24SIGNATURES
    
    25EXHIBIT INDEX
    
    26Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 July 2, 2005
    
    
    January 1, 2005(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    46,433
    
    
    $
    35,689Short term investments
    
    
    16,063
    
    
    
    15,479Accounts receivable, net
    
    
    45,695
    
    
    
    46,984Inventories, net
    
    
    19,785
    
    
    
    21,719Deferred income taxes
    
    
    5,198
    
    
    
    4,855Other current assets
    
    
    5,668
    
    
    
    3,101Total current assets
    
    
    138,842
    
    
    
    127,827Property, plant and equipment, net
    
    
    22,277
    
    
    
    22,065Goodwill, net
    
    
    125,324
    
    
    
    102,365Intangibles, net
    
    
    41,823
    
    
    
    44,792Deferred income taxes
    
    
    2,598
    
    
    
    2,911Investment in technology and other assets
    
    
    767
    
    
    
    590Total assets
    
    $
    331,631
    
    
    $
    300,550Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    4,769
    
    
    $
    4,237Accrued compensation expenses
    
    
    9,578
    
    
    
    10,783Accrued warranty expense
    
    
    1,480
    
    
    
    1,451Income taxes payable
    
    
    
    
    
    
    2,982Other accrued expenses
    
    
    29,037
    
    
    
    8,835Contingent liability on acquisition
    
    
    
    
    
    
    19,964Total current liabilities
    
    
    44,864
    
    
    
    48,252Accumulated post retirement benefit obligation
    
    
    3,126
    
    
    
    3,126Total liabilities
    
    
    47,990
    
    
    
    51,378Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding: 69,194,957 shares at July 2, 2005
and 67,478,544 shares at January 1, 2005
    
    
    692
    
    
    
    675Additional paid-in capital
    
    
    223,626
    
    
    
    210,163Accumulated other comprehensive income
    
    
    2,862
    
    
    
    5,123Retained earnings
    
    
    56,461
    
    
    
    33,211Total stockholders equity
    
    
    283,641
    
    
    
    249,172Total liabilities and stockholders equity
    
    $
    331,631
    
    
    $
    300,550
 The accompanying notes are an integral part of the consolidated financial statements.
 3




---



##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedJuly 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004Net sales
    
    $
    65,637
    
    
    $
    49,093
    
    
    $
    127,782
    
    
    $
    96,406Cost of sales
    
    
    11,954
    
    
    
    9,047
    
    
    
    22,974
    
    
    
    17,977Gross profit
    
    
    53,683
    
    
    
    40,046
    
    
    
    104,808
    
    
    
    78,429Operating expensesMarketing and selling
    
    
    23,494
    
    
    
    17,250
    
    
    
    45,150
    
    
    
    33,743Research and development
    
    
    4,866
    
    
    
    3,577
    
    
    
    9,504
    
    
    
    7,161General and administrative
    
    
    5,207
    
    
    
    5,210
    
    
    
    10,996
    
    
    
    10,086Amortization of intangibles
    
    
    1,948
    
    
    
    1,058
    
    
    
    3,738
    
    
    
    2,119Total operating expenses
    
    
    35,515
    
    
    
    27,095
    
    
    
    69,388
    
    
    
    53,109Operating income
    
    
    18,168
    
    
    
    12,951
    
    
    
    35,420
    
    
    
    25,320Other income (expense)Royalty income
    
    
    508
    
    
    
    430
    
    
    
    986
    
    
    
    921Interest income
    
    
    361
    
    
    
    172
    
    
    
    635
    
    
    
    310Interest expense
    
    
    (41
    )
    
    
    (248
    )
    
    
    (96
    )
    
    
    (449
    )Other expense
    
    
    (613
    )
    
    
    (31
    )
    
    
    (1,077
    )
    
    
    (187
    )Total other income
    
    
    215
    
    
    
    323
    
    
    
    448
    
    
    
    595Income before income taxes
    
    
    18,383
    
    
    
    13,274
    
    
    
    35,868
    
    
    
    25,915Provision for income taxes
    
    
    6,376
    
    
    
    4,845
    
    
    
    12,619
    
    
    
