##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-K
 Annual Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 For the fiscal year ended:
    
    Commission file number:December 30, 2006
    
    000  30733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State of Incorporation)
    
    (IRS Employer Identification No.)
 10700 Bren Road West
Minnetonka, Minnesota 55343
  952-930-6000
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class:
    
    Name of each exchange on which registered:Common stock, par value $.01 per share
    
    The Nasdaq stock market
 Securities registered pursuant to Section 12(g) of the Act:
None
 þ o
 o þ
 þ o
 þ
  þ o o
 o þ




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##### 



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 FORM 10-K
 For the Fiscal Year Ended December 30, 2006
 TABLE OF CONTENTS
 Description
    
    PagePART IItem 1.
Business
    
    
    1Item 1A. Risk Factors
    
    
    8Item 1B.
Unresolved Staff Comments
    
    
    15Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 4A. Executive Officers of American Medical Systems
    
    
    16PART IIItem 5. Market For American Medical Systems Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    20Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    37Item 9A. Controls and Procedures
    
    
    38Item 9B. Other Information
    
    
    38PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    39Item 11. Executive Compensation
    
    
    39Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    39Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    39Item 14. Principal Accountant Fees and Services
    
    
    39PART IVItem 15. Exhibits and Financial Statement Schedule
    
    
    40FINANCIAL STATEMENTS AND NOTES THERETO
    
    
    F-1EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
    
    
    E-1Employment Agreement with Mark A. HeggestadSummary of Director CompensationSummary of Named Executive Officer CompensationSubsidiariesConsent of Ernst & Young LLP302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 1350 Certification




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FORWARD-LOOKING INFORMATION
 This Annual Report on Form 10-K contains certain 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. Factors known to us that could cause such material differences are
identified in this Annual Report on Form 10-K under Item 1A, Risk Factors, and in the Management
Discussion and Analysis of Financial Condition and Results of Operations. 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.
 
 PART I
 
 Item 1. Business
 Overview
  AdVance AMS 700 MS, Apogee ® Perigee ® Her Option®
 Greenlight/HPS
   1




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www.AmericanMedicalSystems.com.
 Markets and Products
     ® ® ®
 2




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##### Table of Contents



AMS 700 MS AdVance Greenlight/HPS StoneLight® Monarc ® Apogee Perigee
 Mens Health
  AMS 700 MS AMS 700 InhibiZone ® Tactile
Pump ® Momentary Squeeze Pump
  AMS 800 InVance ® AdVance
  3




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##### Table of Contents



Greenlight GreenLight ® GreenLight HPS GreenLight HPS StoneLight SureFlex StoneLight SureFlex
 UroLume ®
 TherMatrx
 Womens Health
   AMS 800 In-Fast SPARC ® Monarc, and BioArc ® In-Fast SPARC SPARC Monarc BioArc SP ® BioArc SP SPARC BioArc TO ® Monarcs BioArcs InteXen LP ® BioArc
 Acticon ®
 4




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##### Table of Contents



Apogee Perigee Apogee Perigee InteXen and
IntePro ®
 Her Option Her Option
 Selling and Marketing
    Manufacturing and Supply
  TherMatrx Greenlight/HPS InhibiZone
  5




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Research and Development
  AMS 700
MS AdVance InVance InhibiZone
  Competition
   Intellectual Property
   6




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Government Regulation
      Third-Party Reimbursement
    7




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Employees
  Financial Information about Geographic Areas
 Notes to
Consolidated Financial Statements  No. 13, Industry Segment Information and Foreign Operations
 
 Item 1A. Risk Factors
  Our revenues and operating results may be negatively affected and we may not achieve future growth
projections if we fail to compete successfully against our competitors.
  Our sales may be adversely affected if physicians do not recommend or endorse our products.
  The failure to successfully integrate Laserscopes business and operations in the expected time
frame, or at all, may adversely affect the combined companys future results.
  
    
    failure to manage successfully relationships with customers and suppliers;
    
    failure to transition successfully substantial revenue from indirect sales relationships
to direct sales, including, but not limited to potential litigation with distributors;
    
    failure of customers to accept new products or to continue as customers of the combined
company;
    
    failure to coordinate effectively sales and marketing efforts to communicate the
capabilities of the combined company;
 8




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
    
    failure to qualify the combined companys products as a primary source of supply with
OEM customers on a timely basis or at all;
    
    failure to rollout successfully the Laserscope Greenlight HPS product to treat obstructive BPH;
    
    potential incompatibility of technologies and systems;
    
    diversion of management resources from the business of the combined company to
integration-related issues;
    
    failure to leverage the increased scale of the combined company quickly and effectively;
    
    potential difficulties integrating and harmonizing financial reporting systems;
    
    failure to incorporate the requirements of Section 404 of the Sarbanes-Oxley Act of 2002
into the business processes at the newly acquired facilities;
    
    failure to implement successfully our ERP system at Laserscope; and
    
    the loss of key employees.
  .
 Our growth will be slowed if new products are delayed or are not accepted.
  Our sales could decline if our procedures are not accepted by patients.
  Changes in third party reimbursement for our products and therapies may influence our customers
purchasing activity.
  9




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In connection with our acquisition of Laserscope, we have substantially increased our debt
leverage.
 Notes to Consolidated Financial Statements  No. 10, Debt Notes to
Consolidated Financial Statements  No. 10, Debt
  
    
    requiring us to use a substantial portion of our cash to pay principal and interest
on our debt instead of utilizing those funds for other purposes such as working
capital, capital expenditures, and acquisitions;
    
    limiting our ability to obtain any necessary additional financing in the future for
working capital, capital expenditures, debt service requirements, or other purposes;
    
    placing us at a competitive disadvantage relative to our competitors who have lower levels of debt;
    
    decreasing our debt ratings and increasing our cost of borrowed funds;
    
    making us more vulnerable to a downturn in our business or the economy generally; and
    
    subjecting us to the risk of being forced to refinance at higher interest rates than
these amounts when due.
 Conversion of our Convertible Notes into common stock could result in dilution to our shareholders.
 Liquidity and Capital Resources Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Our Credit Facility contains financial covenants and other restrictions which may limit our ability
to operate our business.
  10




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We may not be able to supply products that incorporate materials or components which are single or
sole-sourced.
 TherMatrx InteXen IntePro
  The installation of our new global ERP software system in April 2007 may result in delays to our
operations during the initial start-up phase.
  
    
    inability to accurately plan for and purchase materials needed to manufacture our products;
    
    inability to accurately account for raw, work-in-process, and finished goods inventory;
    
    inability to accurately process customer orders, shipments, and track accounts receivables;
    
    inability to report monthly and quarterly financial results in a timely fashion; and
    
    the development of facts that support a revision in the estimated useful life of the
software, requiring amortization in less than a 5 year period.
 Loss of our principal manufacturing facilities would adversely affect our financial position.
  Inadequate data submissions or clinical study results which do not support a product approval may
delay or preclude a products commercialization.
  11




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Our sale of products could be reduced if we are unable to comply with regulatory requirements or
obtain the regulatory approvals necessary to market our products in the United States and foreign
jurisdictions.
  
    
    imposing fines and penalties on us;
    
    preventing us from manufacturing or distributing our products;
    
    bringing civil or criminal charges against us;
    
    delaying the introduction or denying marketing approval of our new products;
    
    recalling, withdrawing, or seizing our products; and
    
    requiring additional regulatory filings and/or approvals.
 In the event we fail to comply with manufacturing regulations, we could be prevented from selling
our products.
  We may experience an interruption in sales of a product and incur costs if that product is recalled
or withdrawn.
  Our business may suffer if our new products are not cleared to market in the United States or any
other market.
  
    
    ineffective or cause harmful side effects during preclinical testing or clinical trials;
    
    difficult to manufacture on a large scale; or
    
    uneconomical for the healthcare reimbursement system.
 12




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We may be unable to adequately protect our intellectual property rights or obtain necessary
intellectual property rights from third parties which could adversely affect our business,
including losing market share to our competitors and the inability to operate our business
profitably.
   
    
    these agreements will not be breached;
    
    we will have adequate remedies for any breach; or
    
    our trade secrets will not otherwise become known to or independently developed by our competitors.
  We could incur significant costs and/or be required to stop the sale of the related product as a
result of litigation or other proceedings relating to patent and other intellectual property
rights.
  We could incur significant costs or other negative impacts if significant product liability claims
are made against us.
  13




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We are required to comply with broad, pervasive and continually changing federal and state fraud
and abuse laws, and, if we are unable to fully comply with such laws, we could face substantial
penalties and our products could be excluded from government healthcare programs.
  
    
    the federal Anti-Kickback Statute, which prohibits persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash
or in kind, to induce either the referral of an individual, or furnishing or arranging for
a good or service, for which payment may be made under federal healthcare programs, such as
the Medicare and Medicaid programs, and corresponding state laws;
    
    the federal False Claims Act, which imposes civil and criminal liability on individuals
and entities who submit, or cause to be submitted, false or fraudulent claims for payment
to the government; and
    
    the federal False Statements Statute, which prohibits knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false
statement in connection with the delivery of or payment for healthcare benefits, items or
services.
  If physician malpractice insurance costs increase, at some point physicians may alter their
practice patterns and cease using our products.
  Changes in international stability or foreign exchange rates could negatively impact our sales.
  14




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##### Table of Contents




    
    changes in regulatory requirements;
    
    delays resulting from difficulty in obtaining export licenses for certain technology;
    
    customs, tariffs and other barriers and restrictions; and
    
    burdens of complying with a variety of foreign and United States laws such as, but not
limited to, Foreign Corrupt Practices Act and Export Controls.
 Product Supply Agreement with Iridex Corporation
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
   
 Item 3. Legal Proceedings
 Her Option Her Option
 15




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Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 4A. Executive Officers of American Medical Systems
  Name
    
    Age
    
    TitleMartin J. Emerson
    
    
    43
    
    
    President and Chief Executive Officer; DirectorMark A. Heggestad
    
    
    48
    
    
    Executive Vice President and Chief Financial OfficerRoss A. Longhini
    
    
    45
    
    
    Executive Vice President and Chief Operating OfficerLawrence W. Getlin
    
    
    61
    
    
    Senior Vice President, Compliance, Quality Systems and LegalJanet L. Dick
    
    
    50
    
    
    Senior Vice President, Human ResourcesJohn F. Nealon
    
    
    44
    
    
    Senior Vice President, Business DevelopmentStephen J. McGill
    
    
    45
    
    
    Senior Vice President, Global SalesR. Scott Etlinger
    
    
    45
    
    
    Senior Vice President, Global OperationsAndrew E. Joiner
    
    
    45
    
    
    Vice President, General Manager Womens HealthWhitney D. Erickson
    
    
    40
    
    
    Vice President, General Manager Mens Health
 Martin J. Emerson
 Mark A. Heggestad
 Ross A. Longhini
 16




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##### Table of Contents



Lawrence W. Getlin, J.D.
 Janet
L. Dick
 John F. Nealon
 Stephen J. McGill
 R. Scott Etlinger
 Andrew E. Joiner
 Whitney D. Erickson
 17




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##### Table of Contents



PART II
 
 Item 5. Market for American Medical Systems Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
 Market Information
  2006
    
    2005High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    23.05
    
    
    $
    18.04
    
    
    $
    20.59
    
    
    $
    16.70Second quarter
    
    $
    22.31
    
    
    $
    15.14
    
    
    $
    20.97
    
    
    $
    17.01Third quarter
    
    $
    18.95
    
    
    $
    16.66
    
    
    $
    23.51
    
    
    $
    17.75Fourth quarter
    
    $
    18.97
    
    
    $
    16.63
    
    
    $
    19.96
    
    
    $
    15.20
 Holders
  Dividends
  Recent Sales of Unregistered Equity Securities
  Issuer Purchases of Equity Securities
  18




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Stock Performance Graph
   
 12/2/2001
    
    
    12/27/2002
    
    
    1/2/2004
    
    
    12/31/2004
    
    
    12/30/2005
    
    
    12/30/2006AMS Common Stock
    
    $
    100.00
    
    
    $
    76.74
    
    
    $
    103.40
    
    
    $
    197.68
    
    
    $
    168.61
    
    
    $
    175.13Comparable Company
    
    $
    100.00
    
    
    $
    94.75
    
    
    $
    120.83
    
    
    $
    137.17
    
    
    $
    146.28
    
    
    $
    143.70NASDAQ Market Index
    
    $
    100.00
    
    
    $
    69.75
    
    
    $
    104.88
    
    
    $
    113.70
    
    
    $
    116.19
    
    
    $
    128.12
 19




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Item 6. Selected Financial Data
  Statement of Operations Data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Net sales
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    208,772
    
    
    $
    168,283
    
    
    $
    141,648Cost of sales(1)
    
    
    68,872
    
    
    
    46,111
    
    
    
    38,331
    
    
    
    27,353
    
    
    
    24,605Gross profit
    
    
    289,446
    
    
    
    216,480
    
    
    
    170,441
    
    
    
    140,930
    
    
    
    117,043Operating expensesMarketing and selling
    
    
    123,204
    
    
    
    92,001
    
    
    
    72,910
    
    
    
    63,107
    
    
    
    50,152Research and development
    
    
    33,877
    
    
    
    20,966
    
    
    
    15,786
    
    
    
    14,924
    
    
    
    11,858In-process research and development (2)
    
    
    94,035
    
    
    
    9,220
    
    
    
    35,000
    
    
    
    
    
    
    
    General and administrative
    
    
    34,417
    
    
    
    21,713
    
    
    
    21,617
    
    
    
    17,099
    
    
    
    13,186Integration costs (3)
    
    
    1,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    12,393
    
    
    
    7,884
    
    
    
    5,708
    
    
    
    4,160
    
    
    
    3,775Total operating expenses
    
    
    299,638
    
    
    
    151,784
    
    
    
    151,021
    
    
    
    99,290
    
    
    
    78,971Operating (expense) income
    
    
    (10,192
    )
    
    
    64,696
    
    
    
    19,420
    
    
    
    41,640
    
    
    
    38,072Other income (expense)Royalty and other
    
    
    1,984
    
    
    
    500
    
    
    
    2,249
    
    
    
    3,801
    
    
    
    4,172Interest income
    
    
    2,754
    
    
    
    1,246
    
    
    
    517
    
    
    
    476
    
    
    
    1,130Interest expense (4)
    
    
    (18,395
    )
    
    
    (217
    )
    
    
    (783
    )
    
    
    (1,828
    )
    
    
    (2,758
    )Financing charges (5)
    
    
    (8,302
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment impairment (6)
    
    
    
    
    
    
    
    
    
