##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 3, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 10700 Bren Road West, Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



INDEX
 PagePART I FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for the
three month periods ended April 3, 2010 and April
4, 2009
    
    
    3Consolidated Balance Sheets as of April 3, 2010 and
January 2, 2010
    
    
    4Consolidated Statements of Cash Flow for the three
month periods ended April 3, 2010 and April 4,
2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    24ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 4. CONTROLS AND PROCEDURES
    
    
    35PART II OTHER INFORMATIONITEM 1A. RISK FACTORS
    
    
    36ITEM 6. EXHIBITS
    
    
    37SIGNATURES
    
    
    39EXHIBIT INDEX
    
    
    40EX-10.10EX-10.11EX-10.12EX-31.1EX-31.2EX-32.1
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
 Three Months EndedApril 3, 2010
    
    
    April 4, 2009Net sales
    
    $
    134,926
    
    
    $
    123,638Cost of sales
    
    
    21,027
    
    
    
    23,342Gross profit
    
    
    113,899
    
    
    
    100,296Operating expensesMarketing and selling
    
    
    48,197
    
    
    
    43,348Research and development
    
    
    13,509
    
    
    
    12,811General and administrative
    
    
    12,690
    
    
    
    10,779Amortization of intangibles
    
    
    3,047
    
    
    
    3,265Total operating expenses
    
    
    77,443
    
    
    
    70,203Operating income
    
    
    36,456
    
    
    
    30,093Other (expense) incomeRoyalty income
    
    
    308
    
    
    
    933Interest expense
    
    
    (3,954
    )
    
    
    (5,410
    )Amortization of financing costs
    
    
    (3,693
    )
    
    
    (3,981
    )Gain on extinguishment of debt
    
    
    
    
    
    
    4,562Gain on sale of non-strategic assets
    
    
    7,719
    
    
    
    Other (expense) income
    
    
    (516
    )
    
    
    655Total other (expense)
    
    
    (136
    )
    
    
    (3,241
    )Income before income taxes
    
    
    36,320
    
    
    
    26,852Provision for income taxes
    
    
    15,662
    
    
    
    9,772Net income
    
    $
    20,658
    
    
    $
    17,080Net income per shareBasic net earnings
    
    $
    0.28
    
    
    $
    0.23Diluted net earnings
    
    $
    0.27
    
    
    $
    0.23Weighted average common shares used in calculationBasic
    
    
    75,117
    
    
    
    73,691Diluted
    
    
    76,270
    
    
    
    74,018
 The accompanying notes are an integral part of the consolidated financial statements.
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American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 April 3, 2010
    
    
    January 2, 2010(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    22,212
    
    
    $
    30,670Short-term investments
    
    
    37,653
    
    
    
    19,868Accounts receivable, net
    
    
    93,390
    
    
    
    102,590Inventories, net
    
    
    30,903
    
    
    
    30,276Deferred income taxes
    
    
    14,036
    
    
    
    14,870Other current assets
    
    
    8,201
    
    
    
    6,067Total current assets
    
    
    206,395
    
    
    
    204,341Property, plant and equipment, net
    
    
    42,866
    
    
    
    44,120Goodwill
    
    
    683,857
    
    
    
    690,899Developed and core technology, net
    
    
    47,748
    
    
    
    51,631Other intangibles, net
    
    
    49,974
    
    
    
    49,937Other long-term assets, net
    
    
    5,858
    
    
    
    6,223Total assets
    
    $
    1,036,698
    
    
    $
    1,047,151Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    11,043
    
    
    $
    9,114Income taxes payable
    
    
    15,417
    
    
    
    4,495Accrued compensation expenses
    
    
    21,007
    
    
    
    29,603Accrued warranty expense
    
    
    2,203
    
    
    
    2,293Other accrued expenses
    
    
    21,599
    
    
    
    25,760Total current liabilities
    
    
    71,269
    
    
    
    71,265Long-term debt
    
    
    304,314
    
    
    
    346,229Deferred income taxes
    
    
    61,857
    
    
    
    62,347Long-term income taxes payable
    
    
    18,516
    
    
    
    18,206Long-term employee benefit obligations
    
    
    3,745
    
    
    
    3,745Total liabilities
    
    
    459,701
    
    
    
    501,792Stockholders equityCommon stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 75,367,367 shares at April 3, 2010 and
74,715,839 shares at January 2, 2010
    
    
    754
    
    
    
    747Additional paid-in capital
    
    
    410,489
    
    
    
    399,468Accumulated other comprehensive income
    
    
    6,332
    
    
    
    6,381Retained earnings
    
    
    159,422
    
    
    
    138,763Total stockholders equity
    
    
    576,997
    
    
    
    545,359Total liabilities and stockholders equity
    
    $
    1,036,698
    
    
    $
    1,047,151
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flows
 Three Months EndedApril 3, 2010
    
    
    April 4, 2009Cash flows from operating activitiesNet income
    
    $
    20,658
    
    
    $
    17,080Adjustments to reconcile net income to net cash
provided by operating activitiesDepreciation
    
    
    2,524
    
    
    
    2,438Amortization of intangibles
    
    
    3,047
    
    
    
    3,265Amortization of deferred financing costs
    
    
    3,693
    
    
    
    3,981Excess tax benefit from excercise of
stock options
    
    
    (195
    )
    
    
    Tax benefit on exercised stock option
arrangements
    
    
    947
    
    
    
    22Settlement of derivative contracts
    
    
    (783
    )
    
    
    (680
    )Change in net deferred income taxes
    
    
    (1,556
    )
    
    
    1,403Gain on extinguishment of debt
    
    
    
    
    
    
    (4,562
    )Gain on sale of non-strategic assets
    
    
    (7,719
    )
    
    
    Stock-based compensation
    
    
    1,829
    
    
    
    2,216Changes in operating assets and liabilities:Accounts receivable
    
    
    5,138
    
    
    
    2,082Inventories
    
    
    (1,042
    )
    
    
    1,036Accounts payable and accrued expenses
    
    
    279
    
    
    
    (2,297
    )Other assets
    
    
    (212
    )
    
    
    2,224Net cash provided by operating activities
    
    
    26,608
    
    
    
    28,208Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (1,314
    )
    
    
    (1,108
    )Net proceeds from settlement of derivative contracts
    
    
    783
    
    
    
    680Sale of non-strategic assets, net
    
    
    20,186
    
    
    
    Purchase of other intangibles
    
    
    (693
    )
    
    
    Purchase of short-term investments
    
    
    (25,041
    )
    
    
    (18,124
    )Sale of short-term investments
    
    
    7,337
    
    
    
    21,500Net cash provided by investing activities
    
    
    1,258
    
    
    
    2,948Cash flows from financing activitiesIssuance of common stock
    
    
    9,365
    
    
    