    9,459Net income
    
    $
    12,007
    
    
    $
    8,429
    
    
    $
    23,249
    
    
    $
    16,456Net income per shareBasic
    
    $
    0.17
    
    
    $
    0.13
    
    
    $
    0.34
    
    
    $
    0.25Diluted
    
    $
    0.17
    
    
    $
    0.12
    
    
    $
    0.33
    
    
    $
    0.24Weighted average common shares outstandingBasic
    
    
    68,972
    
    
    
    66,768
    
    
    
    68,437
    
    
    
    66,626Diluted
    
    
    71,327
    
    
    
    70,074
    
    
    
    71,449
    
    
    
    70,008
 The accompanying notes are an integral part of the consolidated financial statements.
 4




---



##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Condensed Statements of Cash Flow
 Six Months EndedJuly 2, 2005
    
    
    July 3, 2004Cash flows from operating activitiesNet income
    
    $
    23,249
    
    
    $
    16,456Adjustments to reconcile net income to
net cash provided by operating activitiesDepreciation
    
    
    2,899
    
    
    
    3,466Loss (gain) on asset disposals
    
    
    45
    
    
    
    (5
    )Amortization of intangibles, including deferred financing costs
    
    
    3,738
    
    
    
    2,231Non-cash deferred compensation
    
    

    10
    
    
    
    3Income tax benefit related to stock options
    
    
    3,220
    
    
    
    1,294Change in net deferred taxes
    
    
    159
    
    
    
    (618
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (166
    )
    
    
    (3,693
    )Inventories
    
    
    1,601
    
    
    
    704Accounts payable and accrued expenses
    
    
    (3,163
    )
    
    
    (1,866
    )Other assets
    
    
    (3,372
    )
    
    
    727Net cash provided by operating activities
    
    
    28,220
    
    
    
    18,699Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (3,211
    )
    
    
    (1,443
    )Purchase of business
    
    
    (24,053
    )
    
    
    Purchase of license agreement
    
    
    (770
    )
    
    
    Purchase of short term investments
    
    
    (30,338
    )
    
    
    (11,349
    )Sale of short term investments
    
    
    29,757
    
    
    
    Net cash used in investing activities
    
    
    (28,615
    )
    
    
    (12,792
    )Cash flows from financing activitiesIssuance of common stock
    
    
    10,249
    
    
    
    4,590Payments on long-term debt
    
    
    
    
    
    
    (3,478
    )Net cash provided by financing activities
    
    
    10,249
    
    
    
    1,112Effect of currency exchange rates on cash
    
    
    890
    
    
    
    (81
    )Net increase in cash and cash equivalents
    
    
    10,744
    
    
    
    6,938Cash and cash equivalents at beginning of period
    
    
    35,689
    
    
    
    58,953Cash and cash equivalents at end of period
    
    $
    46,433
    
    
    $
    65,891Supplemental disclosureCash paid for interest
    
    $
    0
    
    
    $
    299Cash paid for income taxes
    
    $
    11,520
    
    
    $
    9,820
 The accompanying notes are an integral part of the consolidated financial statements.
 5




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. Basis of Presentation
     NOTE 2. Stock-Based Compensation
 Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
 Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004Net income, as reported
    
    $
    12,007
    
    
    $
    8,429
    
    
    $
    23,249
    
    
    $
    16,456Stock-based employee compensation expense
included in reported income, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Total stock-based employee compensation
expense determined under fair-value based
method for all awards, net of tax
    
    
    (1,789
    )
    
    
    (1,019
    )
    
    
    (3,255
    )
    
    
    (1,835
    )Pro forma net income
    
    $
    10,218
    
    
    $
    7,410
    
    
    $
    19,994
    
    
    $
    14,636Net income per shareAs reportedBasic
    
    $
    0.17
    
    
    $
    0.13
    
    
    $
    0.34
    
    
    $
    0.25Diluted
    
    $
    0.17
    
    
    $
    0.12
    
    
    $
    0.33
    
    
    $
    0.24Pro formaBasic
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.28
    
    
    $
    0.22Diluted
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.20
 6




---



##### Table of Contents



NOTE 3. Earnings per Share
  Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004Net income
    
    $
    12,007
    
    
    $
    8,429
    
    
    $
    23,249
    
    
    $
    16,456Weighted-average shares
outstanding for basic net income per share
    
    
    68,972
    
    
    
    66,768
    
    
    
    68,437
    
    
    
    66,626Dilutive effect of stock options
    
    
    2,355
    
    
    