    
    (4,500
    )
    
    
    
    
    
    
    Total other income (expense)
    
    
    (21,959
    )
    
    
    1,529
    
    
    
    (2,517
    )
    
    
    2,449
    
    
    
    2,544(Loss) income from continuing operations
before income taxes
    
    
    (32,151
    )
    
    
    66,225
    
    
    
    16,903
    
    
    
    44,089
    
    
    
    40,616Provision for income taxes(7)
    
    
    11,731
    
    
    
    26,950
    
    
    
    20,023
    
    
    
    15,039
    
    
    
    15,730Net (loss) income from continuing operations
    
    
    (43,882
    )
    
    
    39,275
    
    
    
    (3,120
    )
    
    
    29,050
    
    
    
    24,886Loss from discontinued operations, net of tax
benefit of $2.7 million(8)
    
    
    (5,435
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (49,317
    )
    
    $
    39,275
    
    
    $
    (3,120
    )
    
    $
    29,050
    
    
    $
    24,886Net (loss) income per shareBasic net (loss) earnings from continuing
operations
    
    $
    (0.63
    )
    
    $
    0.57
    
    
    $
    (0.05
    )
    
    $
    0.44
    
    
    $
    0.39Discontinued operations, net of tax
    
    
    (0.08
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic net (loss) earnings
    
    $
    (0.70
    )
    
    $
    0.57
    
    
    $
    (0.05
    )
    
    $
    0.44
    
    
    $
    0.39Diluted net (loss) earnings from continuing
operations
    
    $
    (0.63
    )
    
    $
    0.55
    
    
    $
    (0.05
    )
    
    $
    0.42
    
    
    $
    0.36Discontinued operations, net of tax
    
    
    (0.08
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted net (loss) earnings
    
    $
    (0.70
    )
    
    $
    0.55
    
    
    $
    (0.05
    )
    
    $
    0.42
    
    
    $
    0.36
 Balance Sheet Data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Cash, cash equivalents, and short-term investments
    
    $
    29,541
    
    
    $
    46,390
    
    
    $
    51,168
    
    
    $
    58,953
    
    
    $
    79,429Working capital
    
    
    131,051
    
    
    
    69,533
    
    
    
    79,575
    
    
    
    92,729
    
    
    
    100,371Total assets
    
    
    1,122,507
    
    
    
    359,326
    
    
    
    300,550
    
    
    
    279,327
    
    
    
    251,645Long-term liabilities
    
    
    738,812
    
    
    
    3,072
    
    
    
    3,126
    
    
    
    12,315
    
    
    
    21,945Stockholders equity
    
    
    281,162
    
    
    
    302,879
    
    
    
    249,172
    
    
    
    240,346
    
    
    
    204,262
 
 (1)
    
    During the fourth quarters of 2003 and 2002, we reduced our warranty allowance by $3.1 million and $2.9 million,
respectively, and reduced cost of sales, increasing operating income by the same amounts. 20




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(2)
    
    In 2006, we recognized $25.6 million, $2.1 million, $62.1 million and $4.3 million,
respectively, for in-process research and development charges related to the acquisitions of
BioControl, Solarant, Laserscope and Ovion. In 2005 and 2004, we recognized in-process research
and development charges of $9.2 million and $35.0 million, respectively, related to the
acquisitions of Ovion and TherMatrx. For a more complete description of these items and their
impact on financial results, see Notes to Consolidated Financial Statements  No. 2, Acquisition
and Financing of Laserscope,and No. 4, Acquisitions.(3)
    
    In 2006, we recorded $1.7 million of integration costs associated with the Laserscope
acquisition, primarily related to travel, legal, consulting and retention bonuses. For more
information regarding the Laserscope acquisition, see Notes to Consolidated Financial Statements -
No. 2, Acquisition and Financing of Laserscope.(4)
    
    During 2006, interest expense included interest incurred on $373.8 million principal amount of
convertible notes we issued on June 27, 2006. Interest expense also included interest incurred on
our senior secured credit facility entered into on July 20, 2006. Our average borrowings under
this facility were approximately $366.0 million from inception through December 30, 2006. We also
incurred interest expense related to short-term borrowing activity. For a more complete description
of these items and their impact on our financial results, see Notes to Consolidated Financial
Statements  No. 10, Debt,and No. 9, Credit Agreements.(5)
    
    Financing charges during 2006 include a $7.0 million commitment fee for a bridge loan of up to
$180 million in preparation for the acquisition of Laserscope. We did not use this financing for
the Laserscope acquisition. Financing charges also include $1.3 million of amortization of
deferred financing costs and debt discount related to our convertible notes and our senior secured
credit facility. For a more complete description of these items, see Notes to Consolidated
Financial Statements  No. 10, Debt and No. 9, Credit Agreements.(6)
    
    During the fourth quarter of 2004, we recognized an investment impairment loss of $4.5 million
related to our investment in InjecTx. For a more complete description of this item and its impact
on financial results see Notes to Consolidated Financial Statements  No. 7, Investment in
Technology.(7)
    
    During the third quarter of 2003, we applied for and recognized U.S. tax benefits related to
research and development and extraterritorial income exclusion tax credits for the years 1999
through 2002, resulting in a $1.1 million reduction in 2003 tax expense. In addition, with the
exception of BioControl, the in-process research and development charges described above for 2004
through 2006, as well as the investment impairment charge in 2004, have no related tax benefit. In
2006, we received a $2.4 million tax refund associated with the favorable agreement reached with
the IRS involving the review of the 2001 and 2002 domestic income tax returns.(8)
    
    In conjunction with our acquisition of Laserscope in the third quarter of 2006, we committed to
a plan to divest Laserscopes aesthetics business. The financial results of the aesthetics
business have been reported as discontinued operations beginning from the date of acquisition of
July 20, 2006. For a more complete description of the discontinued operations and the related
impact on our financial results, refer to Notes to Consolidated Financial Statements  No. 3,
Discontinued Operations; Sale of Aesthetics Business (Subsequent Event). 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introductory Overview
   21




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##### Table of Contents



AdVance AMS 700 MS, Apogee Perigee Her Option
 Greenlight/HPS
   Laserscope Acquisition
   Notes to Consolidated Financial Statements  No. 2, Acquisition and Financing of Laserscope.
 Stock-Based Compensation
 Share-Based Payment
 Notes to Consolidated Financial Statements  No. 11 Stock-Based Compensation
 22




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Results of Operations
 Sales trends
  (in thousands)
    
    2006
    
    2005
    
    $ Increase
    
    % Increase
    
    2005
    
    2004
    
    $ Increase
    
    % IncreaseSalesProduct LineMens health
    
    $
    230,872
    
    
    $
    163,084
    
    
    $
    67,788
    
    
    
    41.6
    %
    
    $
    163,084
    
    
    $
    137,009
    
    
    $
    26,075
    
    
    
    19.0
    %Womens health
    
    
    127,446
    
    
    
    99,507
    
    
    
    27,939
    
    
    
    28.1
    %
    
    
    99,507
    
    
    
    71,763
    
    
    
    27,744
    
    
    
    38.7
    %Total
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    95,727
    
    
    
    36.5
    %
    
    $
    262,591
    
    
    $
    208,772
    
    
    $
    53,819
    
    
    
    25.8
    %GeographyUnited States
    
    $
    272,679
    
    
    $
    205,463
    
    
    $
    67,216
    
    
    
    32.7
    %
    
    $
    205,463
    
    
    $
    165,140
    
    
    $
    40,323
    
    
    
    24.4
    %International
    
    
    85,639
    
    
    
    57,128
    
    
    
    28,511
    
    
    
    49.9
    %
    
    
    57,128
    
    
    
    43,632
    
    
    
    13,496
    
    
    
    30.9
    %Total
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    95,727
    
    
    
    36.5
    %
    
    $
    262,591
    
    
    $
    208,772
    
    
    $
    53,819
    
    
    
    25.8
    %Percent of total salesProduct LineMens health
    
    
    64.4
    %
    
    
    62.1
    %
    
    
    
    
    
    
    
    
    
    
    62.1
    %
    
    
    65.6
    %Womens health
    
    
    35.6
    %
    
    
    37.9
    %
    
    
    
    
    
    
    
    
    
    
    37.9
    %
    
    
    34.4
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    76.1
    %
    
    
    78.2
    %
    
    
    
    
    
    
    
    
    
    
    78.2
    %
    
    
    79.1
    %International
    
    
    23.9
    %
    
    
    21.8
    %
    
    
    
    
    
    
    
    
    
    
    21.8
    %
    
    
    20.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    
    
    
    
    100.0
    %
    
    
    100.0
    %
 Net Sales. , Greenlight HPS AdVance AMS 700 MS
 Apogee Perigee, .
 Mens health products .
 AMS 700 MS AUS 800 InVance AdVance Greenlight
 23




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##### Table of Contents



TherMatrx
 AMS 700 Tactile
Pump UroLume
 Womens health products .
 Apogee Perigee Her Option Monarc BioArc SP BioArc TO Monarc BioArc TO
 Apogee Perigee
 International sales and foreign exchange effects .
  Customer location
    
    2006
    
    2005
    
    $ Increase
    
    % Increase
    
    2005
    
    2004
    
    $ Increase
    
    % IncreaseWithin U.S.
    
    $
    272,679
    
    
    $
    205,463
    
    
    $
    67,216
    
    
    
    32.7
    %
    
    $
    205,463
    
    
    $
    165,140
    
    
    $
    40,323
    
    
    
    24.4
    %InternationalBefore currency impact
    
    
    85,321
    
    
    
    57,128
    
    
    
    28,193
    
    
    
    49.4
    %
    
    
    55,767
    
    
    
    43,632
    
    
    
    12,135
    
    
    
    27.8
    %Subtotal
    
    
    358,000
    
    
    
    262,591
    
    
    
    95,409
    
    
    
    36.3
    %
    
    
    261,230
    
    
    
    208,772
    
    
    
    52,458
    
    
    
    25.1
    %Currency impact
    
    
    318
    
    
    
    
    
    
    
    318
    
    
    
    
    
    
    
    1,361
    
    
    
    
    
    
    
    1,361
    
    
    
    Total
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    95,727
    
    
    
    36.5
    %
    
    $
    262,591
    
    
    $
    208,772
    
    
    $
    53,819
    
    
    
    25.8
    %
 24




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##### Table of Contents



Operating Expenses
  $ Increase
    
    
    % Increase
    
    
    
    
    
    
    
    
    
    
    $ Increase
    
    
    % Increase(in thousands)
    
    2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)
    
    
    2005
    
    
    2004
    
    
    (Decrease)
    
    
    (Decrease)Net sales
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    95,727
    
    
    
    36.5
    %
    
    $
    262,591
    
    
    $
    208,772
    
    
    $
    53,819
    
    
    
    25.8
    %Cost of sales
    
    
    68,872
    
    
    
    46,111
    
    
    
    22,761
    
    
    
    49.4
    %
    
    
    46,111
    
    
    
    38,331
    
    
    
    7,780
    
    
    
    20.3
    %Gross profit
    
    
    289,446
    
    
    
    216,480
    
    
    
    72,966
    
    
    
    33.7
    %
    
    
    216,480
    
    
    
    170,441
    
    
    
    46,039
    
    
    
    27.0
    %Operating expensesMarketing and selling
    
    
    123,204
    
    
    
    92,001
    
    
    
    31,203
    
    
    
    33.9
    %
    
    
    92,001
    
    
    
    72,910
    
    
    
    19,091
    
    
    
    26.2
    %Research and development
    
    
    33,877
    
    
    
    20,966
    
    
    
    12,911
    
    
    
    61.6
    %
    
    
    20,966
    
    
    
    15,786
    
    
    
    5,180
    
    
    
    32.8
    %In-process
research & development
    
    
    94,035
    
    
    
    9,220
    
    
    
    84,815
    
    
    
    919.9
    %
    
    
    9,220
    
    
    
    35,000
    
    
    
    (25,780
    )
    
    
    -73.7
    %General and administrative
    
    
    34,417
    
    
    
    21,713
    
    
    
    12,704
    
    
    
    58.5
    %
    
    
    21,713
    
    
    
    21,617
    
    
    
    96
    
    
    
    0.4
    %Integration costs
    
    
    1,712
    
    
    
    
    
    
    
    1,712
    
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aAmortization of
intangibles
    
    
    12,393
    
    
    
    7,884
    
    
    
    4,509
    
    
    
    57.2
    %
    
    
    7,884
    
    
    
    5,708
    
    
    
    2,176
    
    
    
    38.1
    %Total operating expenses
    
    
    299,638
    
    
    
    151,784
    
    
    
    147,854
    
    
    
    97.4
    %
    
    
    151,784
    
    
    
    151,021
    
    
    
    763
    
    
    
    0.5
    %Operating (expense) income
    
    
    (10,192
    )
    
    
    64,696
    
    
    
    (74,888
    )
    
    
    -115.8
    %
    
    
    64,696
    
    
    
    19,420
    
    
    
    45,276
    
    
    
    233.1
    %Royalty income
    
    
    1,701
    
    
    
    1,929
    
    
    
    (228
    )
    
    
    -11.8
    %
    
    
    1,929
    
    
    
    2,079
    
    
    
    (150
    )
    
    
    -7.2
    %Interest income
    
    
    2,754
    
    
    
    1,246
    
    
    
    1,508
    
    
    
    121.0
    %
    
    
    1,246
    
    
    
    517
    
    
    
    729
    
    
    
    141.0
    %Interest expense
    
    
    (18,395
    )
    
    
    (217
    )
    
    
    (18,178
    )
    
    
    -8377.0
    %
    
    
    (217
    )
    
    
    (783
    )
    
    
    566
    
    
    
    72.3
    %Financing charges
    
    
    (8,302
    )
    
    
    
    
    
    
    (8,302
    )
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aInvestment impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    (4,500
    )
    
    
    4,500
    
    
    
    n/aOther income (expense)
    
    
    283
    
    
    
    (1,429
    )
    
    
    1,712
    
    
    
    -119.8
    %
    
    
    (1,429
    )
    
    
    170
    
    
    
    (1,599
    )
    
    
    -940.6
    %(Loss) income from continuing
operations before income
taxes
    
    
    (32,151
    )
    
    
    66,225
    
    
    
    (98,376
    )
    
    
    -148.5
    %
    
    
    66,225
    
    
    
    16,903
    
    
    
    49,322
    
    
    
    291.8
    %Provision for income taxes
    
    
    11,731
    
    
    
    26,950
    
    
    
    (15,219
    )
    
    
    -56.5
    %
    
    
    26,950
    
    
    
    20,023
    
    
    
    6,927
    
    
    