    918Excess tax benefit from exercise of stock options
    
    
    195
    
    
    
    Repurchase of convertible senior subordinated notes
    
    
    
    
    
    
    (21,125
    )Payments on senior secured credit facility
    
    
    (45,719
    )
    
    
    (8,585
    )Net cash used in financing activities
    
    
    (36,159
    )
    
    
    (28,792
    )Effect of currency exchange rates on cash
    
    
    (165
    )
    
    
    520Net (decrease) increase in cash and cash equivalents
    
    
    (8,458
    )
    
    
    2,884Cash and cash equivalents at beginning of period
    
    
    30,670
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    22,212
    
    
    $
    14,526Supplemental disclosureCash paid for interest
    
    $
    7,008
    
    
    $
    2,562Cash paid for taxes
    
    $
    4,806
    
    
    $
    7,218
 The accompanying notes are an integral part of the consolidated financial statements.
 5




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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
    2. Recently Issued Accounting Pronouncements
 Revenue Recognition Multiple-Deliverable Revenue Arrangements
 3. Stock-Based Compensation
  Three Months Ended(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009Cost of sales
    
    $
    248
    
    
    $
    241Marketing and selling
    
    
    451
    
    
    
    455Research and development
    
    
    285
    
    
    
    287General and administrative
    
    
    845
    
    
    
    1,233Total stock-based
compensation expense
    
    $
    1,829
    
    
    $
    2,216
   6




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Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at January 2, 2010
    
    
    7,161,545
    
    
    $
    15.08Granted
    
    
    894,150
    
    
    
    18.44Exercised
    
    
    (575,223
    )
    
    
    14.72Cancelled or expired
    
    
    (233,512
    )
    
    
    17.99Balance at April 3, 2010
    
    
    7,246,960
    
    
    $
    15.43
    
    
    $
    25,659Options exercisable at April 3, 2010
    
    
    3,990,195
    
    
    $
    15.70
    
    
    $
    13,804
    Unvested Shares
    
    
    Weighted averageoutstanding
    
    
    grant date fair valueBalance at January 2, 2010
    
    
    233,525
    
    
    $
    16.54Granted
    
    
    90,740
    
    
    
    15.16Vested
    
    
    (19,325
    )
    
    
    16.99Cancelled
    
    
    (5,300
    )
    
    
    15.44Balance at April 3, 2010
    
    
    299,640
    
    
    
    15.79
 4. Earnings per Share
  Three Months Ended(in thousands, except per share data)
    
    April 3, 2010
    
    
    April 4, 2009Net income
    
    $
    20,658
    
    
    $
    17,080Weighted-average shares outstanding for basic net income per share
    
    
    75,117
    
    
    
    73,691Dilutive effect of stock options and restricted shares
    
    
    1,153
    
    
    
    327Adjusted weighted-average shares outstanding for diluted net income per share
    
    
    76,270
    
    
    
    74,018Net income per shareBasic net earnings
    
    $
    0.28
    
    
    $
    0.23Diluted net earnings
    
    $
    0.27
    
    
    $
    0.23
 Note 9,
Debt)
 7




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5. Inventories
  (in thousands)
    
    April 3, 2010
    
    
    January 2, 2010Raw materials
    
    $
    8,218
    
    
    $
    10,117Work in process
    
    
    3,940
    
    
    
    3,399Finished goods
    
    
    22,682
    
    
    
    21,791Obsolescence reserve
    
    
    (3,937
    )
    
    
    (5,031
    )Net inventories
    
    $
    30,903
    
    
    $
    30,276
 6. Warranties
   Three Months Ended(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009Balance, beginning of period
    
    $
    2,293
    
    
    $
    3,287Provisions for warranty
    
    
    334
    
    
    
    808Claims processed
    
    
    (424
    )
    
    
    (1,230
    )Balance, end of period
    
    $
    2,203
    
    
    $
    2,865
 7. Comprehensive Income
 Note 11, Derivative Instruments and Hedging Activities
 Three Months Ended(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009Net income
    
    $
    20,658
    
    
    $
    17,080Foreign currency translation loss, net of taxes
of $15 and $60, respectively
    
    
    (1,431
    )
    
    
    (1,374
    )Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of ($610) and ($164), respectively
    
    
    1,008
    
    
    
    271Reclassification adjustments on cash flow hedges settled and included
in net income, net of tax of ($136) and ($119), respectively
    
    
    225
    
    
    
    197Unrealized gain on available-for-sale securities, net of taxes
of ($90) and ($12), respectively
    
    
    149
    
    
    
    20Comprehensive income
    
    $
    20,609
    
    
    $
    16,194
 8




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Net Unrealized(Loss) onDerivative
    
    
    
    
    
    
    
    
    
    
    Net Unrealized GainInstruments
    
    
    Post-retirement
    
    
    Foreign Currency
    
    
    on
    
    
    Total AccumulatedQualifying as
    
    
    Plan Liability
    
    
    Translation
    
    
    Available-for-sale
    
    
    Other Comprehensive(in thousands)
    
    Hedges
    
    
    Adjustment
    
    
    Adjustment
    
    
    Investments
    
    
    IncomeBalance at January 2, 2010
    
    $
    (1,289
    )
    
    $
    (24
    )
    
    $
    7,500
    
    
    $
    194
    
    
    $
    6,381Balance at April 3, 2010
    
    $
    (56
    )
    
    $
    (24
    )
    
    $
    6,069
    
    
    $
    343
    
    
    $
    6,332
 8. Goodwill and Intangible Assets
  Three Months Ended(in thousands)
    
    April 3, 2010Goodwill, beginning of the period
    
    $
    690,899Allocation of goodwill to sale of non-strategic assets
    
    $
    (6,400
    )Effect of currency translation
    
    
    (642
    )Goodwill, end of the period
    
    $
    683,857
 Her Option® Her Option® Her Option® Her Option®
  April 3, 2010
    
    
    January 2, 2010Gross carrying
    
    
    Accumulated
    
    
    Net book
    
    
    Gross carrying
    
    
    Accumulated
    
    
    Net book(in thousands)
    
    amount
    
    
    amortization
    
    
    value
    
    
    amount
    
    
    amortization
    
    
    valueDeveloped and core technology
    
    $
    132,953
    
    
    $
    (85,205
    )
    
    $
    47,748
    
    
    $
    137,553
    
    
    $
    (85,922
    )
    
    $
    51,631Other intangiblesAmortizedPatents
    
    
    11,051
    
    
    
    (9,448
    )
    
    
    1,603
    
    
    
    11,510
    
    
    
    (9,693
    )
    
    
    1,817Licenses
    
    
    16,537
    
    
    
    (9,296
    )
    