    3,306
    
    
    
    3,012
    
    
    
    3,382Adjusted weighted-average
shares outstanding and assumed
conversions for diluted net
income per share
    
    
    71,327
    
    
    
    70,074
    
    
    
    71,449
    
    
    
    70,008Net income per shareBasic
    
    $
    0.17
    
    
    $
    0.13
    
    
    $
    0.34
    
    
    $
    0.25Diluted
    
    $
    0.17
    
    
    $
    0.12
    
    
    $
    0.33
    
    
    $
    0.24
  NOTE 4. Inventories
  (in thousands)
    
    July 2, 2005
    
    
    January 1, 2005Raw materials
    
    $
    4,841
    
    
    $
    5,191Work in process
    
    
    2,830
    
    
    
    2,405Finished goods
    
    
    13,974
    
    
    
    15,866Obsolescence reserves
    
    
    (1,860
    )
    
    
    (1,743
    )Net inventories
    
    $
    19,785
    
    
    $
    21,719
 NOTE 5. Warranties
  Six Months Ended(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004Balance, beginning of period
    
    $
    1,451
    
    
    $
    1,338Provisions for warranty
    
    
    151
    
    
    
    147Claims processed
    
    
    (122
    )
    
    
    (166
    )Balance, end of period
    
    $
    1,480
    
    
    $
    1,319
 NOTE 6. Acquisition
  TherMatrx Dose Optimized Thermotherapy
 7




---



##### Table of Contents



(in thousands)
    
    AmountDeveloped technology, customer relationships and other intangible assets
    
    $
    31,000In-process research and development
    
    
    35,000Tangible assets acquired, net of liabilities assumed
    
    
    5,721Deferred tax liability on assets acquired
    
    
    (8,446
    )Goodwill
    
    
    24,491Purchase price, including earned contingent payments accrued through July 2, 2005
    
    $
    87,766
    Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004Revenue
    
    $
    65,637
    
    
    $
    53,882
    
    
    $
    127,782
    
    
    $
    106,113Net income
    
    $
    12,007
    
    
    $
    9,777
    
    
    $
    23,249
    
    
    $
    18,272Earnings per shareBasic
    
    $
    0.17
    
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Diluted
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.33
    
    
    $
    0.26
  NOTE 7 Subsequent Event
  8




---



##### Table of Contents



Ovion Ovion
 NOTE 8 Recent Accounting Pronouncements
 Inventory Costs Inventory Pricing.
 Share-based Payment Notes to Consolidated Financial Statements  No. 2.
  1.
    
    Modified Prospective Method under which compensation cost is recognized beginning with
the effective date (a) based on the requirements of SFAS 123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS 123 for
all awards granted to employees prior to the effective date of SFAS 123(R) that remain
unvested on the effective date.2.
    
    Modified Retrospective Method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either
(a) all prior periods presented or (b) prior interim periods of the year of adoption.
  9




---



##### Table of Contents



NOTE 9. Comprehensive Income
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004Net income
    
    $
    12,007
    
    
    $
    8,429
    
    
    $
    23,249
    
    
    $
    16,456Foreign currency translation (loss), net of taxes
    
    
    (1,315
    )
    
    
    (362
    )
    
    
    (2,261
    )
    
    
    (783
    )Comprehensive income
    
    $
    10,692
    
    
    $
    8,067
    
    
    $
    20,988
    
    
    $
    15,673
 NOTE 10. Industry Segment Information and Foreign Operations
    Three Months Ended and Period Ending
    
    
    Six Months Ended and Period Ending(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    July 2, 2005
    
    
    July 3, 2004United StatesNet sales
    
    $
    50,737
    
    
    $
    37,643
    
    
    $
    99,070
    
    
    $
    74,241Long-lived assets
    
    $
    175,545
    
    
    $
    130,685
    
    
    $
    175,545
    
    
    $
    130,685Outside United StatesNet sales
    
    $
    14,900
    
    
    $
    11,450
    
    
    $
    28,712
    
    
    $
    22,165Long-lived assets
    
    $
    14,646
    
    
    $
    12,250
    
    
    $
    14,646
    
    
    $
    12,250
 NOTE 11. Goodwill and Intangible Assets
  Six Months EndedJuly 2, 2005Goodwill, beginning of the year, net
    