    34.6
    %Net (loss) income from continuing
operations
    
    
    (43,882
    )
    
    
    39,275
    
    
    
    (83,157
    )
    
    
    -211.7
    %
    
    
    39,275
    
    
    
    (3,120
    )
    
    
    42,395
    
    
    
    -1358.8
    %Loss from discontinued operations,
net of tax benefit of
$2.7 million
    
    
    (5,435
    )
    
    
    
    
    
    
    (5,435
    )
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aNet (loss) income
    
    $
    (49,317
    )
    
    $
    39,275
    
    
    $
    (88,592
    )
    
    
    -225.6
    %
    
    $
    39,275
    
    
    $
    (3,120
    )
    
    $
    42,395
    
    
    
    -1358.8
    %
 25




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    19.2
    %
    
    
    17.6
    %
    
    
    18.4
    %Gross profit
    
    
    80.8
    %
    
    
    82.4
    %
    
    
    81.6
    %Operating expensesMarketing and selling
    
    
    34.4
    %
    
    
    35.0
    %
    
    
    34.9
    %Research and development
    
    
    9.5
    %
    
    
    8.0
    %
    
    
    7.6
    %In-process
research and development
    
    
    26.2
    %
    
    
    3.5
    %
    
    
    16.8
    %General and administrative
    
    
    9.6
    %
    
    
    8.3
    %
    
    
    10.4
    %Integration costs
    
    
    0.5
    %
    
    
    0.0
    %
    
    
    0.0
    %Amortization of intangibles
    
    
    3.5
    %
    
    
    3.0
    %
    
    
    2.7
    %Total operating expenses
    
    
    83.6
    %
    
    
    57.8
    %
    
    
    72.3
    %Operating income
    
    
    -2.8
    %
    
    
    24.6
    %
    
    
    9.3
    %Royalty income
    
    
    0.5
    %
    
    
    0.7
    %
    
    
    1.0
    %Interest income
    
    
    0.8
    %
    
    
    0.5
    %
    
    
    0.2
    %Interest expense
    
    
    -5.1
    %
    
    
    -0.1
    %
    
    
    -0.4
    %Financing charges
    
    
    -2.3
    %
    
    
    0.0
    %
    
    
    0.0
    %Investment impairment
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    -2.2
    %Other income (expense)
    
    
    0.1
    %
    
    
    -0.5
    %
    
    
    0.1
    %(Loss) income from continuing operations before income taxes
    
    
    -9.0
    %
    
    
    25.2
    %
    
    
    8.1
    %Provision for income taxes
    
    
    3.3
    %
    
    
    10.3
    %
    
    
    9.6
    %Net (loss) income from continuing operations
    
    
    -12.2
    %
    
    
    15.0
    %
    
    
    -1.5
    %Net (loss) income
    
    
    -13.8
    %
    
    
    15.0
    %
    
    
    -1.5
    %
 Cost of goods sold.
  Marketing and selling
  Research and development GreenLight HPS
 26




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##### Table of Contents



In-process research and development.
  General and administrative
  Amortization of intangibles Notes to
Consolidated Financial Statements  No. 2, Acquisition and
Financing of Laserscope).
 Notes to Consolidated Financial Statements 
No. 4, Acquisitions).
 Royalty income.
  Interest income Notes to Consolidated Financial
Statements  No. 10, Debt)
 Notes to Consolidated
Financial Statements  No. 4, Acquisitions
 Interest expense and financing charges
 27




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##### Table of Contents



Investment impairment. Notes to Consolidated Financial Statements 
No. 7, Investment in Technology).
 Other income (expense).
  Provision for income taxes.
  Liquidity and Capital Resources
  Cash flows from operating activities
   Cash flows from investing activities
  28




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##### Table of Contents



Cash flows from financing activities
      The number of shares issued uponIf
the market price of our stock is:
    
    full conversion would be (1):$
    25.00
    
    
    4.3 million$
    30.00
    
    
    6.8 million$
    35.00
    
    
    8.6 million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as follows: 
   29




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##### Table of Contents



The number of common share equivalentsIf the market price of
    
    potentially included in the computation ofour stock is:
    
    diluted EPS would be (1):
    
    Percent Dilution (2)$
    19.00
    
    
    
    

    
    

    (anti-dilutive)
    
    
    0.0
    %$
    25.00
    
    
    
    
    
    4.3

    million
    
    
    5.7
    %$
    30.00
    
    
    
    
    
    6.8

    million
    
    
    8.7
    %$
    35.00
    
    
    
    
    
    8.6

    million
    
    
    10.8
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method, in accordance with EITF 90-19,
Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.(2)
    
    The percent dilution is based on 71,059,312 outstanding shares as of December 30, 2006.    30




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##### Table of Contents



For The FiscalPeriods Ending
    
    RequiredFinancial Covenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    12/31/06
    
    6.95:1.00 (maximum)3/31/07
    
    6.50:1.006/30/07
    
    6.00:1.009/30/07
    
    5.50:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    12/31/06
    
    3.50:1.00 (maximum)3/31/07
    
    3.25:1.006/30/07
    
    3.00:1.009/30/07
    
    2.75:1.00Reductions continuing until 3/31/09
    
    2.00:1.00Interest Coverage Ratio
    
    12/31/06
    
    2.50:1.00 (minimum)3/31/07
    
    2.75:1.006/30/07
    
    3.00:1.009/30/07
    
    3.25:1.00Increases continuing until 9/30/09
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    12/30/06 through 3/31/07
    
    1.05:1.00 (minimum)6/30/07
    
    1.15:1.009/30/07
    
    1.15:1.00Increases continuing until 9/30/08
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/06
    
    $35,000,00012/31/07
    
    $15,000,000
  Financial Covenant
    
    Required Ratio
    
    Actual RatioTotal Leverage Ratio (1)
    
    6.95:1.00 (maximum)
    
    5.82Senior Leverage Ratio (2)
    
    3.50:1.00 (maximum)
    
    2.80Interest Coverage Ratio (3)
    
    2.50:1.00 (minimum)
    
    3.09Fixed Charge Coverage Ratio (4)
    
    1.05:1.00 (minimum)
    
    1.41Maximum Capital Expenditures
    
    $35,000,000
    
    $28,483,000
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for such period.(4)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to fixed charges (cash interest expense,
scheduled principal payments on debt, capital expenditures, income taxes paid, earn-out and
milestone payments) for such period.  31




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##### Table of Contents



Notes to Consolidated Financial Statements 
No. 10, Debt.
 Contractual Obligations
  Less than
    
    
    
    
    
    
    
    
    
    
    More than(in thousands)
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt obligations
    
    $
    737.9
    
    
    $
    2.7
    
    
    $
    8.2
    
    
    $
    93.1
    
    
    $
    633.9Operating lease commitments
    
    
    9.7
    
    
    
    2.6
    
    
    
    3.3
    
    
    
    2.5
    
    
    
    1.3InnovaQuartz earnout acceleration
    
    
    7.3
    
    
    
    7.3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    754.9
    
    
    $
    12.6
    
    
    $
    11.5
    
    
    $
    95.6
    
    
    $
    635.2
 TherMatrx
   Ovion
  32




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##### Table of Contents



Critical Accounting Policies and Estimates
  Adoption of SFAS 123(R), Share-Based Payment
 Share-Based Payment
 33




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##### Table of Contents



Notes to Consolidated Financial Statements  No. 11 Stock-Based
Compensation
 Revenue Recognition Policy
  Revenue Arrangements with Multiple Deliverables
 Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of
the Vendors Products)
  Allowance for Doubtful Accounts
   34




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##### Table of Contents



Inventories
  Warranty Accrual / Allowance
   Product Liability Accrual
  Operating Leases
  Valuation of IPR&D, Goodwill and Other Intangible Assets
  35




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##### Table of Contents



Income Taxes
    Notes to Consolidated Financial Statements  No. 16, Income Taxes).
 36




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##### Table of Contents



Recent Accounting Pronouncements
 Notes to Consolidated Financial Statements  No.1, Business Description and Significant
Accounting Policies.
 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rates
   Currency
    Inflation
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
  37




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##### Table of Contents



Item 9A. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated
Framework ,
   
 Item 9B. Other Information
  38




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
 Directors of the Registrant
  Executive Officers of the Registrant
  Compliance with Section 16(a) of the Exchange Act
  Audit Committee Financial Expert
  Identification of the Audit Committee
  Code of Ethics
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  39




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedule
 (a) Financial Statements
  Reports of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005
    
    F-4Consolidated Statements of Operations for the years ended December 30, 2006,
December 31, 2005, and January 1, 2005
    
    F-5Consolidated Statements of Changes in Stockholders Equity for the
years ended December 30, 2006, December 31, 2005, and January 1, 2005
    
    F-6Consolidated Statements of Cash Flows for the years ended December 30, 2006,
December 31, 2005, and January 1, 2005
    
    F-7Notes to Consolidated Financial Statements for the years ended December 30, 2006,
December 31, 2005, and January 1, 2005
    
    F-8
 (b) Financial Statement Schedule
  Schedule II  Valuation and Qualifying Accounts
    
    F-46
 (c) Exhibits
   1.
    
    Employment Agreement, dated April 26, 2004, between Martin J. Emerson and American
Medical Systems, Inc.2.
    
    First Amendment to Employment Agreement, dated January 5, 2005, between Martin J.
Emerson and American Medical Systems, Inc.3.
    
    Employment Agreement, dated January 1, 2003, between Ross Longhini and American Medical
Systems, Inc.4.
    
    Employment Agreement, dated December 18, 2006, between Mark A. Heggestad and American
Medical Systems, Inc.5.
    
    2000 Equity Incentive Plan, as amended.6.
    
    Form of Incentive Stock Option Agreement under the 2000 Equity Incentive Plan, as
amended.7.
    
    Form of Non-Qualified Stock Option Agreement under the 2000 Equity Incentive Plan, as
amended.8.
    
    Employee Stock Purchase Plan, as amended.9.
    
    2005 Stock Incentive Plan, as amended.
 40




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##### Table of Contents



10.
    
    Form of Stock Option Certificate for Executive Officers under the 2005 Stock Incentive
Plan, as amended.11.
    
    Form of Notice of Amendment to Stock Option Certificate/Agreement for Executive
Officers of American Medical Systems Holdings, Inc.12.
    
    Form of Stock Option Certificate for Directors under the 2005 Stock Incentive Plan, as
amended.13.
    
    Form of Indemnification Agreement with Executive Officers and Directors.14.
    
    Summary of Director Compensation.15.
    
    Summary of Named Executive Officer Compensation.
 41




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##### Table of Contents



FINANCIAL STATEMENTS AND NOTES THERETO
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework
      F-1




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##### Table of Contents



F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment.
 Internal
Control-Integrated Framework
  
 F-3




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##### Table of Contents



American
Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 December 30, 2006
    
    
    December 31, 2005AssetsCurrent assetsCash and cash equivalents
    
    $
    29,051
    
    
    $
    30,885Short term investments
    
    
    490
    
    
    
    15,505Accounts receivable, net
    
    
    91,938
    
    
    
    51,058Inventories, net
    
    
    37,974
    
    
    
    18,191Deferred income taxes
    
    
    11,065
    
    
    
    3,197Other current assets
    
    
    16,988
    
    
    
    4,072Assets of discontinued operations
    
    
    46,078
    
    
    
    Total current assets
    
    
    233,584
    
    
    
    122,908Property, plant and equipment, net
    
    
    47,035
    
    
    
    21,371Goodwill
    
    
    677,053
    
    
    
    169,700Developed and core technology, net
    
    
    110,634
    
    
    
    31,399Other intangibles, net
    
    
    50,022
    
    
    
    9,179Deferred income taxes
    
    
    
    
    
    
    4,110Investment in technology and other assets
    
    
    1,148
    
    
    
    659Other long-term assets, net
    
    
    3,031
    
    
    
    Total assets
    
    $
    1,122,507
    
    
    $
    359,326Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    15,430
    
    
    $
    3,688Accrued compensation expenses
    
    
    17,019
    
    
    
    11,480Accrued warranty expense
    
    
    2,715
    
    
    
    1,618Income taxes payable
    
    
    
    
    
    
    2,387Other accrued expenses
    
    
    47,891
    
    
    
    8,214Contingent liability on acquisition
    
    
    
    
    
    
    25,988Liabilities of discontinued operations
    
    
    19,478
    
    
    
    Total current liabilities
    
    
    102,533
    
    
    
    53,375Long-term debt
    
    
    713,456
    
    
    
    Deferred income taxes
    
    
    22,296
    
    
    
    Long-term employee benefit obligations
    
    
    3,060
    
    
    
    3,072Total liabilities
    
    
    841,345
    
    
    
    56,447Stockholders equityCommon stock, par value $.01 per share; authorized 220,000,000 shares;
issued and outstanding: 71,059,312 shares at December 30, 2006 and
69,525,169 shares at December 31, 2005
    
    
    711
    
    
    
    695Additional paid-in capital
    
    
    253,127
    
    
    
    227,284Accumulated other comprehensive income
    
    
    4,155
    
    
    
    2,414Retained earnings
    
    
    23,169
    
    
    
    72,486Total stockholders equity
    
    
    281,162
    
    
    
    302,879Total liabilities and stockholders equity
    
    $
    1,122,507
    
    
    $
    359,326
 The accompanying notes are an integral part of the consolidated financial statements.
 F-4




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
 2006
    
    
    2005
    
    
    2004Net sales
    
    $
    358,318
    
    
    $
    262,591
    
    
    $
    208,772Cost of sales (a)
    
    
    68,872
    
    
    
    46,111
    
    
    
    38,331Gross profit
    
    
    289,446
    
    
    
    216,480
    
    
    
    170,441Operating expensesMarketing and selling (a)
    
    
    123,204
    
    
    
    92,001
    
    
    
    72,910Research and development (a)
    
    
    33,877
    
    
    
    20,966
    
    
    
    15,786In-process research and development
    
    
    94,035
    
    
    
    9,220
    
    
    
    35,000General and administrative (a)
    
    
    34,417
    
    
    
    21,713
    
    
    
    21,617Integration costs
    
    
    1,712
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    12,393
    
    
    
    7,884
    
    
    
    5,708Total operating expenses
    
    
    299,638
    
    
    
    151,784
    
    
    
    151,021Operating (expense) income
    
    
    (10,192
    )
    
    
    64,696
    
    
    
    19,420Other (expense) incomeRoyalty income
    
    
    1,701
    
    
    
    1,929
    
    
    
    2,079Interest income
    
    
    2,754
    
    
    
    1,246
    
    
    
    517Interest expense
    
    
    (18,395
    )
    