    
    7,241
    
    
    
    15,913
    
    
    
    (9,034
    )
    
    
    6,879Trademarks
    
    
    2,233
    
    
    
    (1,903
    )
    
    
    330
    
    
    
    2,208
    
    
    
    (1,767
    )
    
    
    441Total amortized other
intangible assets
    
    
    29,821
    
    
    
    (20,647
    )
    
    
    9,174
    
    
    
    29,631
    
    
    
    (20,494
    )
    
    
    9,137UnamortizedTrademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    40,800
    
    
    
    
    
    
    
    40,800Total other intangibles
    
    
    70,621
    
    
    
    (20,647
    )
    
    
    49,974
    
    
    
    70,431
    
    
    
    (20,494
    )
    
    
    49,937Total intangible assets
    
    $
    203,574
    
    
    $
    (105,852
    )
    
    $
    97,722
    
    
    $
    207,984
    
    
    $
    (106,416
    )
    
    $
    101,568
   9




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9. Debt
 Senior Secured Credit Facility
     Her Option®
  10




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Amendment of Credit Facility
  Convertible Senior Subordinated Notes Due 2036
       11




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Convertible Senior Subordinated Notes Due 2041
      12




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Supplemental Guarantor Information
   13




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American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended April 3, 2010AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    122,858
    
    
    $
    29,667
    
    
    $
    (17,599
    )
    
    $
    134,926Cost of sales
    
    
    
    
    
    
    20,575
    
    
    
    17,337
    
    
    
    (16,885
    )
    
    
    21,027Gross profit
    
    
    
    
    
    
    102,283
    
    
    
    12,330
    
    
    
    (714
    )
    
    
    113,899Operating expensesMarketing and selling
    
    
    
    
    
    
    37,660
    
    
    
    10,537
    
    
    
    
    
    
    
    48,197Research and development
    
    
    
    
    
    
    13,515
    
    
    
    (6
    )
    
    
    
    
    
    
    13,509General and administrative
    
    
    
    
    
    
    12,690
    
    
    
    
    
    
    
    
    
    
    
    12,690Amortization of intangibles
    
    
    
    
    
    
    3,047
    
    
    
    
    
    
    
    
    
    
    
    3,047Total operating expenses
    
    
    
    
    
    
    66,912
    
    
    
    10,531
    
    
    
    
    
    
    
    77,443Operating income
    
    
    
    
    
    
    35,371
    
    
    
    1,799
    
    
    
    (714
    )
    
    
    36,456Other (expense) incomeRoyalty income
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    308Interest expense
    
    
    (3,011
    )
    
    
    (936
    )
    
    
    (31
    )
    
    
    24
    
    
    
    (3,954
    )Amortization of financing costs
    
    
    (2,878
    )
    
    
    (815
    )
    
    
    
    
    
    
    
    
    
    
    (3,693
    )Gain on sale of non-strategic assets
    
    
    
    
    
    
    7,719
    
    
    
    
    
    
    
    
    
    
    
    7,719Other (expense)
    
    
    
    
    
    
    (262
    )
    
    
    (220
    )
    
    
    (34
    )
    
    
    (516
    )Total other (expense) income
    
    
    (5,889
    )
    
    
    6,014
    
    
    
    (251
    )
    
    
    (10
    )
    
    
    (136
    )(Loss) income before income taxes
    
    
    (5,889
    )
    
    
    41,385
    
    
    
    1,548
    
    
    
    (724
    )
    
    
    36,320Provision for income taxes
    
    
    (2,220
    )
    
    
    17,601
    
    
    
    554
    
    
    
    (273
    )
    
    
    15,662Equity in earnings of subsidiary
    
    
    24,778
    
    
    
    994
    
    
    
    
    
    
    
    (25,772
    )
    
    
    Net income (loss)
    
    $
    21,109
    
    
    $
    24,778
    
    
    $
    994
    
    
    $
    (26,223
    )
    
    $
    20,658
 14




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American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended April 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    111,551
    
    
    $
    27,298
    
    
    $
    (15,211
    )
    
    $
    123,638Cost of sales
    
    
    
    
    
    
    23,606
    
    
    
    15,035
    
    
    
    (15,299
    )
    
    
    23,342Gross profit
    
    
    
    
    
    
    87,945
    
    
    
    12,263
    
    
    
    88
    
    
    
    100,296Operating expensesMarketing and selling
    
    
    
    
    
    
    33,898
    
    
    
    9,450
    
    
    
    
    
    
    
    43,348Research and development
    
    
    
    
    
    
    12,786
    
    
    
    25
    
    
    
    
    
    
    
    12,811General and administrative
    
    
    
    
    
    
    10,779
    
    
    
    
    
    
    
    
    
    
    
    10,779Amortization of intangibles
    
    
    
    
    
    
    3,265
    
    
    
    
    
    
    
    
    
    
    
    3,265Total operating expenses
    
    
    
    
    
    
    60,728
    
    
    
    9,475
    
    
    
    
    
    
    
    70,203Operating income
    
    
    
    
    
    
    27,217
    
    
    
    2,788
    
    
    
    88
    
    
    
    30,093Other (expense) incomeRoyalty income
    
    
    
    
    
    
    933
    
    
    
    
    
    
    
    
    
    
    
    933Interest expense
    
    
    (2,701
    )
    
    
    (2,696
    )
    
    
    (63
    )
    
    
    50
    
    
    
    (5,410
    )Amortization of financing costs
    
    
    (3,470
    )
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    (3,981
    )Gain on extinguishment of debt
    
    
    4,562
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,562Other income (expense)
    
    
    
    
    
    
    890
    
    
    
    (167
    )
    
    
    (68
    )
    
    
    655Total other (expense) income
    
    
    (1,609
    )
    
    
    (1,384
    )
    
    
    (230
    )
    
    
    (18
    )
    
    
    (3,241
    )(Loss) income before income taxes
    
    
    (1,609
    )
    
    
    25,833
    
    
    
    2,558
    
    
    
    70
    
    
    
    26,852Provision for income taxes
    
    
    (607
    )
    
    
    9,463
    
    
    
    890
    
    
    
    26
    
    
    
    9,772Equity in earnings of subsidiary
    
    
    18,038
    
    
    
    1,668
    
    
    
    
    
    
    
    (19,706
    )
    
    
    Net income
    
    $
    17,036
    
    
    $
    18,038
    
    
    $
    1,668
    
    
    $
    (19,662
    )
    
    $
    17,080
 15




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of April 3, 2010AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    10,669
    
    
    $
    11,543
    
    
    $
    
    
    
    $
    22,212Short-term investments
    
    
    23,839
    
    
    
    13,584
    
    
    
    230
    
    
    
    
    
    
    