    $
    102,365Additions
    
    
    24,491Effect of currency translation
    
    
    (1,532
    )Goodwill, end of second quarter, net
    
    $
    125,324
 Notes to Consolidated Financial Statements 
No. 6.
 10




---



##### Table of Contents



July 2, 2005
    
    
    January 1, 2005Gross carrying
    
    
    Accumulated
    
    
    Net book
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Net book(in thousands)
    
    amount
    
    
    amortization
    
    
    value
    
    
    amount
    
    
    amortization
    
    
    valueAmortizedPatents
    
    $
    10,127
    
    
    
    ($7,145
    )
    
    $
    2,983
    
    
    $
    10,127
    
    
    
    ($6,581
    )
    
    $
    3,546Licenses
    
    
    6,061
    
    
    
    (2,547
    )
    
    
    3,513
    
    
    
    5,291
    
    
    
    (1,529
    )
    
    
    3,762Deferred financing
    
    
    1,611
    
    
    
    (1,611
    )
    
    
    
    
    
    
    1,611
    
    
    
    (1,611
    )
    
    
    Developed technology
    
    
    48,853
    
    
    
    (15,297
    )
    
    
    33,556
    
    
    
    48,853
    
    
    
    (13,140
    )
    
    
    35,713Non-compete agreements
    
    
    1,111
    
    
    
    (1,111
    )
    
    
    
    
    
    
    1,111
    
    
    
    (1,111
    )
    
    
    Total
amortized intangible assets
    
    
    67,763
    
    
    
    (27,711
    )
    
    
    40,052
    
    
    
    66,993
    
    
    
    (23,972
    )
    
    
    43,021Unamortized
Trademarks
    
    
    2,233
    
    
    
    (462
    )
    
    
    1,771
    
    
    
    2,233
    
    
    
    (462
    )
    
    
    1,771Total intangible assets
    
    $
    69,996
    
    
    
    ($28,173
    )
    
    $
    41,823
    
    
    $
    69,226
    
    
    
    ($24,434
    )
    
    $
    44,792
 Three Months Ended
    
    
    
    
    
    
    Six Months Ended(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    
    
    
    
    July 2, 2005
    
    
    July 3, 2004Amortization expense
    
    $
    1,948
    
    
    $
    1,058
    
    
    
    
    
    
    $
    3,738
    
    
    $
    2,119
  NOTE 12. Credit Agreement
    Credit facilityCovenant
    
    requirements
    
    ActualLeverage ratio
    
    < 2.75 to 1.00
    
    
    0.29 to 1.00Interest coverage ratio
    
    > 3.00 to 1.00
    
    
    155.3 to 1.00
 11




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements not of historical fact may be considered forward-looking statements.
Written words such as may, expect, believe, anticipate, or estimate, or other variations
of these or similar words, identify such forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may differ materially from
those expressed in such forward-looking statements. Important factors known to us that could cause
such material differences are identified in Risk Factors. We undertake no obligation to correct
or update any forward-looking statements, whether as a result of new information, future events, or
otherwise. You are advised, however, to consult any future disclosures we make on related subjects
in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Overview
   AMS 700 Tactile Pump, Monarc®, Apogee Perigee
 12




---



##### Table of Contents



Results of Operations
 Sales Trends
   Three Months Ended
    
    Six Months Ended(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    $ Increase
    
    
    % Increase
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    $ Increase
    
    
    % IncreaseSalesProduct LineMens pelvic healthErectile restoration
    
    $
    20,680
    
    
    $
    17,919
    
    
    $
    2,761
    
    
    
    15.4
    %
    
    $
    41,374
    
    
    $
    35,384
    
    
    $
    5,990
    
    
    
    16.9
    %Continence
    
    
    13,402
    
    
    
    12,266
    
    
    
    1,136
    
    
    
    9.3
    %
    
    
    26,650
    
    
    
    24,432
    
    
    
    2,218
    
    
    

    9.1
    %Prostate treatment
    
    
    6,735
    
    
    
    1,089
    
    
    
    5,646
    
    
    
    518.5
    %
    
    
    13,382
    
    
    
    2,255
    
    
    
    11,127
    
    
    
    493.4
    %Total mens pelvic health
    
    
    40,817
    
    
    
    31,274
    
    
    
    9,543
    
    
    
    30.5
    %
    
    
    81,406
    
    
    