    
    (217
    )
    
    
    (783
    )Financing charges
    
    
    (8,302
    )
    
    
    
    
    
    
    Investment impairment
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Other income (expense)
    
    
    283
    
    
    
    (1,429
    )
    
    
    170Total other income (expense)
    
    
    (21,959
    )
    
    
    1,529
    
    
    
    (2,517
    )(Loss) income from continuing operations before income taxes
    
    
    (32,151
    )
    
    
    66,225
    
    
    
    16,903Provision for income taxes
    
    
    11,731
    
    
    
    26,950
    
    
    
    20,023Net (loss) income from continuing operations
    
    
    (43,882
    )
    
    
    39,275
    
    
    
    (3,120
    )Loss from discontinued operations, net of tax
benefit of $2.7 million
    
    
    (5,435
    )
    
    
    
    
    
    
    Net (loss) income
    
    $
    (49,317
    )
    
    $
    39,275
    
    
    $
    (3,120
    )Net (loss) income per shareBasic net (loss) earnings from continuing operations
    
    $
    (0.63
    )
    
    $
    0.57
    
    
    $
    (0.05
    )Discontinued operations, net of tax
    
    
    (0.08
    )
    
    
    
    
    
    
    Basic net (loss) earnings
    
    $
    (0.70
    )
    
    $
    0.57
    
    
    $
    (0.05
    )Diluted net (loss) earnings from continuing operations
    
    $
    (0.63
    )
    
    $
    0.55
    
    
    $
    (0.05
    )Discontinued operations, net of tax
    
    
    (0.08
    )
    
    
    
    
    
    
    Diluted net (loss) earnings
    
    $
    (0.70
    )
    
    $
    0.55
    
    
    $
    (0.05
    )Weighted average common shares used in calculationBasic
    
    
    70,152
    
    
    
    68,926
    
    
    
    67,006Diluted
    
    
    70,152
    
    
    
    71,682
    
    
    
    67,006
 
 (a) These line items include stock-based compensation of:Cost of sales
    
    $
    420
    
    
    $
    
    
    
    $
    Marketing and selling
    
    
    3,330
    
    
    
    
    
    
    
    Research and development
    
    
    2,113
    
    
    
    
    
    
    
    General and administrative
    
    
    3,967
    
    
    
    
    
    
    
    Total stock-based compensation expense
    
    $
    9,830
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial statements.
 F-5




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Changes in Stockholders Equity
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Deferred
    
    
    ComprehensiveShares Par Value

    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Income
    
    
    TotalBalances at January 3, 2004
    
    
    66,271
    
    
    $
    663
    
    
    $
    202,009
    
    
    $
    36,331
    
    
    $
    (24
    )
    
    $
    1,367
    
    
    $
    240,346Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,120
    )
    
    
    
    
    
    
    
    
    
    
    (3,120
    )Foreign currency translation adjustment,
net of tax of $0.3 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,772
    
    
    
    3,772Unrealized (loss) on available-for-sale securities,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    636Issuance of common stock:Stock options exercised
    
    
    1,124
    
    
    
    11
    
    
    
    5,095
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,106Employee stock purchase plan
    
    
    84
    
    
    
    1
    
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960Compensation cost of stock options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Income tax benefit from stock option plans
    
    
    
    
    
    
    
    
    
    
    2,047
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,047Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23Deferred compensation
forfeitures
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Balances at January 1, 2005
    
    
    67,479
    
    
    $
    675
    
    
    $
    210,163
    
    
    $
    33,211
    
    
    $
    
    
    
    $
    5,123
    
    
    $
    249,172Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,275
    
    
    
    
    
    
    
    
    
    
    
    39,275Foreign currency translation adjustment, net of tax
benefit of $0.6 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,709
    )
    
    
    (2,709
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,566Issuance of common stock:Stock options exercised
    
    
    1,958
    
    
    
    19
    
    
    
    10,165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,184Employee stock purchase plan
    
    
    88
    
    
    
    1
    
    
    
    1,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,355Compensation cost of stock options issued to non-employees
    
    
    
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189Income tax benefit from stock option plans
    
    
    
    
    
    
    
    
    
    
    5,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,413Balances at December 31, 2005
    
    
    69,525
    
    
    $
    695
    
    
    $
    227,284
    
    
    $
    72,486
    
    
    $
    
    
    
    $
    2,414
    
    
    $
    302,879Comprehensive incomeNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49,317
    )
    
    
    
    
    
    
    
    
    
    
    (49,317
    )Foreign currency translation adjustment, net of tax
of $0.4 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,593
    
    
    
    1,593Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,724
    )Issuance of common stock:Stock options exercised
    
    
    1,414
    
    
    
    15
    
    
    
    8,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,169Employee stock purchase plan
    
    
    120
    
    
    
    1
    
    
    
    1,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,765Stock-based compensation cost under Statement of
Financial Accounting Standard No. 123(R)
    
    
    
    
    
    
    
    
    
    
    10,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,014Income tax benefit from stock option plans
    
    
    
    
    
    
    
    
    
    
    5,911
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,911Adjustment to initially apply Statement of Financial
Accounting Standard No. 158, net of tax of $0.1
million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    148Balances at December 30, 2006
    
    
    71,059
    
    
    $
    711
    
    
    $
    253,127
    
    
    $
    23,169
    
    
    $
    
    
    
    $
    4,155
    
    
    $
    281,162
 The accompanying notes are an integral part of the consolidated financial statements.
 F-6




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Cash Flow
 2006
    
    2005
    
    2004Cash flows from operating activitiesNet (loss) income
    
    $
    (49,317
    )
    
    $
    39,275
    
    
    $
    (3,120
    )Loss from discontinued operations
    
    
    (5,435
    )
    
    
    
    
    
    
    (Loss) earnings from continuing operations
    
    
    (43,882
    )
    
    
    39,275
    
    
    
    (3,120
    )Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation
    
    
    4,695
    
    
    
    5,135
    
    
    
    7,052Loss on asset disposals
    
    
    385
    
    
    
    601
    
    
    
    243Amortization of intangibles
    
    
    12,393
    
    
    
    7,884
    
    
    
    5,708Amortization of deferred financing costs
    
    
    1,347
    
    
    
    
    
    
    
    450In-process research and development charges
    
    
    94,035
    
    
    
    9,220
    
    
    
    35,000Financing charges on credit facility
    
    
    6,955
    
    
    
    
    
    
    
    Non-cash investment impairment
    
    
    
    
    
    
    
    
    
    
    4,500Non-cash deferred compensation
    
    
    
    
    
    
    189
    
    
    
    77Excess tax benefit from exercise of stock options
    
    
    (1,674
    )
    
    
    
    
    
    
    Tax benefit on exercised stock option arrangements
    
    
    5,911
    
    
    
    5,413
    
    
    
    2,047Change in net deferred income taxes
    
    
    560
    
    
    
    882
    
    
    
    2,529Stock based compensation
    
    
    9,830
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of acquired amounts:Accounts receivable
    
    
    (22,218
    )
    
    
    (5,745
    )
    
    
    (7,009
    )Inventories
    
    
    (2,817
    )
    
    
    3,130
    
    
    
    (369
    )Accounts payable and accrued expenses
    
    
    19,279
    
    
    
    7,045
    
    
    
    1,835Other assets
    
    
    (10,745
    )
    
    
    (1,449
    )
    
    
    250Net cash provided by operating activities
    
    
    74,054
    
    
    
    71,580
    
    
    
    49,193Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (21,923
    )
    
    
    (5,110
    )
    
    
    (3,686
    )Purchase of business, net of cash acquired
    
    
    (745,637
    )
    
    
    (81,516
    )
    
    
    (39,418
    )Purchase of investments in technology
    
    
    (31,935
    )
    
    
    (1,620
    )
    
    
    (2,500
    )Purchase of license agreement
    
    
    (2,050
    )
    
    
    
    
    
    
    Purchase of short-term investments
    
    
    (155
    )
    
    
    (33,774
    )
    
    
    (19,633
    )Sale of short-term investments
    
    
    15,189
    
    
    
    33,743
    
    
    
    4,154Net cash used in investing activities
    
    
    (786,511
    )
    
    
    (88,277
    )
    
    
    (61,083
    )Cash flows from financing activitiesProceeds from issuance of convertible notes, net of issuance costs
    
    
    361,185
    
    
    
    
    
    
    
    Proceeds from senior secured credit facility, net of issuance costs
    
    
    352,660
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    9,934
    
    
    
    11,539
    
    
    
    6,066Excess tax benefit from exercise of stock options
    
    
    1,674
    
    
    
    
    
    
    
    Proceeds from short-term borrowings
    
    
    25,000
    
    
    
    
    
    
    
    Repayments of short-term borrowings
    
    
    (25,000
    )
    
    
    
    
    
    
    Payments on long-term debt
    
    
    (913
    )
    
    
    
    
    
    
    (16,364
    )Financing charges paid on credit facility
    
    
    (6,955
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    717,585
    
    
    
    11,539
    
    
    
    (10,298
    )Cash provided by (used in) continuing operations
    
    
    5,128
    
    
    
    (5,158
    )
    
    
    (22,188
    )Cash used in discontinued operationsOperating activities
    
    
    (5,435
    )
    
    
    
    
    
    
    Cash used in discontinued operations
    
    
    (5,435
    )
    
    
    
    
    
    
    Effect of currency exchange rates on cash
    
    
    (1,527
    )
    
    
    354
    
    
    
    (1,076
    )Net decrease in cash and cash equivalents
    
    
    (1,834
    )
    
    
    (4,804
    )
    
    
    (23,264
    )Cash and cash equivalents at beginning of period
    
    $
    30,885
    
    
    $
    35,689
    
    
    $
    58,953Cash and cash equivalents at end of period
    
    $
    29,051
    
    
    $
    30,885
    
    
    $
    35,689Supplemental disclosureCash paid for interest
    
    $
    8,376
    
    
    $
    147
    
    
    $
    358Cash paid for taxes
    
    $
    14,445
    
    
    $
    15,036
    
    
    $
    14,807
 The accompanying notes are an integral part of the consolidated financial statements.
 F-7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Business Description and Significant Accounting Policies
 Business Description
  Note 3 Discontinued Operations; Sale of Aesthetics Business (Subsequent
Event),
 Principles of Consolidation
  Accounting Periods
  Cash and Cash Equivalents
  Short-Term Investments
  Concentration of Risks
  Allowance for Doubtful Accounts
  F-8




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##### Table of Contents



Inventories
  Property, Plant and Equipment
  Asset class
    
    Useful livesBuilding
    
    15-20 yearsMachinery and equipment
    
    3-12 yearsFurniture, fixtures, and other
    
    3-12 yearsSoftware
    
    3-5 years
  In-Process Research and Development, Goodwill and Other Intangible Assets
    Goodwill and Other Intangible Assets
 F-9




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##### Table of Contents



Accounting for the Impairment and Disposal of
Long-Lived Assets
 Long-Lived Assets
  Revenue Recognition
  Revenue Arrangements with Multiple Deliverables
 Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of
the Vendors Products)
  Royalty Income
  F-10




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##### Table of Contents



Research and Development
  Advertising and Promotional Costs
  Product Warranty Costs
   Product Liability
  Software Development Costs
 Accounting for Computer Software
Developed or Obtained for Internal Use.
 Capitalized Interest
  Income Taxes
   F-11




---



##### Table of Contents



Foreign Currency Translation
  Derivatives and Hedging Activities
 Accounting for Derivative Instruments and Hedging Activities
 Use of Estimates
  Stock Based Compensation
 Note 11, Stock-Based Compensation, Share-Based Payment, Accounting for Stock Issued to Employees, Accounting for
Stock-Based Compensation
  Net Income per Share
 Note 10  Debt.
  F-12




---



##### Table of Contents



(in thousands, except per share data)
    
    2006
    
    2005
    
    2004Net (loss) income from continuing operations
    
    $
    (43,882
    )
    
    $
    39,275
    
    
    $
    (3,120
    )Weighted-average shares outstanding for basic net income per share
    
    
    70,152
    
    
    
    68,926
    
    
    
    67,006Dilutive effect of stock options and restricted shares
    
    
    
    
    
    
    2,756
    
    
    
    Adjusted weighted-average shares outstanding and assumed conversions
for diluted net (loss) income per share
    
    
    70,152
    
    
    
    71,682
    
    
    
    67,006Net (loss) income per shareBasic net (loss) earnings from continuing operations
    
    $
    (0.63
    )
    
    $
    0.57
    
    
    $
    (0.05
    )Diluted net (loss) earnings from continuing operations
    
    $
    (0.63
    )
    
    $
    0.55
    
    
    $
    (0.05
    )
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement 109.
 Fair Value Measurements.
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the
Current Year Financial Statements.
 F-13




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##### Table of Contents



Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of
FASB Statements No. 87, 88, 106, and 132(R).
 Reclassification
  2. Acquisition and Financing of Laserscope
    Note
3 Discontinued Operations; Sale of Aesthetics Business (Subsequent Event),
 Financing
 Note 10, Debt.
 Purchase Accounting
  F-14




---



##### Table of Contents



(in thousands)Developed and core technology
    
    $
    88,700Trademarks
    
    
    40,800In-process research and development
    
    
    62,100Assets held for sale, net of tax
    
    
    26,600Tangible assets acquired, net of liabiltiies assumed
    
    
    12,156Deferred tax liability on assets acquired, net of deferred tax assets
    
    
    (17,976
    )Goodwill
    
    
    506,303Estimated fair value of identifiable tangible and intangible assets
and goodwill, net of cash
acquired and liabilites assumed
    
    $
    718,683
   Restructuring Costs
   Recorded at
    
    Cash Payments
    
    RestructuringAcquisition
    
    through
    
    Liability as of(July 20, 2006)
    
    December 30, 2006
    
    December 30, 2006Severance and
benefits
    
    $
    7,486
    
    
    $
    (282
    )
    
    $
    7,204
 F-15




---



##### Table of Contents



Integration Costs
   2006
    
    2005(in thousands except per share data)
    
    Reported
    
    Pro forma
    
    Reported
    
    Pro forma(Unaudited)
    
    
    
    
    
    (Unaudited)Revenues
    
    $
    358,318
    
    
    $
    406,658
    
    
    $
    262,591
    
    
    $
    353,393Net income (loss)
    
    $
    (49,317
    )
    
    $
    (25,814
    )
    
    $
    39,275
    
    
    $
    20,586Net income (loss) per share:Basic
    
    $
    (0.70
    )
    
    $
    (0.37
    )
    
    $
    0.57
    
    
    $
    0.30Diluted
    
    $
    (0.70
    )
    