    37,653Accounts receivable, net
    
    
    613,841
    
    
    
    50,717
    
    
    
    28,724
    
    
    
    (599,892
    )
    
    
    93,390Inventories, net
    
    
    
    
    
    
    28,473
    
    
    
    7,623
    
    
    
    (5,193
    )
    
    
    30,903Deferred income taxes
    
    
    
    
    
    
    13,048
    
    
    
    988
    
    
    
    
    
    
    
    14,036Other current assets
    
    
    
    
    
    
    6,641
    
    
    
    1,560
    
    
    
    
    
    
    
    8,201Total current assets
    
    
    637,680
    
    
    
    123,132
    
    
    
    50,668
    
    
    
    (605,085
    )
    
    
    206,395Property, plant and equipment, net
    
    
    
    
    
    
    41,527
    
    
    
    1,339
    
    
    
    
    
    
    
    42,866Goodwill
    
    
    
    
    
    
    621,793
    
    
    
    86,085
    
    
    
    (24,021
    )
    
    
    683,857Developed and core technology, net
    
    
    
    
    
    
    47,748
    
    
    
    
    
    
    
    
    
    
    
    47,748Other intangibles, net
    
    
    
    
    
    
    49,974
    
    
    
    
    
    
    
    
    
    
    
    49,974Investment in subsidiaries
    
    
    218,127
    
    
    
    44,384
    
    
    
    
    
    
    
    (262,511
    )
    
    
    Other long-term assets, net
    
    
    4,945
    
    
    
    675
    
    
    
    238
    
    
    
    
    
    
    
    5,858Total assets
    
    $
    860,752
    
    
    $
    929,233
    
    
    $
    138,330
    
    
    $
    (891,617
    )
    
    $
    1,036,698Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    (2,027
    )
    
    $
    556,891
    
    
    $
    73,065
    
    
    $
    (616,886
    )
    
    $
    11,043Accrued compensation expenses
    
    
    
    
    
    
    17,092
    
    
    
    3,915
    
    
    
    
    
    
    
    21,007Accrued warranty expense
    
    
    
    
    
    
    2,208
    
    
    
    (5
    )
    
    
    
    
    
    
    2,203Income taxes payable
    
    
    (1,161
    )
    
    
    15,985
    
    
    
    593
    
    
    
    
    
    
    
    15,417Other accrued expenses
    
    
    1,056
    
    
    
    17,227
    
    
    
    3,316
    
    
    
    
    
    
    
    21,599Total current liabilities
    
    
    (2,132
    )
    
    
    609,403
    
    
    
    80,884
    
    
    
    (616,886
    )
    
    
    71,269Non-current liabilitiesLong-term debt
    
    
    226,560
    
    
    
    77,754
    
    
    
    
    
    
    
    
    
    
    
    304,314Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    12,220
    
    
    
    (12,220
    )
    
    
    Deferred income taxes
    
    
    59,327
    
    
    
    1,688
    
    
    
    842
    
    
    
    
    
    
    
    61,857Long-term income taxes payable
    
    
    
    
    
    
    18,516
    
    
    
    
    
    
    
    
    
    
    
    18,516Long-term employee benefit obligations
    
    
    
    
    
    
    3,745
    
    
    
    
    
    
    
    
    
    
    
    3,745Total non-current liabilities
    
    
    285,887
    
    
    
    101,703
    
    
    
    13,062
    
    
    
    (12,220
    )
    
    
    388,432Total liabilities
    
    
    283,755
    
    
    
    711,106
    
    
    
    93,946
    
    
    
    (629,106
    )
    
    
    459,701Stockholders equityCommon stock
    
    
    754
    
    
    
    
    
    
    
    128
    
    
    
    (128
    )
    
    
    754Additional paid-in capital
    
    
    410,489
    
    
    
    3,424
    
    
    
    57,659
    
    
    
    (61,083
    )
    
    
    410,489Accumulated other comprehensive income
    
    
    6,332
    
    
    
    1,180
    
    
    
    5,858
    
    
    
    (7,038
    )
    
    
    6,332Retained earnings (deficit)
    
    
    159,422
    
    
    
    213,523
    
    
    
    (19,261
    )
    
    
    (194,262
    )
    
    
    159,422Total stockholders equity
    
    
    576,997
    
    
    
    218,127
    
    
    
    44,384
    
    
    
    (262,511
    )
    
    
    576,997Total liabilities and stockholders equity
    
    $
    860,752
    
    
    $
    929,233
    
    
    $
    138,330
    
    
    $
    (891,617
    )
    
    $
    1,036,698
 16




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of January 2, 2010AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    
    
    
    $
    16,973
    
    
    $
    13,697
    
    
    $
    
    
    
    $
    30,670Short-term investments
    
    
    4,834
    
    
    
    14,489
    
    
    
    545
    
    
    
    
    
    
    
    19,868Accounts receivable, net
    
    
    614,392
    
    
    
    58,359
    
    
    
    29,772
    
    
    
    (599,933
    )
    
    
    102,590Inventories, net
    
    
    
    
    
    
    27,750
    
    
    
    6,853
    
    
    
    (4,327
    )
    
    
    30,276Deferred income taxes
    
    
    
    
    
    
    13,466
    
    
    
    1,404
    
    
    
    
    
    
    
    14,870Other current assets
    
    
    
    
    
    
    4,947
    
    
    
    1,120
    
    
    
    
    
    
    
    6,067Total current assets
    
    
    619,226
    
    
    
    135,984
    
    
    
    53,391
    
    
    
    (604,260
    )
    
    
    204,341Property, plant and equipment, net
    
    
    
    
    
    
    42,661
    
    
    
    1,459
    
    
    
    
    
    
    
    44,120Goodwill
    
    
    
    
    
    
    628,193
    
    
    
    86,727
    
    
    
    (24,021
    )
    
    
    690,899Developed and core technology, net
    
    
    
    
    
    
    51,631
    
    
    
    
    
    
    
    
    
    
    
    51,631Other intangibles, net
    
    
    
    
    
    
    49,937
    
    
    
    
    
    
    
    
    
    
    
    49,937Investment in subsidiaries
    
    
    190,818
    
    
    
    45,579
    
    
    
    
    
    
    
    (236,397
    )
    
    
    Other long-term assets, net
    
    
    5,133
    
    
    
    839
    
    
    
    251
    
    
    
    
    
    
    
    6,223Total assets
    
    $
    815,177
    
    
    $
    954,824
    
    
    $
    141,828
    
    
    $
    (864,678
    )
    
    $
    1,047,151Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    (5,058
    )
    
    $
    558,217
    
    
    $
    72,015
    
    
    $
    (616,060
    )
    
    $
    9,114Accrued compensation expenses
    
    
    
    
    