    62,071
    
    
    
    19,335
    
    
    
    31.1
    %Womens pelvic health
    
    
    24,820
    
    
    
    17,819
    
    
    
    7,001
    
    
    
    39.3
    %
    
    
    46,376
    
    
    
    34,335
    
    
    
    12,041
    
    
    
    35.1
    %Total
    
    $
    65,637
    
    
    $
    49,093
    
    
    $
    16,544
    
    
    
    33.7
    %
    
    $
    127,782
    
    
    $
    96,406
    
    
    $
    31,376
    
    
    
    32.5
    %GeographyUnited States
    
    $
    50,737
    
    
    $
    37,643
    
    
    $
    13,094
    
    
    
    34.8
    %
    
    $
    99,070
    
    
    $
    74,241
    
    
    $
    24,829
    
    
    
    33.4
    %International
    
    
    14,900
    
    
    
    11,450
    
    
    
    3,450
    
    
    
    30.1
    %
    
    
    28,712
    
    
    
    22,165
    
    
    
    6,547
    
    
    
    29.5
    %Total
    
    $
    65,637
    
    
    $
    49,093
    
    
    $
    16,544
    
    
    
    33.7
    %
    
    $
    127,782
    
    
    $
    96,406
    
    
    $
    31,376
    
    
    
    32.5
    %
 Three Months Ended
    
    Six Months EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Percent of total salesProduct LineMens pelvic health
Erectile restoration
    
    
    32
    %
    
    
    37
    %
    
    
    32
    %
    
    
    37
    %Continence
    
    
    20
    %
    
    
    25
    %
    
    
    21
    %
    
    
    25
    %Prostate treatment
    
    
    10
    %
    
    
    2
    %
    
    
    10
    %
    
    
    2
    %Total mens pelvic health
    
    
    62
    %
    
    
    64
    %
    
    
    64
    %
    
    
    64
    %Womens pelvic health
    
    
    38
    %
    
    
    36
    %
    
    
    36
    %
    
    
    36
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %GeographyUnited States
    
    
    77
    %
    
    
    77
    %
    
    
    78
    %
    
    
    77
    %International
    
    
    23
    %
    
    
    23
    %
    
    
    22
    %
    
    
    23
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Net Sales
 Mens pelvic health products. Tactile Pump AMS 700
 Tactile Pump InhibiZone®
 13




---



##### Table of Contents



AMS 800 Artificial Urinary Sphincter Invance® ,
  Womens pelvic health products. Apogee Perigee Apogee Perigee Monarc Monarc InFast SPARC SPARC Her Option® Her Option
 International sales and foreign exchange effects.
  Three Months Ended
    
    $ Increase
    
    
    % Increase
    
    Six Months Ended
    
    $ Increase
    
    
    % Increase(in thousands)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    (Decrease)
    
    
    (Decrease)
    
    July 2, 2005
    
    
    July 3, 2004
    
    
    (Decrease)
    
    
    (Decrease)Net sales
    
    $
    65,637
    
    
    $
    49,093
    
    
    $
    16,544
    
    
    
    33.7
    %
    
    $
    127,782
    
    
    $
    96,406
    
    
    $
    31,376
    
    
    
    32.5
    %Cost of sales
    
    
    11,954
    
    
    
    9,047
    
    
    
    2,907
    
    
    
    32.1
    %
    
    
    22,974
    
    
    
    17,977
    
    
    
    4,997
    
    
    
    27.8
    %Gross profit
    
    
    53,683
    
    
    
    40,046
    
    
    
    13,637
    
    
    
    34.1
    %
    
    
    104,808
    
    
    
    78,429
    
    
    
    26,379
    
    
    
    33.6
    %Operating expensesMarketing and selling
    
    
    23,494
    
    
    
    17,250
    
    
    
    6,244
    
    
    
    36.2
    %
    
    
    45,150
    
    
    
    33,743
    
    
    
    11,407
    
    
    
    33.8
    %Research and
development
    
    
    4,866
    
    
    
    3,577
    
    
    
    1,289
    
    
    
    36.0
    %
    
    
    9,504
    
    
    
    7,161
    
    
    
    2,343
    
    
    
    32.7
    %General and
administrative
    
    
    5,207
    
    
    
    5,210
    
    
    
    (3
    )
    
    
    -0.1
    %
    
    
    10,996
    
    
    