    $
    (0.37
    )
    
    $
    0.55
    
    
    $
    0.29
  3. Discontinued Operations; Sale of Aesthetics Business (Subsequent Event)
 Note 2, Acquisition and
Financing of Laserscope
 Accounting for
the Impairment or Disposal of Long-Lived Assets
  (in thousands)
    
    2006Net Sales
    
    $
    14,583Loss from discontinued operations before income
taxes
    
    
    (8,126
    )Income tax benefit
    
    
    2,691Loss from discontinued operations, net of taxes
    
    $
    (5,435
    )
  Allocation of Interest to
Discontinued Operations
 F-16




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##### Table of Contents



Sale of Aesthetics Business (Subsequent Event)
  Applying the Conditions in Paragraph
42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations
 4. Acquisitions
 Laserscope
 Note 2, Acquisition and Financing of Laserscope.
 Solarant Medical, Inc.
    (in thousands)
    
    AmountIn-process research and development (including $0.8 million in acquisition costs)
    
    $
    2,054Liabilities assumed, net of tangible assets acquired
    
    
    (88
    )Deferred tax asset acquired
    
    
    981Initial purchase price, net of cash acquired through December 30, 2006
    
    $
    2,947
 Goodwill and Other Intangible Assets,
 F-17




---



##### Table of Contents



BioControl Medical, Ltd.
  Goodwill and Other Intangible Assets
    Ovion Inc.
  Ovion
 F-18




---



##### Table of Contents



(in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    13,554Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,970Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (385
    )Purchase price, including earned contingent payments, net of cash acquired through December 30, 2006
    
    $
    15,407
 Goodwill and Other
Intangible Assets,
  TherMatrx, Inc.
 TherMatrx
 TherMatrx
 F-19




---



##### Table of Contents



(in thousands)
    
    AmountDeveloped technology and other intangible assets
    
    $
    26,000Customer relationships
    
    
    5,000In-process research and development
    
    
    35,000Tangible assets acquired, net of liabilities assumed
    
    
    5,721Deferred tax liability on assets acquired
    
    
    (7,190
    )Goodwill
    
    
    68,941Purchase price, including earned contingent payments, net of cash acquired
    
    $
    133,472
   2004(in thousands, except per share data)
    
    Reported
    
    Pro formaRevenue
    
    $
    208,772
    
    
    $
    219,232Net income (loss)
    
    $
    (3,120
    )
    
    $
    (9,708
    )Net income (loss) per share:Basic
    
    $
    (0.05
    )
    
    $
    (0.14
    )Diluted
    
    $
    (0.05
    )
    
    $
    (0.14
    )
   F-20




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##### Table of Contents



5. Balance Sheet Information
  2006
    
    2005Accounts ReceivableTrade accounts receivable
    
    $
    94,385
    
    
    $
    51,407Other receivables
    
    
    668
    
    
    
    1,668Allowance for doubtful accounts
    
    
    (3,115
    )
    
    
    (2,017
    )Net accounts receivable
    
    $
    91,938
    
    
    $
    51,058InventoriesRaw materials
    
    $
    13,321
    
    
    $
    4,252Work in process
    
    
    10,878
    
    
    
    2,394Finished goods
    
    
    16,279
    
    
    
    12,862Obsolescence allowance
    
    
    (2,504
    )
    
    
    (1,317
    )Net inventories
    
    $
    37,974
    
    
    $
    18,191Property, plant, and equipmentLand and building
    
    $
    24,338
    
    
    $
    18,174Machinery and equipment
    
    
    25,323
    
    
    
    19,944Construction in progress
    
    
    15,181
    
    
    
    914Software
    
    
    9,747
    
    
    
    8,253Furniture, fixtures, and other
    
    
    4,131
    
    
    
    3,126Accumulated depreciation
    
    
    (31,685
    )
    
    
    (29,040
    )Net property, plant, and equipment
    
    $
    47,035
    
    
    $
    21,371Accrued compensation expensesAccrued payroll
    
    $
    5,877
    
    
    $
    2,576Accrued bonuses
    
    
    3,515
    
    
    
    2,623Short-term benefit obligations
    
    
    2,296
    
    
    
    2,071Other accrued compensation
    
    
    5,331
    
    
    
    4,210Total accrued compensation expenses
    
    $
    17,019
    
    
    $
    11,480Other accrued expensesAccrued interest
    
    $
    10,903
    
    
    $
    Accrued acquisition costs
    
    
    18,270
    
    
    
    Accrued other
    
    
    18,718
    
    
    
    8,214Total other accrued expenses
    
    $
    47,891
    
    
    $
    8,214Long-term employee benefit obligationsAccumulated postretirement benefit obligation
    
    $
    2,907
    
    
    $
    3,072Other long-term benefit obligations
    
    
    153
    
    
    
    Total long-term employee benefit obligations
    
    $
    3,060
    
    
    $
    3,072
 6. Goodwill and Intangible Assets
  2006
    
    2005Goodwill, beginning of year, net
    
    $
    169,700
    
    
    $
    102,365Additions and adjustments
    
    
    505,975
    
    
    
    69,142Effect of currency translation
    
    
    1,378
    
    
    
    (1,807
    )Goodwill, end of year, net
    
    $
    677,053
    
    
    $
    169,700
  F-21




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##### Table of Contents



Weighted avg
    
    December 30, 2006
    
    December 31, 2005remaining life
    
    Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    (years)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueDeveloped and core technology
    
    
    7.9
    
    
    $
    137,553
    
    
    $
    (26,919
    )
    
    $
    110,634
    
    
    $
    48,853
    
    
    $
    (17,454
    )
    
    $
    31,399Other intangiblesAmortizedPatents
    
    
    7.6
    
    
    
    10,127
    
    
    
    (8,761
    )
    
    
    1,366
    
    
    
    10,127
    
    
    
    (7,708
    )
    
    
    2,419Licenses
    
    
    3.8
    
    
    
    8,962
    
    
    
    (5,453
    )
    
    
    3,509
    
    
    
    6,911
    
    
    
    (3,847
    )
    
    
    3,064Royalty agreement
    
    
    6.8
    
    
    
    2,970
    
    
    
    (385
    )
    
    
    2,585
    
    
    
    2,050
    
    
    
    (125
    )
    
    
    1,925Total amortized other
intangible assets
    
    
    5.5
    
    
    
    22,059
    
    
    
    (14,599
    )
    
    
    7,460
    
    
    
    19,088
    
    
    
    (11,680
    )
    
    
    7,408UnamortizedTrademarks
    
    
    n/a
    
    
    
    42,562
    
    
    
    
    
    
    
    42,562
    
    
    
    1,771
    
    
    
    
    
    
    
    1,771Total other intangibles
    
    
    
    
    
    
    64,621
    
    
    
    (14,599
    )
    
    
    50,022
    
    
    
    20,859
    
    
    
    (11,680
    )
    
    
    9,179
    

Total intangible assets
    
    
    
    
    
    $
    202,174
    
    
    $
    (41,518
    )
    
    $
    160,656
    
    
    $
    69,712
    
    
    $
    (29,134
    )
    
    $
    40,578
 Note 2, Acquisition and
Financing of Laserscope
  Year
    
    Actual
    
    Expected2004
    
    $
    5,708
    
    
    $
    2005
    
    
    7,884
    
    
    
    2006
    
    
    12,393
    
    
    
    2007
    
    
    
    
    
    
    17,6832008
    
    
    
    
    
    
    16,5962009
    
    
    
    
    
    
    16,4632010
    
    
    
    
    
    
    15,7162011
    
    
    
    
    
    
    15,432
 Patent Cross-License Agreement
  7. Investment in Technology
  ProstaJect®
 F-22




---



##### Table of Contents



ProstaJect
 Note 16, Income Taxes
 8. Warranties
   (in thousands)
    
    2006
    
    2005
    
    2004Balance, beginning of period
    
    $
    1,618
    
    
    $
    1,451
    
    
    $
    1,338Provisions for warranty
    
    
    619
    
    
    
    599
    
    
    
    334Warranty allowance from acquisition
    
    
    809
    
    
    
    
    
    
    
    75Claims processed
    
    
    (331
    )
    
    
    (432
    )
    
    
    (296
    )Balance, end of period
    
    $
    2,715
    
    
    $
    1,618
    
    
    $
    1,451
 9. Credit Agreements
 Credit Agreement
 Note 10, Debt.
 Note 10, Debt
 Bridge Loan Commitment Fee
  10. Debt
 Senior Secured Credit Facility
  F-23




---



##### Table of Contents



F-24




---



##### Table of Contents



Fiscal 2007
    
    $
    2,738Fiscal 2008
    
    
    4,563Fiscal 2009
    
    
    3,650Fiscal 2010
    
    
    3,650Fiscal 2011
    
    
    89,425
 Convertible Senior Subordinated Notes; Supplemental Guarantor Information
        F-25




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##### Table of Contents



F-26




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,138
    
    
    $
    22,905
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    29,051Short term investments
    
    
    
    
    
    
    274
    
    
    
    216
    
    
    
    
    
    
    
    490Accounts receivable, net
    
    
    606,821
    
    
    
    71,346
    
    
    
    20,520
    
    
    
    (606,749
    )
    
    
    91,938Inventories, net
    
    
    
    
    
    
    36,472
    
    
    
    5,592
    
    
    
    (4,090
    )
    
    
    37,974Deferred income taxes
    
    
    
    
    
    
    10,608
    
    
    
    457
    
    
    
    
    
    
    
    11,065Other current assets
    
    
    4,965
    
    
    
    9,960
    
    
    
    2,220
    
    
    
    (157
    )
    
    
    16,988Assets of discontinued operations
    
    
    
    
    
    
    46,078
    
    
    
    
    
    
    
    
    
    
    
    46,078Total current assets
    
    
    612,924
    
    
    
    197,643
    
    
    
    34,013
    
    
    
    (610,996
    )
    
    
    233,584Property, plant and equipment, net
    
    
    
    
    
    
    46,454
    
    
    
    581
    
    
    
    
    
    
    
    47,035Goodwill
    
    
    
    
    
    
    593,641
    
    
    
    83,933
    
    
    
    (521
    )
    
    
    677,053Developed and core technology, net
    
    
    
    
    
    
    86,601
    
    
    
    24,033
    
    
    
    
    
    
    
    110,634Other intangibles, net
    
    
    
    
    
    
    71,591
    
    
    
    1,931
    
    
    
    (23,500
    )
    
    
    50,022Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,804
    
    
    
    (1,804
    )
    
    
    Investment in subsidiaries
    
    
    59,073
    
    
    
    14,449
    
    
    
    
    
    
    
    (73,522
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    987
    
    
    
    161
    
    
    
    
    
    
    
    1,148Other long-term assets, net
    
    
    1,329
    
    
    
    1,702
    
    
    
    
    
    
    
    
    
    
    
    3,031Total assets
    
    $
    673,326
    
    
    $
    1,013,068
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,122,507Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    23,259
    
    
    $
    508,468
    
    
    $
    96,553
    
    
    $
    (612,850
    )
    
    $
    15,430Accrued compensation expenses
    
    
    
    
    
    
    15,433
    
    
    
    1,586
    
    
    
    
    
    
    
    17,019Accrued warranty expense
    
    
    
    
    
    
    2,715
    
    
    
    
    
    
    
    
    
    
    
    2,715Income taxes payable
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    (240
    )
    
    
    Other accrued expenses
    
    
    6,175
    
    
    
    39,835
    
    
    
    1,881
    
    
    
    
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478
    
    
    
    
    
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    29,434
    
    
    
    585,929
    
    
    
    100,260
    
    
    
    (613,090
    )
    
    
    102,533Non-current liabilitiesLong term debt
    
    
    362,730
    
    
    
    350,726
    
    
    
    
    
    
    
    
    
    
    
    713,456Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    21,927
    
    
    
    (21,927
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,280
    
    
    
    9,820
    
    
    
    (1,804
    )
    
    
    22,296Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,730
    
    
    
    368,066
    
    
    
    31,747
    
    
    
    (23,731
    )
    
    
    738,812Total liabilities
    
    
    392,164
    
    
    
    953,995
    
    
    
    132,007
    
    
    
    (636,821
    )
    
    
    841,345Stockholders equityCommon stock
    
    
    711
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    711Additional paid-in capital
    
    
    253,127
    
    
    
    3,431
    
    
    
    67,332
    
    
    
    (70,763
    )
    
    
    253,127Accumulated other comprehensive income
    
    
    4,155
    
    
    
    146
    
    
    
    4,287
    
    
    
    (4,433
    )
    
    
    4,155Retained earnings (deficit)
    
    
    23,169
    
    
    
    55,496
    
    
    
    (57,179
    )
    
    
    1,683
    
    
    
    23,169Total stockholders equity
    
    
    281,162
    
    
    
    59,073
    
    
    
    14,449
    
    
    
    (73,522
    )
    
    
    281,162Total liabilities and stockholders equity
    
    $
    673,326
    
    
    $
    1,013,068
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,122,507
 F-27




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 31, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,567
    
    
    $
    21,751
    
    
    $
    7,567
    
    
    $
    
    
    
    $
    30,885Short term investments
    
    
    
    
    
    
    15,304
    
    
    
    201
    
    
    
    
    
    
    
    15,505Accounts receivable, net
    
    
    226,421
    
    
    
    37,152
    
    
    
    11,921
    
    
    
    (224,436
    )
    
    
    51,058Inventories, net
    
    
    
    
    
    
    16,645
    
    
    
    5,012
    
    
    
    (3,466
    )
    
    
    18,191Other current assets
    
    
    
    
    
    
    6,770
    
    
    
    499
    
    
    
    
    
    
    
    7,269Total current assets
    
    
    227,988
    
    
    
    97,622
    
    
    
    25,200
    
    
    
    (227,902
    )
    
    
    122,908Property, plant and equipment, net
    
    
    
    
    
    
    20,797
    
    
    
    574
    
    
    
    
    
    
    
    21,371Goodwill
    
    
    
    
    
    
    69,644
    
    
    
    100,577
    
    
    
    (521
    )
    
    
    169,700Developed and core technology, net
    
    
    
    
    
    
    826
    
    
    
    30,573
    
    
    
    
    
    
    
    31,399Other intangibles, net
    
    
    
    
    
    
    31,375
    
    
    
    1,304
    
    
    
    (23,500
    )
    
    
    9,179Deferred income taxes
    
    
    
    
    
    
    1,451
    
    
    
    2,659
    
    
    
    
    
    
    
    4,110Investment in subsidiaries
    
    
    100,911
    
    
    
    14,293
    
    
    
    
    
    
    
    (115,204
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    24,222
    
    
    