    
    24,350
    
    
    
    5,253
    
    
    
    
    
    
    
    29,603Accrued warranty expense
    
    
    
    
    
    
    2,293
    
    
    
    
    
    
    
    
    
    
    
    2,293Income taxes payable
    
    
    (13,272
    )
    
    
    16,371
    
    
    
    1,396
    
    
    
    
    
    
    
    4,495Other accrued expenses
    
    
    3,885
    
    
    
    17,826
    
    
    
    4,049
    
    
    
    
    
    
    
    25,760Total current liabilities
    
    
    (14,445
    )
    
    
    619,057
    
    
    
    82,713
    
    
    
    (616,060
    )
    
    
    71,265Non-current liabilitiesLong-term debt
    
    
    223,876
    
    
    
    122,353
    
    
    
    
    
    
    
    
    
    
    
    346,229Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    12,221
    
    
    
    (12,221
    )
    
    
    Deferred income taxes
    
    
    60,387
    
    
    
    645
    
    
    
    1,315
    
    
    
    
    
    
    
    62,347Long-term income taxes payable
    
    
    
    
    
    
    18,206
    
    
    
    
    
    
    
    
    
    
    
    18,206Long-term employee benefit obligations
    
    
    
    
    
    
    3,745
    
    
    
    
    
    
    
    
    
    
    
    3,745Total non-current liabilities
    
    
    284,263
    
    
    
    144,949
    
    
    
    13,536
    
    
    
    (12,221
    )
    
    
    430,527Total liabilities
    
    
    269,818
    
    
    
    764,006
    
    
    
    96,249
    
    
    
    (628,281
    )
    
    
    501,792Stockholders equityCommon stock
    
    
    747
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    747Additional paid-in capital
    
    
    399,468
    
    
    
    3,424
    
    
    
    57,540
    
    
    
    (60,964
    )
    
    
    399,468Accumulated other comprehensive income
    
    
    6,381
    
    
    
    (202
    )
    
    
    7,137
    
    
    
    (6,935
    )
    
    
    6,381Retained earnings (deficit)
    
    
    138,763
    
    
    
    187,596
    
    
    
    (19,107
    )
    
    
    (168,489
    )
    
    
    138,763Total stockholders equity
    
    
    545,359
    
    
    
    190,818
    
    
    
    45,579
    
    
    
    (236,397
    )
    
    
    545,359Total liabilities and stockholders equity
    
    $
    815,177
    
    
    $
    954,824
    
    
    $
    141,828
    
    
    $
    (864,678
    )
    
    $
    1,047,151
 17




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended April 3, 2010AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating
activities
    
    $
    (9,560
    )
    
    $
    38,434
    
    
    $
    (2,266
    )
    
    $
    
    
    
    $
    26,608Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (1,283
    )
    
    
    (31
    )
    
    
    
    
    
    
    (1,314
    )Net proceeds from settlement of derivative
contracts
    
    
    
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    783Sale of non-stragic assets, net
    
    
    
    
    
    
    20,186
    
    
    
    
    
    
    
    
    
    
    
    20,186Purchase of other intangibles
    
    
    
    
    
    
    (693
    )
    
    
    
    
    
    
    
    
    
    
    (693
    )Purchase of short-term investments
    
    
    
    
    
    
    (25,012
    )
    
    
    (29
    )
    
    
    
    
    
    
    (25,041
    )Sale of short-term investments
    
    
    
    
    
    
    7,000
    
    
    
    337
    
    
    
    
    
    
    
    7,337Net cash provided by investing activities
    
    
    
    
    
    
    981
    
    
    
    277
    
    
    
    
    
    
    
    1,258Cash flows from financing activitiesIssuance of common stock
    
    
    9,365
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,365Excess tax benefit from exercise of stock options
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195Payments on senior secured credit facility
    
    
    
    
    
    
    (45,719
    )
    
    
    
    
    
    
    
    
    
    
    (45,719
    )Net cash provided by (used in) financing
activities
    
    
    9,560
    
    
    
    (45,719
    )
    
    
    
    
    
    
    
    
    
    
    (36,159
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (165
    )
    
    
    
    
    
    
    (165
    )Net decrease in cash and cash equivalents
    
    
    
    
    
    
    (6,304
    )
    
    
    (2,154
    )
    
    
    
    
    
    
    (8,458
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    16,973
    
    
    
    13,697
    
    
    
    
    
    
    
    30,670Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    10,669
    
    
    $
    11,543
    
    
    $
    
    
    
    $
    22,212
 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Three Months Ended April 4, 2009AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    20,207
    
    
    $
    7,547
    
    
    $
    454
    
    
    $
    
    
    
    $
    28,208Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (1,020
    )
    
    
    (88
    )
    
    
    
    
    
    
    (1,108
    )Purchase of short-term investments
    
    
    
    
    
    
    (18,124
    )
    
    
    
    
    
    
    
    
    
    
    (18,124
    )Sale of short-term investments
    
    
    
    
    
    
    21,500
    
    
    
    
    
    
    
    
    
    
    
    21,500Net payments from settlement of derivative
contracts
    
    
    
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    680Net cash provided by (used in) investing activities
    
    
    
    
    
    
    3,036
    
    
    
    (88
    )
    
    
    
    
    
    
    2,948Cash flows from financing activitiesIssuance of common stock
    
    
    918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918Payments on senior secured credit facility
    
    
    
    
    
    
    (8,585
    )
    
    
    
    
    
    
    
    
    
    
    (8,585
    )Repurchase of convertible senior subordinated notes
    
    
    (21,125
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,125
    )Net cash used in financing activities
    
    
    (20,207
    )
    
    
    (8,585
    )
    
    
    
    
    
    
    
    
    
    
    (28,792
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    
    
    
    
    520Net increase in cash and cash equivalents
    
    
    
    
    
    
    1,998
    
    
    
    886
    
    
    
    
    
    
    
    2,884Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,143
    
    
    
    8,499
    
    
    
    
    
    
    
    11,642Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    5,141
    
    
    $
    9,385
    
    
    $
    
    
    
    $
    14,526
 19




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##### Table of Contents



10. Fair Value Measurements
  Assets and Liabilities Measured at Fair Value on a Recurring Basi s
  Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableDescription
    
    Identical Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)AssetsMoney market funds
    
    $
    36,516
    
    
    $
    
    
    
    $
    Available-for-sale securities
    
    
    907
    
    
    
    
    
    
    
    Other short-term investments
    
    
    
    
    
    
    230
    
    
    
    Derivatives
    
    
    
    
    
    
    1,041
    
    
    
    Total
    
    $
    37,423
    
    
    $
    1,271
    
    
    $
    LiabilitiesDerivatives
    
    $
    
    
    