    10,086
    
    
    
    910
    
    
    
    9.0
    %Amortization of
intangibles
    
    
    1,948
    
    
    
    1,058
    
    
    
    890
    
    
    
    84.1
    %
    
    
    3,738
    
    
    
    2,119
    
    
    
    1,619
    
    
    
    76.4
    %Total operating expenses
    
    
    35,515
    
    
    
    27,095
    
    
    
    8,420
    
    
    
    31.1
    %
    
    
    69,388
    
    
    
    53,109
    
    
    
    16,279
    
    
    
    30.7
    %Operating income
    
    
    18,168
    
    
    
    12,951
    
    
    
    5,217
    
    
    
    40.3
    %
    
    
    35,420
    
    
    
    25,320
    
    
    
    10,100
    
    
    
    39.9
    %Royalty income
    
    
    508
    
    
    
    430
    
    
    
    78
    
    
    
    18.1
    %
    
    
    986
    
    
    
    921
    
    
    
    65
    
    
    
    7.1
    %Interest income
    
    
    361
    
    
    
    172
    
    
    
    189
    
    
    
    109.9
    %
    
    
    635
    
    
    
    310
    
    
    
    325
    
    
    
    104.8
    %Interest expense
    
    
    (41
    )
    
    
    (248
    )
    
    
    207
    
    
    
    83.5
    %
    
    
    (96
    )
    
    
    (449
    )
    
    
    353
    
    
    
    78.6
    %Other income (expense)
    
    
    (613
    )
    
    
    (31
    )
    
    
    (582
    )
    
    
    1877.4
    %
    
    
    (1,077
    )
    
    
    (187
    )
    
    
    (890
    )
    
    
    475.9
    %Income before income taxes
    
    
    18,383
    
    
    
    13,274
    
    
    
    5,109
    
    
    
    38.5
    %
    
    
    35,868
    
    
    
    25,915
    
    
    
    9,953
    
    
    
    38.4
    %Provision for income taxes
    
    
    6,376
    
    
    
    4,845
    
    
    
    1,531
    
    
    
    31.6
    %
    
    $
    12,619
    
    
    $
    9,459
    
    
    
    3,160
    
    
    
    33.4
    %Net income
    
    $
    12,007
    
    
    $
    8,429
    
    
    $
    3,578
    
    
    
    42.4
    %
    
    $
    23,249
    
    
    $
    16,456
    
    
    $
    6,793
    
    
    
    41.3
    %
 14




---



##### Table of Contents



Percent of Sales
    
    Percent of Sales(in thousands)
    
    Three Months Ended
    
    Six Months EndedJuly 2, 2005
    
    July 3, 2004
    
    July 2, 2005
    
    July 3, 2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    18.2
    %
    
    
    18.4
    %
    
    
    18.0
    %
    
    
    18.6
    %Gross profit
    
    
    81.8
    %
    
    
    81.6
    %
    
    
    82.0
    %
    
    
    81.4
    %Operating expensesMarketing and selling
    
    
    35.8
    %
    
    
    35.1
    %
    
    
    35.3
    %
    
    
    35.0
    %Research and development
    
    
    7.4
    %
    
    
    7.3
    %
    
    
    7.4
    %
    
    
    7.4
    %General and administrative
    
    
    7.9
    %
    
    
    10.6
    %
    
    
    8.6
    %
    
    
    10.5
    %Amortization of intangibles
    
    
    3.0
    %
    
    
    2.2
    %
    
    
    2.9
    %
    
    
    2.2
    %Total operating expenses
    
    
    54.1
    %
    
    
    55.2
    %
    
    
    54.3
    %
    
    
    55.1
    %Operating income
    
    
    27.7
    %
    
    
    26.4
    %
    
    
    27.7
    %
    
    
    26.3
    %Royalty income
    
    
    0.8
    %
    
    
    0.9
    %
    
    
    0.8
    %
    
    
    1.0
    %Interest income
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    0.3
    %Interest expense
    
    
    -0.1
    %
    
    
    -0.5
    %
    
    
    -0.1
    %
    
    
    -0.5
    %Other income (expense)
    