    130
    
    
    
    (23,693
    )
    
    
    659Total assets
    
    $
    328,899
    
    
    $
    260,230
    
    
    $
    161,017
    
    
    $
    (390,820
    )
    
    $
    359,326Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    26,020
    
    
    $
    136,201
    
    
    $
    94,494
    
    
    $
    (253,027
    )
    
    $
    3,688Accrued compensation expenses
    
    
    
    
    
    
    10,105
    
    
    
    1,375
    
    
    
    
    
    
    
    11,480Accrued warranty expense
    
    
    
    
    
    
    1,618
    
    
    
    
    
    
    
    
    
    
    
    1,618Income taxes payable
    
    
    
    
    
    
    1,970
    
    
    
    657
    
    
    
    (240
    )
    
    
    2,387Other accrued expenses
    
    
    
    
    
    
    6,353
    
    
    
    1,861
    
    
    
    
    
    
    
    8,214Contingent liability on acquisition
    
    
    
    
    
    
    
    
    
    
    25,988
    
    
    
    
    
    
    
    25,988Total current liabilities
    
    
    26,020
    
    
    
    156,247
    
    
    
    124,375
    
    
    
    (253,267
    )
    
    
    53,375Non-current liabilitiesLong-term employee benefit obligations
    
    
    
    
    
    
    3,072
    
    
    
    
    
    
    
    
    
    
    
    3,072Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    22,349
    
    
    
    (22,349
    )
    
    
    Total non-current liabilities
    
    
    
    
    
    
    3,072
    
    
    
    22,349
    
    
    
    (22,349
    )
    
    
    3,072Total liabilities
    
    
    26,020
    
    
    
    159,319
    
    
    
    146,724
    
    
    
    (275,616
    )
    
    
    56,447Stockholders equityCommon stock
    
    
    695
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    695Additional paid-in capital
    
    
    227,284
    
    
    
    1,689
    
    
    
    130,031
    
    
    
    (131,720
    )
    
    
    227,284Accumulated other comprehensive income
    
    
    2,414
    
    
    
    37
    
    
    
    2,305
    
    
    
    (2,342
    )
    
    
    2,414Retained earnings (deficit)
    
    
    72,486
    
    
    
    99,185
    
    
    
    (118,052
    )
    
    
    18,867
    
    
    
    72,486Total stockholders equity
    
    
    302,879
    
    
    
    100,911
    
    
    
    14,293
    
    
    
    (115,204
    )
    
    
    302,879Total liabilities and stockholders equity
    
    $
    328,899
    
    
    $
    260,230
    
    
    $
    161,017
    
    
    $
    (390,820
    )
    
    $
    359,326
 F-28




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Year Ended December 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    333,191
    
    
    $
    60,950
    
    
    $
    (35,823
    )
    
    $
    358,318Cost of sales
    
    
    
    
    
    
    69,178
    
    
    
    35,241
    
    
    
    (35,547
    )
    
    
    68,872Gross profit
    
    
    
    
    
    
    264,013
    
    
    
    25,709
    
    
    
    (276
    )
    
    
    289,446Operating expensesMarketing and selling
    
    
    
    
    
    
    100,040
    
    
    
    23,164
    
    
    
    
    
    
    
    123,204Research and development
    
    
    
    
    
    
    33,877
    
    
    
    
    
    
    
    
    
    
    
    33,877In-process research and development
    
    
    
    
    
    
    87,648
    
    
    
    6,387
    
    
    
    
    
    
    
    94,035General and administrative
    
    
    
    
    
    
    34,290
    
    
    
    127
    
    
    
    
    
    
    
    34,417Integration costs
    
    
    
    
    
    
    1,712
    
    
    
    
    
    
    
    
    
    
    
    1,712Amortization of intangibles
    
    
    
    
    
    
    9,033
    
    
    
    3,360
    
    
    
    
    
    
    
    12,393Total operating expenses
    
    
    
    
    
    
    266,600
    
    
    
    33,038
    
    
    
    
    
    
    
    299,638Operating loss
    
    
    
    
    
    
    (2,587
    )
    
    
    (7,329
    )
    
    
    (276
    )
    
    
    (10,192
    )Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,701
    
    
    
    
    
    
    
    
    
    
    
    1,701Interest income
    
    
    
    
    
    
    2,699
    
    
    
    55
    
    
    
    
    
    
    
    2,754Interest expense
    
    
    (6,291
    )
    
    
    (11,524
    )
    
    
    (580
    )
    
    
    
    
    
    
    (18,395
    )Financing charge
    
    
    (7,170
    )
    
    
    (1,132
    )
    
    
    
    
    
    
    
    
    
    
    (8,302
    )Other income (expense)
    
    
    
    
    
    
    (227
    )
    
    
    461
    
    
    
    49
    
    
    
    283Total other (expense) income
    
    
    (13,461
    )
    
    
    (8,483
    )
    
    
    (64
    )
    
    
    49
    
    
    
    (21,959
    )Loss from continuing operations before
income taxes
    
    
    (13,461
    )
    
    
    (11,070
    )
    
    
    (7,393
    )
    
    
    (227
    )
    
    
    (32,151
    )Provision for income taxes
    
    
    (4,966
    )
    
    
    17,151
    
    
    
    (371
    )
    
    
    (83
    )
    
    
    11,731Net loss from continuing operations
    
    
    (8,495
    )
    
    
    (28,221
    )
    
    
    (7,022
    )
    
    
    (144
    )
    
    
    (43,882
    )Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (5,435
    )
    
    
    
    
    
    
    
    
    
    
    (5,435
    )Equity in (loss) earnings of subsidiary
    
    
    (40,678
    )
    
    
    (7,022
    )
    
    
    
    
    
    
    47,700
    
    
    
    Net (loss) income
    
    $
    (49,173
    )
    
    $
    (40,678
    )
    
    $
    (7,022
    )
    
    $
    47,556
    
    
    $
    (49,317
    )
 F-29




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Year Ended December 31, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    242,827
    
    
    $
    49,510
    
    
    $
    (29,746
    )
    
    $
    262,591Cost of sales
    
    
    
    
    
    
    46,993
    
    
    
    28,349
    
    
    
    (29,231
    )
    
    
    46,111Gross profit
    
    
    
    
    
    
    195,834
    
    
    
    21,161
    
    
    
    (515
    )
    
    
    216,480Operating expensesMarketing and selling
    
    
    
    
    
    
    72,130
    
    
    
    19,871
    
    
    
    
    
    
    
    92,001Research and development
    
    
    
    
    
    
    20,966
    
    
    
    
    
    
    
    
    
    
    
    20,966In-process research and development
    
    
    
    
    
    
    
    
    
    
    9,220
    
    
    
    
    
    
    
    9,220General and administrative
    
    
    
    
    
    
    21,733
    
    
    
    (20
    )
    
    
    
    
    
    
    21,713Amortization of intangibles
    
    
    
    
    
    
    4,147
    
    
    
    3,737
    
    
    
    
    
    
    
    7,884Total operating expenses
    
    
    
    
    
    
    118,976
    
    
    
    32,808
    
    
    
    
    
    
    
    151,784Operating income (loss)
    
    
    
    
    
    
    76,858
    
    
    
    (11,647
    )
    
    
    (515
    )
    
    
    64,696Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,929
    
    
    
    
    
    
    
    
    
    
    
    1,929Interest income
    
    
    
    
    
    
    1,613
    
    
    
    54
    
    
    
    (421
    )
    
    
    1,246Interest expense
    
    
    
    
    
    
    (217
    )
    
    
    (421
    )
    
    
    421
    
    
    
    (217
    )Other income (expense)
    
    
    
    
    
    
    (1,228
    )
    
    
    (49
    )
    
    
    (152
    )
    
    
    (1,429
    )Total other (expense) income
    
    
    
    
    
    
    2,097
    
    
    
    (416
    )
    
    
    (152
    )
    
    
    1,529Income (loss) from continuing operations before
income taxes
    
    
    
    
    
    
    78,955
    
    
    
    (12,063
    )
    
    
    (667
    )
    
    
    66,225Provision for income taxes
    
    
    
    
    
    
    28,187
    
    
    
    (999
    )
    
    
    (238
    )
    
    
    26,950Net income (loss) from continuing operations
    
    
    
    
    
    
    50,768
    
    
    
    (11,064
    )
    
    
    (429
    )
    
    
    39,275Equity in earnings (loss) of subsidiaries
    
    
    39,704
    
    
    
    (11,064
    )
    
    
    
    
    
    
    (28,640
    )
    
    
    Net income (loss)
    
    $
    39,704
    
    
    $
    39,704
    
    
    $
    (11,064
    )
    
    $
    (29,069
    )
    
    $
    39,275
 F-30




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Year Ended January 1, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    186,491
    
    
    $
    43,524
    
    
    $
    (21,243
    )
    
    $
    208,772Cost of sales
    
    
    
    
    
    
    35,745
    
    
    
    22,209
    
    
    
    (19,623
    )
    
    
    38,331Gross profit
    
    
    
    
    
    
    150,746
    
    
    
    21,315
    
    
    
    (1,620
    )
    
    
    170,441Operating expensesMarketing and selling
    
    
    
    
    
    
    57,073
    
    
    
    15,837
    
    
    
    
    
    
    
    72,910Research and development
    
    
    
    
    
    
    15,505
    
    
    
    281
    
    
    
    
    
    
    
    15,786In-process research and development
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    
    
    
    
    35,000General and administrative
    
    
    
    
    
    
    20,261
    
    
    
    1,356
    
    
    
    
    
    
    
    21,617Amortization of intangibles
    
    
    
    
    
    
    3,776
    
    
    
    1,932
    
    
    
    
    
    
    
    5,708Total operating expenses
    
    
    
    
    
    
    96,615
    
    
    
    54,406
    
    
    
    
    
    
    
    151,021Operating income (loss)
    
    
    
    
    
    
    54,131
    
    
    
    (33,091
    )
    
    
    (1,620
    )
    
    
    19,420Other income (expense)Royalty income
    
    
    
    
    
    
    2,079
    
    
    
    
    
    
    
    
    
    
    
    2,079Interest income
    
    
    
    
    
    
    793
    
    
    
    46
    
    
    
    (322
    )
    
    
    517Interest expense
    
    
    
    
    
    
    (783
    )
    
    
    (322
    )
    
    
    322
    
    
    
    (783
    )Investment impairment
    
    
    
    
    
    
    (4,500
    )
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Other income (expense)
    
    
    
    
    
    
    (12
    )
    
    
    112
    
    
    
    70
    
    
    
    170Total other income (expense)
    
    
    
    
    
    
    (2,423
    )
    
    
    (164
    )
    
    
    70
    
    
    
    (2,517
    )Income (loss) from continuing operations
before income taxes
    
    
    
    
    
    
    51,708
    
    
    
    (33,255
    )
    
    
    (1,550
    )
    
    
    16,903Provision for income taxes
    
    
    
    
    
    
    19,949
    
    
    
    672
    
    
    
    (598
    )
    
    
    20,023Net income (loss) from continuing operations
    
    
    
    
    
    
    31,759
    
    
    
    (33,927
    )
    
    
    (952
    )
    
    
    (3,120
    )Equity in loss of subsidiaries
    
    
    (2,168
    )
    
    
    (33,927
    )
    
    
    
    
    
    
    36,095
    
    
    
    Net (loss) income
    
    $
    (2,168
    )
    
    $
    (2,168
    )
    
    $
    (33,927
    )
    
    $
    35,143
    
    
    $
    (3,120
    )
 F-31




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Year Ended December 30, 2006AmericanMedical
    
    
    
    
    
    Non-Systems
    
    Guarantor
    
    Guarantor
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (5,082
    )
    
    $
    44,372
    
    
    $
    34,764
    
    
    $
    
    
    
    $
    74,054Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (22,155
    )
    
    
    232
    
    
    
    
    
    
    
    (21,923
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (718,555
    )
    
    
    (27,082
    )
    
    
    
    
    
    
    (745,637
    )Purchase of investments in technology
    
    
    
    
    
    
    (25,548
    )
    
    
    (6,387
    )
    
    
    
    
    
    
    (31,935
    )Purchase of license agreement
    
    
    
    
    
    
    (2,050
    )
    
    
    
    
    
    
    
    
    
    
    (2,050
    )Purchase of short term investments
    
    
    
    
    
    
    (145
    )
    
    
    (10
    )
    
    
    
    
    
    
    (155
    )Sale of short term investments
    
    
    
    
    
    
    15,175
    
    
    
    14
    
    
    
    
    
    
    
    15,189Net cash used in investing activities
    
    
    
    
    
    
    (753,278
    )
    
    
    (33,233
    )
    
    
    
    
    
    
    (786,511
    )Cash flows from financing activitiesProceeds from senior secured credit facility,
net of issuance costs
    
    
    
    
    
    
    352,660
    
    
    
    
    
    
    
    
    
    
    
    352,660Proceeds from issuance of convertible notes,
net of issuance costs
    
    
    361,185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    361,185Intercompany notes
    
    
    (361,185
    )
    
    
    363,748
    
    
    
    (2,563
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    9,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,934Excess tax benefit from exercise of stock options
    
    
    1,674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,674Proceeds from short-term borrowings
    
    
    21,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    25,000Repayments of short-term borrowings
    
    
    (21,000
    )
    
    
    (4,000
    )
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Payments on long-term debt
    
    
    
    
    
    
    (913
    )
    
    
    
    
    
    
    
    
    
    
    (913
    )Financing charges paid on credit facility
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Net provided by (used in) financing activities
    
    
    4,653
    
    
    
    715,495
    
    
    
    (2,563
    )
    
    
    
    
    
    
    717,585Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (5,435
    )
    
    
    
    
    
    
    
    
    
    
    (5,435
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (5,435
    )
    
    
    
    
    
    
    
    
    
    
    (5,435
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (1,527
    )
    
    
    
    
    
    
    (1,527
    )Net increase (decrease) in cash and cash equivalents
    
    
    (429
    )
    
    
    1,154
    
    
    
    (2,559
    )
    
    
    
    
    
    
    (1,834
    )Cash and cash equivalents at beginning of period
    
    
    1,567
    
    
    
    21,751
    
    
    
    7,567
    
    
    
    
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    1,138
    
    
    $
    22,905
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    29,051
 F-32




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Year Ended December 31, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (11,277
    )
    
    $
    84,491
    
    
    $
    (1,634
    )
    
    $
    
    
    
    $
    71,580Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (5,099
    )
    
    
    (11
    )
    
    
    
    
    
    
    (5,110
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (81,516
    )
    
    
    
    
    
    
    
    
    