    $
    1,253
    
    
    $
    
    Note 11, Derivative Instruments and
Hedging Activities
 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
  20




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##### Table of Contents



Fair Value of Debt
 Note 9, Debt)
  April 3, 2010
    
    
    January 2, 2010Principal /
    
    
    
    
    
    
    Principal /Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair Value2036 Notes (principal)
    
    $
    61,985
    
    
    $
    68,061
    
    
    $
    61,985
    
    
    $
    70,2702041 Notes (principal)
    
    
    250,000
    
    
    
    294,953
    
    
    
    250,000
    
    
    
    304,983Credit Facility (carrying value)
    
    
    79,588
    
    
    
    78,378
    
    
    
    125,307
    
    
    
    123,230$
    391,573
    
    
    $
    441,392
    
    
    $
    437,292
    
    
    $
    498,483
 11. Derivative Instruments and Hedging Activities
     21




---



##### Table of Contents



Fair Values of Derivative InstrumentsAsset Derivatives
    
    
    Liability DerivativesApril 3, 2010
    
    
    January 2, 2010
    
    
    April 3, 2010
    
    
    January 2, 2010Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceSheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair
    
    
    Sheet
    
    
    Fair(in thousands)
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    Value
    
    
    Location
    
    
    ValueDerivatives designated as hedging instrumentsInterest rate swap contracts
    
    Other current assets
    
    $
    
    
    
    Other current assets
    
    $
    
    
    
    Other accrued expenses
    
    $
    98
    
    
    Other accrued expenses
    
    $
    299Foreign exchange forward
contracts
    
    Other current assets
    
    
    1,034
    
    
    Other current assets
    
    
    
    
    
    Other accrued expenses
    
    
    1,155
    
    
    Other accrued expenses
    
    
    1,650Total derivatives designated as hedging instruments
    
    
    
    
    
    $
    1,034
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    1,253
    
    
    
    
    
    
    $
    1,949Derivatives not designated as hedging instrumentsForeign exchange forward
contracts
    
    Other current assets
    
    $
    7
    
    
    Other current assets
    
    $
    10
    
    
    Other accrued expenses
    
    $
    
    
    
    Other accrued expenses
    
    $
    Total derivatives not designated as hedging instruments
    
    
    
    
    
    $
    7
    
    
    
    
    
    
    $
    10
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Total derivatives
    
    
    
    
    
    $
    1,041
    
    
    
    
    
    
    $
    10
    
    
    
    
    
    
    $
    1,253
    
    
    
    
    
    
    $
    1,949
    22




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##### Table of Contents



The Effect of Derivative Instruments on the Consolidated Statement of Operations  for the Three Months Ended April 3, 2010 and April 4, 2009
 Location of GainDerivatives in
    
    Amount of Gain (Loss)
    
    
    (Loss) Reclassified
    
    
    Amount of Gain (Loss) ReclassifiedCash Flow
    
    Recognized in OCI on Derivatives
    
    
    from Accumulated
    
    
    from Accumulated OCI into IncomeHedging
    
    (Effective Portion)
    
    
    OCI into Income
    
    
    (Effective Portion)Relationships
    
    April 3, 2010
    
    
    April 4, 2009
    
    
    (Effective Portion)
    
    
    April 3, 2010
    
    
    April 4, 2009Interest rate swap
contracts
    
    $
    197
    
    
    $
    628
    
    
    Interest expense
    
    $
    (219
    )
    
    $
    (1,033
    )Foreign exchange
contracts
    
    
    1,782
    
    
    
    124
    
    
    Other (expense) income
    
    
    (142
    )
    
    
    717Total
    
    $
    1,979
    
    
    $
    752
    
    
    
    
    
    
    $
    (361
    )
    
    $
    (316
    )
 Derivatives not
    
    Location of Gain (Loss)
    
    
    Amount of Gain (Loss) RecognizedDesignated as
    
    Recognized in Income
    
    
    in Income on DerivativesHedging Instruments
    
    on Derivatives
    
    
    April 3, 2010
    
    
    April 4, 2009Foreign exchange contracts
    
    Other (expense) income
    
    $
    282
    
    
    $
    353
 12. Industry Segment Information and Foreign Operations
    Three Months Ended(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009United StatesNet sales
    
    $
    98,310
    
    
    $
    89,670Long-lived assets
    
    
    813,153
    
    
    
    828,389InternationalNet sales
    
    
    36,616
    
    
    
    33,968Long-lived assets
    
    
    17,150
    
    
    
    16,204
 23




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements. Any statements not of historical fact may be considered
forward-looking statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially from those expressed in such
forward-looking statements as a result of many factors, including, but not limited to, those
discussed under the heading Forward-Looking Statements at the end of this item of the report.
 Critical Accounting Policies and Estimates
  Overview
     Her Option ® Annual Report on Form 10-K for fiscal 2009 Notes to Consolidated Financial Statements  No. 5, Goodwill and
 24




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##### Table of Contents



Intangible Asset Her Option ® Notes to Consolidated Financial Statements  No. 8, Goodwill and Intangible Assets
 www.AmericanMedicalSystems.com.
 Results of Operations
  Three Months Ended(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009
    
    
    $ Increase
    
    
    % IncreaseNet SalesMens health
    
    $
    64,480
    
    
    $
    59,459
    
    
    $
    5,021
    
    
    
    8.4
    %BPH therapy
    
    
    25,911
    
    
    
    25,389
    
    
    
    522
    
    
    
    2.1
    %Womens health
    
    
    42,748
    
    
    
    36,300
    
    
    
    6,448
    
    
    
    17.8
    %Uterine health (a)
    
    
    1,787
    
    
    
    2,490
    
    
    
    (703
    )
    
    
    -28.2
    %Total
    
    $
    134,926
    
    
    $
    123,638
    
    
    $
    11,288
    
    
    
    9.1
    %GeographyUnited States
    
    $
    96,523
    
    
    $
    87,180
    
    
    $
    9,343
    
    
    
    10.7
    %United States  Uterine health (a)
    
    
    1,787
    
    
    
    2,490
    
    
    
    (703
    )
    
    
    -28.2
    %International
    
    
    36,616
    
    
    
    33,968
    
    
    
    2,648
    
    
    
    7.8
    %Total
    
    $
    134,926
    
    
    $
    123,638
    
    
    $
    11,288
    
    
    
    9.1
    %Three Months EndedApril 3, 2010
    
    
    April 4, 2009Percent of net salesMens health
    
    
    47.8
    %
    
    
    48.1
    %BPH therapy
    
    
    19.2
    %
    
    
    20.5
    %Womens health
    
    
    31.7
    %
    
    
    29.4
    %Uterine health (a)
    