    
    -0.9
    %
    
    
    -0.1
    %
    
    
    -0.8
    %
    
    
    -0.2
    %Income before income taxes
    
    
    28.0
    %
    
    
    27.0
    %
    
    
    28.1
    %
    
    
    26.9
    %Provision for income taxes
    
    
    9.7
    %
    
    
    9.9
    %
    
    
    9.9
    %
    
    
    9.8
    %Net income
    
    
    18.3
    %
    
    
    17.2
    %
    
    
    18.2
    %
    
    
    17.1
    %
 Cost of sales
 Marketing and selling.
 Research and development.
 General and administrative.
 Amortization of intangibles.
 15




---



##### Table of Contents



Royalty income.
 Interest income.
 Interest expense.
 Other income/(expense).
 Income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
 Cash commitments.
  16




---



##### Table of Contents



TherMatrx
  Notes to
Consolidated Financial Statements  No. 12
  Risk Factors
  Supplier Risks
 InhibiZone
 Potential Product Recalls
  17




---



##### Table of Contents



Continued Physician Use and Endorsement of our Products
  Successful Introduction of New Products and Product Improvements
  Continued Use of Non-Invasive Treatment Alternatives
  Actions Related to Reimbursement for Procedures Using our Products
  Regulatory Approvals and Clinical Results
  Intellectual Property Lawsuits
  18




---



##### Table of Contents



Product Liability Lawsuits
  Costs of Physician Malpractice Insurance
  Acquisition Integration
  International Sales
  Manufacturing Facility
  Ongoing Compliance with Section 404 of the Sarbanes-Oxley Act of 2002
  Expensing of Stock Options as Required by SFAS 123(R)
 Share-Based
Payment
 19




---



##### Table of Contents



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
  Currency
    Inflation
  20




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  21




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 a)
    
    Our annual meeting of stockholders was held on May 5, 2005.
 b)
    
    The results of the stockholder votes were as follows:
 For
    
    Withheld1.Election of DirectorsTerm expiring in May 2007:Martin J. Emerson
    
    
    46,975,990
    
    
    
    2,040,520Terms expiring in May 2008:Richard B. Emmitt
    
    
    46,017,356
    
    
    
    2,299,154Christopher H. Porter, Ph.D.
    
    
    28,154,076
    
    
    
    20,862,434BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes2. Approval of 2005 Equity Incentive Plan
    
    
    25,997,891
    
    
    
    14,205,714
    
    
    
    13,427
    
    
    
    8,799,4783. Approval of Amendment to Employee
Stock Purchase Plan to increase shares
reserved for issuance under plan from
600,000 to 1,000,000
    
    
    35,402,721
    
    
    
    4,803,404
    
    
    
    10,907
    
    
    
    8,799,4784. Approval of Ernst & Young LLP as
independent auditors for fiscal year 2005
    
    
    48,891,857
    
    
    
    120,446
    
    
    
    4,207
    
    
    
    0
 (c)
    
    Douglas W. Kohrs, Thomas E. Timbie and Elizabeth H. Weatherman continue to serve as
directors for terms expiring in May 2006.
 (d)
    
    Albert Jay Graf continues to serve as director for a term expiring in May 2007.(e)
    
    There was no other business brought before the stockholders at the Annual Meeting.
 
 ITEM 5. OTHER INFORMATION
   22




---



##### Table of Contents



23




---



##### Table of Contents



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing31.1
    
    Certification of Chief Executive
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
    
    Filed with this Report.31.2
    
    Certification of Chief Financial
Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
    
    Filed with this Report.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report.
 24




---



##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMSHOLDINGS, INCAugust 11, 2005
    
    By
    
    /s/ Martin J. EmersonDate
    
    
    
    Martin J. EmersonPresident and Chief Executive OfficerAugust 11, 2005
    
    By
    
    /s/ Carmen L. DiersenDate
    
    
    
    Carmen L. DiersenExecutive Vice President, Chief Financial Officerand Corporate Secretary (Principal Financial andAccounting Officer)
 25




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended July 2, 2005
 Item No.
    
    Item
    
    Filing Method31.1
    
    Certification of Chief
Executive Officer
pursuant to Section 302
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.31.2
    
    Certification of Chief
Financial Officer
pursuant to Section 302
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.32.1
    
    Certification pursuant
to 18 U.S.C. Section
1350, as adopted
pursuant to Section 906
of the Sarbanes-Oxley
Act of 2002
    
    Filed with this Report on Form 10-Q.
 26