    
    (81,516
    )Purchase of investments in technology
    
    
    
    
    
    
    (1,620
    )
    
    
    
    
    
    
    
    
    
    
    (1,620
    )Purchase of short term investments
    
    
    
    
    
    
    (33,754
    )
    
    
    (20
    )
    
    
    
    
    
    
    (33,774
    )Sale of short term investments
    
    
    
    
    
    
    33,342
    
    
    
    401
    
    
    
    
    
    
    
    33,743Net cash (used in) provided by investing activities
    
    
    
    
    
    
    (88,647
    )
    
    
    370
    
    
    
    
    
    
    
    (88,277
    )Cash flows from financing activitiesIssuance of common stock
    
    
    11,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,539Intercompany notes
    
    
    
    
    
    
    382
    
    
    
    (382
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    11,539
    
    
    
    382
    
    
    
    (382
    )
    
    
    
    
    
    
    11,539Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    354
    
    
    
    
    
    
    
    354Net increase (decrease) in cash and cash equivalents
    
    
    262
    
    
    
    (3,774
    )
    
    
    (1,292
    )
    
    
    
    
    
    
    (4,804
    )Cash and cash equivalents at beginning of period
    
    
    1,305
    
    
    
    25,525
    
    
    
    8,859
    
    
    
    
    
    
    
    35,689Cash and cash equivalents at end of period
    
    $
    1,567
    
    
    $
    21,751
    
    
    $
    7,567
    
    
    $
    
    
    
    $
    30,885
 F-33




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Year Ended January 1, 2005AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet cash (used in) provided by operating activities
    
    $
    (5,183
    )
    
    $
    57,907
    
    
    $
    (3,531
    )
    
    $
    
    
    
    $
    49,193Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (3,383
    )
    
    
    (303
    )
    
    
    
    
    
    
    (3,686
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (39,418
    )
    
    
    
    
    
    
    
    
    
    
    (39,418
    )Purchase of investments in technology
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )Purchase of short term investments
    
    
    
    
    
    
    (19,633
    )
    
    
    
    
    
    
    
    
    
    
    (19,633
    )Sale of short term investments
    
    
    
    
    
    
    4,154
    
    
    
    
    
    
    
    
    
    
    
    4,154Net cash (used in) investing activities
    
    
    
    
    
    
    (60,780
    )
    
    
    (303
    )
    
    
    
    
    
    
    (61,083
    )Cash flows from financing activitiesIssuance of common stock
    
    
    6,066
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,066Intercompany notes
    
    
    
    
    
    
    (5,583
    )
    
    
    5,583
    
    
    
    
    
    
    
    Payments on long-term debt
    
    
    
    
    
    
    (16,364
    )
    
    
    
    
    
    
    
    
    
    
    (16,364
    )Net cash provided by (used in) financing activities
    
    
    6,066
    
    
    
    (21,947
    )
    
    
    5,583
    
    
    
    
    
    
    
    (10,298
    )Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (1,076
    )
    
    
    
    
    
    
    (1,076
    )Net increase (decrease) in cash and cash equivalents
    
    
    883
    
    
    
    (24,820
    )
    
    
    673
    
    
    
    
    
    
    
    (23,264
    )Cash and cash equivalents at beginning of period
    
    
    422
    
    
    
    50,345
    
    
    
    8,186
    
    
    
    
    
    
    
    58,953Cash and cash equivalents at end of period
    
    $
    1,305
    
    
    $
    25,525
    
    
    $
    8,859
    
    
    $
    
    
    
    $
    35,689
 11. Stock-Based Compensation
 Note 1, Business Description and Significant Accounting
Policies, Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation
 Share-Based Payment
  F-34




---



##### Table of Contents



Year Ended(in thousands)
    
    December 30, 2006Stock-option awards
    
    $
    9,169Restricted stock awards
    
    
    136Employee stock purchase plan
    
    
    525Total share-based compensation expense
    
    $
    9,830
    (in thousands, except per share data)
    
    2005
    
    2004Net income (loss), as reported
    
    $
    39,275
    
    
    $
    (3,120
    )Stock-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
    
    
    (7,159
    )
    
    
    (4,984
    )Pro forma net income (loss)
    
    $
    32,116
    
    
    $
    (8,089
    )Net income (loss) per shareAs reportedBasic
    
    $
    0.57
    
    
    $
    (0.05
    )Diluted
    
    $
    0.55
    
    
    $
    (0.05
    )Pro formaBasic
    
    $
    0.47
    
    
    $
    (0.12
    )Diluted
    
    $
    0.45
    
    
    $
    (0.12
    )
    F-35




---



##### Table of Contents



Weighted avgOptions
    
    exercise priceoutstanding
    
    per shareBalance at January 3, 2004
    
    
    7,548,978
    
    
    $
    5.86Granted
    
    
    2,258,700
    
    
    $
    15.48Exercised
    
    
    (1,124,136
    )
    
    $
    4.55Cancelled or expired
    
    
    (468,574
    )
    
    $
    8.99Balance at January 1, 2005
    
    
    8,214,968
    
    
    $
    8.51Granted
    
    
    2,104,637
    
    
    $
    19.40Exercised
    
    
    (1,958,695
    )
    
    $
    5.19Cancelled or expired
    
    
    (410,260
    )
    
    $
    12.98Balance at December 31, 2005
    
    
    7,950,650
    
    
    $
    11.97Granted
    
    
    1,403,550
    
    
    $
    19.43Exercised
    
    
    (1,414,220
    )
    
    $
    5.77Cancelled or expired
    
    
    (684,406
    )
    
    $
    15.91Balance at December 30, 2006
    
    
    7,255,574
    
    
    $
    14.25
  Options Outstanding
    
    Options ExercisableWeighted
    
    Weighted
    
    
    
    
    
    Weightedaverage
    
    average
    
    
    
    
    
    averageNumber
    
    remaining
    
    exercise
    
    Number
    
    exerciseRange of exercise prices
    
    of shares
    
    contractual life
    
    price
    
    of shares
    
    price$0.83 - $8.68
    
    
    1,881,298
    
    
    4.5 years
    
    $
    5.61
    
    
    
    1,795,689
    
    
    $
    5.48$10.15 - $16.48
    
    
    1,877,079
    
    
    6.6 years
    
    
    13.49
    
    
    
    1,407,104
    
    
    
    13.03$16.88 - $19.69
    
    
    2,137,300
    
    
    6.7 years
    
    
    18.48
    
    
    
    638,471
    
    
    
    18.61$19.72 - $21.68
    
    
    1,359,897
    
    
    6.6 years
    
    
    20.63
    
    
    
    313,172
    
    
    
    20.12Total
    
    
    7,255,574
    
    
    6.1 years
    
    $
    14.25
    
    
    
    4,154,436
    
    
    $
    11.16
   F-36




---



##### Table of Contents



2006
    
    2005
    
    2004Fair value of options granted
    
    $
    7.48
    
    
    $
    7.48
    
    
    $
    7.29Risk free interest rate
    
    
    4.68
    %
    
    
    3.98
    %
    
    
    3.71
    %Expected dividend rate
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Stock price volatility
    
    
    35.29
    %
    
    
    38.23
    %
    
    
    41.45
    %Expected life of option
    
    5 years
    
    5 years
    
    7 years
 Expected life
 Expected volatility
 Risk-free rate of return
 Dividend yield
   Restricted Stock
  F-37




---



##### Table of Contents



Unvested Shares
    
    
    Weighted averageoutstanding
    
    
    grant priceBalance at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    123,326
    
    
    
    18.51Vested
    
    
    
    
    
    
    Cancelled
    
    
    (2,800
    )
    
    
    19.48Balance at December 30, 2006
    
    
    120,526
    
    
    $
    18.49
 Employee Stock Purchase Plan
  12. Commitments and Contingent Liabilities
 Product Liability
   Operating Leases
  (in thousands)2007
    
    $
    2,6372008
    
    
    1,8702009
    
    
    1,4262010
    
    
    1,3342011
    
    
    1,1862012 and beyond
    
    
    1,325Total
    
    $
    9,778
  Litigation
  F-38




---



##### Table of Contents



Her Option Her Option
  Product Supply Agreement (Subsequent Event)
 Note 3,
Discontinued Operations; Sale of Aesthetics Business (Subsequent Event),
 13. Industry Segment Information and Foreign Operations
 Note 3, Discontinued Operations; Sales of
Aesthetics Business (Subsequent Events)).
   (in thousands)
    
    2006
    
    2005
    
    2004United StatesNet sales
    
    $
    272,679
    
    
    $
    205,463
    
    
    $
    165,140Long-lived assets
    
    
    873,200
    
    
    
    217,997
    
    
    
    153,528InternationalNet sales
    
    
    85,639
    
    
    
    57,128
    
    
    
    43,632Long-lived assets
    
    
    15,723
    
    
    
    14,311
    
    
    
    16,285
 14. Post-retirement Benefits
  F-39




---



##### Table of Contents



Note 1,
Business Description and Significant Accounting Policies, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
 Before
    
    
    
    
    
    AfterApplication of
    
    
    
    
    
    Application ofAs of December 30, 2006
    
    SFAS 158
    
    Adjustments
    
    SFAS 158(in thousands)Liability for
post-retirement benefits
    
    $
    3,305
    
    
    $
    (234
    )
    
    $
    3,071Deferred income taxes
    
    
    22,210
    
    
    
    86
    
    
    
    22,296Total liabilities
    
    
    841,493
    
    
    
    (148
    )
    
    
    841,345Accumulated other
comprehensive income
    
    
    4,007
    
    
    
    148
    
    
    
    4,155Total stockholders equity
    
    
    281,014
    
    
    
    148
    
    
    
    281,162
   2006
    
    2005
    
    2004Service cost
    
    $
    115
    
    
    $
    128
    
    
    $
    112Interest cost
    
    
    163
    
    
    
    142
    
    
    
    132Amortization of net prior service cost
    
    
    (39
    )
    
    
    (134
    )
    
    
    (142
    )Net benefit costs
    
    $
    239
    
    
    $
    136
    
    
    $
    102
  Other benefits2006
    
    2005Change in benefit obligationBenefit obligation at beginning of year
    
    $
    3,146
    
    
    $
    2,450Service cost
    
    
    115
    
    
    
    109Interest cost
    
    
    163
    
    
    
    142Plan amendements
    
    
    
    
    
    
    414Actuarial (gains) or losses
    
    
    (205
    )
    
    
    171Benefit payments
    
    
    (148
    )
    
    
    (140
    )Settlements
    
    
    
    
    
    
    Benefit obligation at end of year
    
    $
    3,071
    
    
    $
    3,146Change in plan assetsFair value of assets at beginning of year
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    
    
    
    
    Employer contributions
    
    
    148
    
    
    
    140Benefit payments
    
    
    (148
    )
    
    
    (140
    )Fair value of plan assets at end of year
    
    $
    
    
    
    $
    
 F-40




---



##### Table of Contents



2006
    
    2005Current
    
    $
    (164
    )
    
    $
    (142
    )Long term
    
    
    (2,907
    )
    
    
    (3,072
    )Net amount of accrued benefit cost
    
    $
    (3,071
    )
    
    $
    (3,214
    )
  2006Net actuarial (gain)
    
    $
    (251
    )Net prior service cost
    
    
    17Total accumulated other comprehensive income
    
    $
    (234
    )
   2005Funded statusFunded status
    
    $
    (3,146
    )Unrecognized prior service cost
    
    
    (22
    )Unrecognized net actuarial gain
    
    
    (46
    )Net amount of accrued benefit cost
    
    $
    (3,214
    )
  2007
    
    $
    1642008
    
    
    1912009
    
    
    2072010
    
    
    2242011
    
    
    2202012-2016
    
    
    1,333
  2006
    
    2005Discount rate
    
    
    5.75
    %
    
    
    5.50
    %Rate of future compensation increase
    
    
    4.00
    %
    
    
    4.00
    %
  1-Percentage-
    
    1-Percentage-Point Increase
    
    Point DecreaseEffect on total of service and interest cost
    
    $
    1
    
    
    $
    1Effect on post-retirement benefit obligation
    
    
    11
    
    
    
    11
 F-41




---



##### Table of Contents



15. Savings and Investment Plan
  16. Income Taxes
  Pretax income
    
    2006
    
    2005
    
    2004U.S.
    
    $
    (35,187
    )
    
    $
    65,405
    
    
    $
    16,771Foreign
    
    
    3,036
    
    
    
    820
    
    
    
    132Total
    
    $
    (32,151
    )
    
    $
    66,225
    
    
    $
    16,903
  Income tax expense
    
    2006
    
    2005
    
    2004CurrentU.S.Federal
    
    $
    6,262
    
    
    $
    23,416
    
    
    $
    14,989State
    
    
    2,592
    
    
    
    2,353
    
    
    
    1,852Foreign
    
    
    1,063
    
    
    
    299
    
    
    
    653DeferredU.S.Federal
    
    
    2,366
    
    
    
    1,401
    
    
    
    2,976State
    
    
    (731
    )
    
    
    (369
    )
    
    
    88Foreign
    
    
    179
    
    
    
    (150
    )
    
    
    (535
    )Total
    
    $
    11,731
    
    
    $
    26,950
    
    
    $
    20,023
  Income tax reconciliation
    
    2006
    
    2005
    
    2004Statutory rate
    
    $
    (11,253
    )
    
    $
    23,179
    
    
    $
    5,916State taxes
    
    
    1,261
    
    
    
    1,358
    
    
    
    1,265In-process research and development
    
    
    23,971
    
    
    
    3,227
    
    
    
    12,250Manufacturing tax incentives
    
    
    (388
    )
    
    
    (753
    )
    
    
    (372
    )Investment write-off
    
    
    
    
    
    
    
    
    
    
    1,678Meals and entertainment
    
    
    501
    
    
    
    391
    
    
    
    245Foreign rate differential and other
    
    
    253
    
    
    
    12
    
    
    
    79Research and development credits
    
    
    (1,044
    )
    
    
    (656
    )
    
    
    (471
    )Other
    
    
    (391
    )
    
    
    192
    
    
    
    (567
    )Stock-based compensation under SFAS 123(R)
    
    
    1,276
    
    
    
    
    
    
    
    Audit and refund claim
    
    
    (2,455
    )
    
    
    
    
    
    
    Total
    
    $
    11,731
    
    
    $
    26,950
    
    
    $
    20,023
 Note 2, Acquisition and Financing
of Laserscope).
 F-42




---



##### Table of Contents



Note 4, Acquisitions).
 Note 4, Acquisitions).
 Note 4, Acquisitions
    F-43




---



##### Table of Contents



2006
    
    2005Deferred tax assets:Federal net operating loss carryforwards
    
    $
    16,340
    
    
    $
    13,021Reserves and allowances
    
    
    7,757
    
    
    