    
    1.3
    %
    
    
    2.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    72.9
    %
    
    
    72.5
    %International
    
    
    27.1
    %
    
    
    27.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 
 (a)
    
    The uterine health product line, Her Option ®was sold in February, 2010. Net sales in
the first quarter of 2010 consist of end-customer net sales earned prior to the date of
sale, in addition to net sales earned as part of the product supply agreement, which is part of
the divestiture agreement with CooperSurgical, Inc. 25




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##### Table of Contents



Three Months Ended
    
    
    $ Increase
    
    
    % Increase(in thousands)
    
    April 3, 2010
    
    
    April 4, 2009
    
    
    (Decrease)
    
    
    (Decrease)Net sales
    
    $
    134,926
    
    
    $
    123,638
    
    
    $
    11,288
    
    
    
    9.1
    %Cost of sales
    
    
    21,027
    
    
    
    23,342
    
    
    
    (2,315
    )
    
    
    -9.9
    %Gross profit
    
    
    113,899
    
    
    
    100,296
    
    
    
    13,603
    
    
    
    13.6
    %Operating expensesMarketing and selling
    
    
    48,197
    
    
    
    43,348
    
    
    
    4,849
    
    
    
    11.2
    %Research and development
    
    
    13,509
    
    
    
    12,811
    
    
    
    698
    
    
    
    5.4
    %General and administrative
    
    
    12,690
    
    
    
    10,779
    
    
    
    1,911
    
    
    
    17.7
    %Amortization of intangibles
    
    
    3,047
    
    
    
    3,265
    
    
    
    (218
    )
    
    
    -6.7
    %Total operating expenses
    
    
    77,443
    
    
    
    70,203
    
    
    
    7,240
    
    
    
    10.3
    %Operating income
    
    
    36,456
    
    
    
    30,093
    
    
    
    6,363
    
    
    
    21.1
    %Royalty income
    
    
    308
    
    
    
    933
    
    
    
    (625
    )
    
    
    -67.0
    %Interest expense
    
    
    (3,954
    )
    
    
    (5,410
    )
    
    
    (1,456
    )
    
    
    -26.9
    %Amortization of financing costs
    
    
    (3,693
    )
    
    
    (3,981
    )
    
    
    (288
    )
    
    
    -7.2
    %Gain on extinguishment of debt
    
    
    
    
    
    
    4,562
    
    
    
    (4,562
    )
    
    
    n/aGain on sale of non-strategic assets
    
    
    7,719
    
    
    
    
    
    
    
    7,719
    
    
    
    n/aOther (expense) income
    
    
    (516
    )
    
    
    655
    
    
    
    (1,171
    )
    
    
    n/aIncome before taxes
    
    
    36,320
    
    
    
    26,852
    
    
    
    9,468
    
    
    
    35.3
    %Provision for income taxes
    
    
    15,662
    
    
    
    9,772
    
    
    
    5,890
    
    
    
    60.3
    %Net income
    
    $
    20,658
    
    
    $
    17,080
    
    
    $
    3,578
    
    
    
    20.9
    %
 Percent of SalesFor the Three Months EndedApril 3, 2010
    
    
    April 4, 2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    15.6
    %
    
    
    18.9
    %Gross profit
    
    
    84.4
    %
    
    
    81.1
    %Operating expensesMarketing and selling
    
    
    35.7
    %
    
    
    35.1
    %Research and development
    
    
    10.0
    %
    
    
    10.4
    %General and administrative
    
    
    9.4
    %
    
    
    8.7
    %Amortization of intangibles
    
    
    2.3
    %
    
    
    2.6
    %Total operating expenses
    
    
    57.4
    %
    
    
    56.8
    %Operating income
    
    
    27.0
    %
    
    
    24.3
    %Royalty income
    
    
    0.2
    %
    
    
    0.8
    %Interest expense
    
    
    -2.9
    %
    
    
    -4.4
    %Amortization of financing costs
    
    
    -2.7
    %
    
    
    -3.2
    %Gain on extinguishment of debt
    
    
    0.0
    %
    
    
    3.7
    %Gain on sale of non-strategic assets
    
    
    5.7
    %
    
    
    0.0
    %Other (expense) income
    
    
    -0.4
    %
    
    
    0.5
    %Income before taxes
    
    
    26.9
    %
    
    
    21.7
    %Provision for income taxes
    
    
    11.6
    %
    
    
    7.9
    %Net income
    
    
    15.3
    %
    
    
    13.8
    %
 26




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##### Table of Contents



Comparison of the Three Months Ended April 3, 2010 to the Three Months Ended April 4, 2009
 Net sales. Elevate ®
 Mens health products. AMS 700 ® MS 
 BPH therapy products. GreenLight 
 Womens health products. Elevate ® MiniArc ®
 Uterine health products. Her Option® Notes to Consolidated Financial Statements  No. 8, Goodwill and Intangible
Assets
 Net sales by geography and foreign exchange effects.
 Gross profit.
 Marketing and selling.
 Research and development.
 27




---



##### Table of Contents



General and administrative.
 Amortization of intangibles. Her Option ®
 Royalty income.
 Interest expense.
 Amortization of financing costs.
 Gain on sale of non-strategic assets Her Option® Her Option®
 Other (expense) income
 Provision for income taxes. Her Option®
 28




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##### Table of Contents



Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities. Her Option®
 Cash flows from financing activities.
 2036 Notes.
    29




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##### Table of Contents



2041 Notes.
    2036 Notes and 2041 Notes  Potential Dilution
  If the average
    
    The number of common share equivalents potentially included in the computation ofmarket price
    
    of diluted EPS would be (1):
    
    
    Percent Dilution (2)of our stock is:
    
    2036 Notes
    
    2041 Notes
    
    Total
    
    2036 Notes
    
    2041 Notes
    
    Total$19.00
    
     (anti-dilutive)
    
     (anti-dilutive)
    

     (anti-dilutive)
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %$20.00
    
    0.1              million
    
    0.4                   million
    
    0.5               million
    
    
    0.1
    %
    
    
    0.5
    %
    
    
    0.6
    %$22.50
    
    0.4              million
    
    1.8                   million
    
    2.2               million
    
    
    0.6
    %
    
    
    2.3
    %
    
    
    2.9
    %$25.00
    
    0.7              million
    
    2.9                   million
    
    3.6               million
    
    
    0.9
    %
    
    
    3.7
    %
    
    
    4.6
    %$27.50
    
    0.9              million
    
    3.8                   million
    
    4.7               million
    
    
    1.2
    %
    
    
    4.8
    %
    
    
    6.0
    %$30.00
    
    1.1              million
    
    4.5                   million
    
    5.6               million
    
    
    1.5
    %
    
    
    5.7
    %
    
    
    7.2
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method. The formula to calculate the potentially dilutive shares related to
our Convertible Notes is as follows: (
    
    Principal Amount
    
    X
    
    Market price
    
    
    
    Principal
    
    
    )
    
    
    =
    
    Potentially dilutive shares$19.406 conversion price
    
    
    
    of stock
    
    
    
    Amount
    
    
    
    
    
    
    
    included in EPSMarket price of stock
 (2)
    
    The percent dilution is based on 75,367,367 outstanding shares as of April 3, 2010. 30




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##### Table of Contents



Credit Facility.
     Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    3.25:1.00 (maximum)
    
    
    2.17Senior Leverage Ratio (2)
    
    2.00:1.00 (maximum)
    
    
    0.44Interest Coverage Ratio (3)
    
    4.00:1.00 (minimum)
    
    
    9.92Fixed Charge Coverage Ratio (4)
    
    1.50:1.00 (minimum)
    
    
    2.54Maximum Capital Expenditures (5)
    
    $20.0 million
    
    $1.3
    million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four
quarters.(3)
    
    Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to cash interest expense for
such period.(4)
    
    Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to fixed charges (cash
interest expense, scheduled principal payments on debt, capital expenditures, income taxes paid,
earn-out and milestone payments) for such period.(5)
    
    Limit of capital expenditures for the full year.  31




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##### Table of Contents



Additional Information
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 Forward-Looking Statements
    32




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##### Table of Contents



33




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##### Table of Contents



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




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##### Table of Contents



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




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM IA. RISK FACTORS
 The impact of health care reform in the U.S. on us is uncertain and may adversely affect our
business
 The new health care legislation in the U.S. will impose additional taxes on us.
  36




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##### Table of Contents



ITEM 6. EXHIBITS
 Item No.
    
    Item
    
    Method of Filing2.1
    
    Asset Purchase Agreement, dated as of
February 16, 2010, between American
Medical Systems, Inc. and
CooperSurgical, Inc.
    
    Incorporated by
reference to
Exhibit 2.1 of the
Companys Form 8-K
filed on February
22, 2010 (File No.
000-30733).10.1
    
    Form of Stock Option Certificate for
Executive Officers under the 2005
Stock Incentive Plan (Version Modified
in 2010).
    
    Incorporated by
reference to
Exhibit 10.1 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.2
    
    Form of Restricted Stock Award for
Executive Officers under the 2005
Stock Incentive Plan.
    
    Incorporated by
reference to
Exhibit 10.2 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.3
    
    The American Medical Systems, Inc.
Executive Severance Pay Plan.
    
    Incorporated by
reference to
Exhibit 10.4 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.4
    
    2010 Executive Variable Incentive Plan.
    
    Incorporated by
reference to
Exhibit 10.3 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.5
    
    Summary of Named Executive Officer
Compensation (2010).
    
    Incorporated by
reference to
Exhibit 10.26 of
the Companys
Annual Report on
Form 10-K for the
Fiscal Year Ended
January 2, 2010
(File No.
000-30733).10.6
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Anthony P. Bihl, III and
American Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.1 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.7
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Mark A. Heggestad and American
Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.2 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.8
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Joe W. Martin and American
Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.3 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.9
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Maximillian D. Fiore and
American Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.4 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.10
    
    Separation Agreement, dated March 31,
2010, by and between Lawrence W.
Getlin and American Medical Systems,
Inc.
    
    Filed with this
Quarterly Report on
Form 10-Q.10.11
    
    Summary of Director Compensation
(Version Modified April 2010).
    
    Filed with this
Quarterly Report on
Form 10-Q.
 37




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##### Table of Contents



Item No.
    
    Item
    
    Method of Filing10.12
    
    Form of Restricted Stock Award for
Directors under the 2005 Stock
Incentive Plan.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.1
    
    Certification by Chief Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.2
    
    Certification by Chief Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.
 38




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##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMS HOLDINGS, INCMay 11, 2010
    
    
    
    By
    
    /s/ Anthony P. Bihl, IIIDate
    
    
    
    
    
    Anthony P. Bihl, IIIPresident and Chief Executive Officer(Principal Executive Officer)May 11, 2010
    
    
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    
    
    Mark A. HeggestadExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)
 39




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended April 3, 2010
 Item No.
    
    Item
    
    Method of Filing2.1
    
    Asset Purchase Agreement, dated as of
February 16, 2010, between American
Medical Systems, Inc. and
CooperSurgical, Inc.
    
    Incorporated by
reference to
Exhibit 2.1 of the
Companys Form 8-K
filed on February
22, 2010 (File No.
000-30733).10.1
    
    Form of Stock Option Certificate for
Executive Officers under the 2005
Stock Incentive Plan (Version Modified
in 2010).
    
    Incorporated by
reference to
filed Exhibit 10.1 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.2
    
    Form of Restricted Stock Award for
Executive Officers under the 2005
Stock Incentive Plan.
    
    Incorporated by
reference to
Exhibit 10.2 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.3
    
    The American Medical Systems, Inc.
Executive Severance Pay Plan.
    
    Incorporated by
reference to
Exhibit 10.4 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.4
    
    2010 Executive Variable Incentive Plan.
    
    Incorporated by
reference to
Exhibit 10.3 of the
Companys Form 8-K
filed February 19,
2010 (File No.
000-30733).10.5
    
    Summary of Named Executive Officer
Compensation (2010).
    
    Incorporated by
reference to
Exhibit 10.26 of
the Companys
Annual Report on
Form 10-K for the
Fiscal Year Ended
January 2, 2010
(File No.
000-30733).10.6
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Anthony P. Bihl, III and
American Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.1 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.7
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Mark A. Heggestad and American
Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.2 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.8
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Joe W. Martin and American
Medical Systems, Inc.
    
    Incorporated by
reference to
 Exhibit 10.3 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.9
    
    Amended and Restated Employment
Agreement, dated March 26, 2010,
between Maximillian D. Fiore and
American Medical Systems, Inc.
    
    Incorporated by
reference to
Exhibit 10.4 of the
Companys Form 8-K
filed March 31,
2010 (File No.
000-30733).10.10
    
    Separation Agreement, dated March 31,
2010, by and between Lawrence W.
Getlin and American Medical Systems,
Inc.
    
    Filed with this
Quarterly Report on
 Form 10-Q.10.11
    
    Summary of Director Compensation
(Version Modified April 2010).
    
    Filed with this
Quarterly Report on
Form 10-Q.
 40




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##### Table of Contents



Item No.
    
    Item
    
    Method of Filing10.12
    
    Form of Restricted Stock Award for
Directors under the 2005 Stock
Incentive Plan.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.1
    
    Certification by Chief Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.31.2
    
    Certification by Chief Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.32.1
    
    Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this
Quarterly Report on
Form 10-Q.
 41