    3,303Capital loss carryforwards
    
    
    1,710
    
    
    
    1,710Foreign accruals and net operating loss carryforwards
    
    
    2,980
    
    
    
    2,093Workforce, patents and license
    
    
    3,345
    
    
    
    2,946Compensation accruals
    
    
    7,022
    
    
    
    1,975Stock-based compensation under SFAS 123(R)
    
    
    2,331
    
    
    
    State net operating loss carryforwards and credits
    
    
    6,846
    
    
    
    Valuation allowance
    
    
    (4,121
    )
    
    
    (2,974
    )Total deferred tax assets
    
    
    44,210
    
    
    
    22,074Deferred tax liabilities:Goodwill
    
    
    8,737
    
    
    
    7,625Prepaid insurance and other
    
    
    1,268
    
    
    
    731Developed technology
    
    
    24,082
    
    
    
    5,053Trademarks and royalty agreements
    
    
    16,946
    
    
    
    1,358Contingent interest on debt
    
    
    4,408
    
    
    
    Total deferred tax liabilities
    
    
    55,441
    
    
    
    14,767Net deferred tax asset (liability)
    
    $
    (11,231
    )
    
    $
    7,307
       17. Quarterly Financial Data
  F-44




---



##### Table of Contents



Note 3, Discontinued
Operations; Sale of Aesthetics Business (Subsequent Event),
 2006
    
    2005First
    
    Second
    
    Third
    
    Fourth
    
    First
    
    Second
    
    Third
    
    Fourth13 weeks
    
    13 weeks
    
    13 weeks
    
    13 weeks
    
    13 weeks
    
    13 weeks
    
    13 weeks
    
    13 weeksNet sales
    
    $
    73,624
    
    
    $
    78,782
    
    
    $
    90,500
    
    
    $
    115,412
    
    
    $
    62,145
    
    
    $
    65,637
    
    
    $
    61,738
    
    
    $
    73,071Gross profit
    
    
    61,894
    
    
    
    67,075
    
    
    
    71,635
    
    
    
    88,842
    
    
    
    51,125
    
    
    
    53,683
    
    
    
    50,582
    
    
    
    61,090Operating income (loss)
    
    
    17,963
    
    
    
    (5,562
    )
    
    
    (44,622
    )
    
    
    22,029
    
    
    
    17,252
    
    
    
    18,168
    
    
    
    6,609
    
    
    
    22,667Income (loss) from continuing operations
    
    
    11,472
    
    
    
    (8,095
    )
    
    
    (57,932
    )
    
    
    10,673
    
    
    
    11,243
    
    
    
    12,007
    
    
    
    1,415
    
    
    
    14,610Net income (loss)
    
    
    11,472
    
    
    
    (8,095
    )
    
    
    (58,604
    )
    
    
    5,910
    
    
    
    11,243
    
    
    
    12,007
    
    
    
    1,415
    
    
    
    14,610Net income (loss) per share:Basic net earnings (loss)
from continuing operations
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    (0.83
    )
    
    $
    0.15
    
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.02
    
    
    $
    0.21Discontinued operations, net of tax
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Basic net earnings (loss)
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    (0.84
    )
    
    $
    0.08
    
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.02
    
    
    $
    0.21Diluted net earnings (loss)
from continuing operations
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    (0.83
    )
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.02
    
    
    $
    0.20Discontinued operations, net of tax
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    (0.07
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Diluted net earnings (loss)
    
    $
    0.16
    
    
    $
    (0.12
    )
    
    $
    (0.84
    )
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.02
    
    
    $
    0.20
 Note 4, Acquisitions,
and Note 2, Acquisition and Financing of Laserscope). Note 10, Debt)
 Note 4, Acquisitions
   F-45




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##### Table of Contents



Financial Statement Schedules  Schedule II  Valuation and Qualifying Accounts
  Balance at
    
    Additions charged to:
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    Other
    
    
    
    
    
    End ofPeriod
    
    Expenses
    
    Accounts
    
    Deductions
    
    PeriodValuation Accounts:Year ended January 1, 2005Deducted from asset accountsAllowance for doubtful accounts
    
    $
    1,033
    
    
    $
    1,801
    
    
    $
    111
    (7)
    
    $
    958
    (1)
    
    $
    1,987Allowance for obsolete inventories
    
    $
    1,948
    
    
    $
    1,283
    
    
    $
    25
    (7)
    
    $
    1,513
    (2)
    
    $
    1,743Allowance for sales returns
    
    $
    1,779
    
    
    $
    2,298
    
    
    $
    
    
    
    $
    1,731
    (3)
    
    $
    2,346Year ended December 31, 2005Deducted from asset accountsAllowance for doubtful accounts
    
    $
    1,987
    
    
    $
    1,097
    
    
    $
    
    
    
    $
    1,067
    (1)
    
    $
    2,017Allowance for obsolete inventories
    
    $
    1,743
    
    
    $
    827
    
    
    $
    
    
    
    $
    1,253
    (2)
    
    $
    1,317Allowance for sales returns
    
    $
    2,346
    
    
    $
    2,329
    
    
    $
    
    
    
    $
    3,475
    (3)
    
    $
    1,200Year ended December 30, 2006Deducted from asset accountsAllowance for doubtful accounts
    
    $
    2,017
    
    
    $
    1,095
    
    
    $
    620
    (8)
    
    $
    617
    (1)
    
    $
    3,115Allowance for obsolete inventories
    
    $
    1,317
    
    
    $
    1,498
    
    
    $
    1,258
    (8)
    
    $
    1,569
    (2)
    
    $
    2,504Allowance for sales returns
    
    $
    1,200
    
    
    $
    5,256
    
    
    $
    50
    (8)
    
    $
    4,690
    (3)
    
    $
    1,816Qualifying Accounts:Year ended January 1, 2005Product liability allowance
    
    $
    1,308
    
    
    $
    (294
    ) (6)
    
    $
    
    
    
    $
    334
    (4)
    
    $
    680Product warranty allowance
    
    $
    1,338
    
    
    $
    334
    
    
    $
    75
    (7)
    
    $
    296
    (5)
    
    $
    1,451Year ended December 31, 2005Product liability allowance
    
    $
    680
    
    
    $
    480
    
    
    $
    
    
    
    $
    376
    (4)
    
    $
    784Product warranty allowance
    
    $
    1,451
    
    
    $
    599
    
    
    $
    
    
    
    $
    432
    (5)
    
    $
    1,618Year ended December 30, 2006Product liability allowance
    
    $
    784
    
    
    $
    220
    
    
    $
    
    
    
    $
    456
    (4)
    
    $
    548Product warranty allowance
    
    $
    1,618
    
    
    $
    619
    
    
    $
    809
    (8)
    
    $
    331
    (5)
    
    $
    2,715
 
 Notes:(1)
    
    Uncollectable accounts written off, net of recoveries(2)
    
    Obsolete and excess inventory disposals(3)
    
    Returned product(4)
    
    Product liability claims(5)
    
    Product warranty claims(6)
    
    Reduction of product liability recorded to reflect identified claims and lawsuits in ending balance of $0.6 million,
net of current year provision of $0.3 million. Recorded as a reduction to general and administrative expenses.(7)
    
    Allowances and reserves on balance sheet of TherMatrx, acquired in July 2004.(8)
    
    Allowances and reserves on balance sheet of Laserscope (excluding the aesthetics business), acquired in July 2006. Acticon, Apogee, AMS Ambicor®, AMS 650, AMS 700®, AMS 700 CX and Ultrex, AMS Urinary
Control System, BioArc, BioArc SP, BioArc TO, Dura II, Her Option, In-Fast, In-Fast
Ultra, InhibiZone, InteDerm®, InteGraft, InteMesh®, IntePro InteLata, InteXen,
InVance, Monarc, Parylene, Perigee, ProstaJect, Solutions for Life®, SPARC, Straight-In,
TherMatrx, and UroLume are trademarks of AMS or its subsidiaries.
 F-46




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##### Table of Contents



SIGNATURES
  Dated: February 28, 2007
    
    AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.By
    
    /s/ Martin J. EmersonMartin J. EmersonPresident and Chief Executive Officer
  Signature
    
    Title/s/ Martin J. Emerson
    
    President and Chief Executive OfficerMartin J. Emerson
    
    (Principal
Executive Officer) and Director/s/ Mark A. Heggestad
    
    Executive Vice President and Chief Financial OfficerMark A. Heggestad
    
    (Principal
Financial and Accounting Officer)/s/ Richard B. Emmitt
    
    DirectorRichard B. Emmitt/s/ Albert Jay Graf
    
    DirectorAlbert Jay Graf/s/ Jane E. Kiernan
    
    DirectorJane E. Kiernan/s/ Robert McLellan, M.D.
    
    DirectorRobert McLellan, M.D./s/ Christopher H. Porter, Ph.D.
    
    DirectorChristopher H. Porter, Ph.D./s/ D. Verne Sharma
    
    DirectorD. Verne Sharma/s/ Thomas E. Timbie
    
    DirectorThomas E. Timbie/s/ Elizabeth H. Weatherman
    
    DirectorElizabeth H. Weatherman




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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
For the Year Ended December 30, 2006
 Item No.
    
    Item
    
    Filing Method1.1
    
    Purchase Agreement, dated as of June 21,
2006, between American Medical Systems
Holdings, Inc. and Piper Jaffray & Co., as
representative of the Underwriters listed in
Schedule I thereto.
    
    Incorporated by reference to Exhibit 1.1
of the Companys Form 8-K filed on June
28, 2006 (File No. 000-30733).2.1
    
    Agreement and Plan of Merger, dated as of
December 13, 2002, by and among American
Medical Systems, Inc., Snowball Acquisition
Corp., Cryogen, Inc. and Robert Knarr.
    
    Incorporated by reference to Exhibit 2.1
of the Companys Form 8-K filed on
December 17, 2002 (File No. 000-30733).2.2
    
    First Amendment to Agreement and Plan of
Merger, dated December 18, 2002, by and
among American Medical Systems, Inc.,
Snowball Acquisition Corp., Cryogen, Inc.
and Robert Knarr.
    
    Incorporated by reference to Exhibit 2.1
of the Companys Form 8-K filed on January
6, 2003 (File No. 000-30733).2.3
    
    Agreement and Plan of Merger, dated as of
June 15, 2004, by and among American Medical
Systems, Inc.; Leio Acquisition Corp.;
TherMatrx, Inc.; TherMatrx Investment
Holdings LLC and BSD Medical Corporation, as
Principal Stockholders, and TherMatrx
Investments Holdings LLC, as Stockholders
Representative.
    
    Incorporated by reference to Exhibit 2.1
of the Companys Form 8-K filed on June
15, 2004 (File No. 000-30733).2.4
    
    Agreement and Plan of Merger, dated as of
June 3, 2005, by and among American Medical
Systems, Inc., Oak Merger Corp., Ovion Inc.,
Jeffrey P. Callister, and W. Stephen
Tremulis, as Principal Stockholders, and
Jeffrey P. Callister, as Stockholders
Representative.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on June 6,
2005 (File No. 000-30733).2.5
    
    Asset Purchase Agreement, dated April 26,
2006, between American Medical Systems, Inc.
and BioControl Medical, Ltd.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on April
27, 2006 (File No. 000-30733).2.7
    
    Agreement and Plan of Merger, dated as of
May 8, 2006, by and among American Medical
Systems, Inc., Xenon Merger Corp., a wholly
owned subsidiary of American Medical
Systems, Inc., Solarant Medical, Inc., and
Warburg Pincus Equity Partners, L.P., as
stockholders representative.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on May 9,
2006 (File No. 000-30733).2.8
    
    Agreement and Plan of Merger, dated as of
June 3, 2006, by and among American Medical
Systems Holding, Inc., Laserscope and Kermit
Merger Corp.
    
    Incorporated by reference to Exhibit 2.1
of the Companys Current Report on Form
8-K filed on June 5, 2006 (File No.
000-30733).
 E-1




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##### Table of Contents



Item No.
    
    Item
    
    Filing Method2.9
    
    Amendment, dated as of July 10, 2006, to
Agreement and Plan of Merger, dated as of
June 3, 2006, by and among American Medical
Systems Holdings, Inc., Laserscope and
Kermit Merger Corp.
    
    Incorporated by reference to Exhibit 2.1
of the Companys Current Report on Form
8-K filed on July 11, 2006 (File No.
000-30733).2.10
    
    Stock Purchase Agreement, dated as of April
30, 2006, by and among Laserscope,
InnovaQuartz, Inc., The Griffin Family
Revocable Trust, Steve Griffin and Brian
Barr.
    
    Incorporated by reference to Exhibit 10.8
of the Companys Form 10-Q for the Fiscal
Quarter Ended September 30, 2006 (File No.
000-30733).2.11
    
    Termination Agreement, dated December 8,
2006, among American Medical Systems
Holdings, Inc., Laserscope, InnovaQuartz
Incorporated, Stephen Griffin, The Griffin
Family Revocable Trust, and Brian Barr.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on
December 14, 2006 (File No. 000-30733).2.12
    
    Asset Purchase Agreement, dated November 30,
2006, by and among American Medical Systems,
Inc., Laserscope, and Iridex Corporation.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on
December 6, 2006 (File No. 000-30733).3.1
    
    Second Amended and Restated Certificate of
Incorporation of the Company.
    
    Incorporated by reference to Exhibit 3.1
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).3.2
    
    Bylaws, as amended, of the Company.
    
    Incorporated by reference to Exhibit 3.2
of the Companys Form 10-K for the Fiscal
Year Ended January 3, 2004 (File No.
000-30733).4.1
    
    Certificate of Incorporation of the Company.
    
    See Exhibit 3.1 above.4.2
    
    Bylaws of the Company.
    
    See Exhibit 3.2 above.4.3
    
    Form of Indenture for Senior Debt Securities.
    
    Incorporated by reference to Exhibit 4.2
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).4.4
    
    Form of Senior Debt Security.
    
    Incorporated by reference to Exhibit 4.3
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).4.5
    
    Form of Indenture for Subordinated Debt
Securities.
    
    Incorporated by reference to Exhibit 4.4
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).4.6
    
    Form of Subordinated Debt Security.
    
    Incorporated by reference to Exhibit 4.5
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).4.7
    
    Form of Indenture for Senior Subordinated
Debt Securities.
    
    Incorporated by reference to Exhibit 4.6
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).
 E-2




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##### Table of Contents



Item No.
    
    Item
    
    Filing Method4.8
    
    Form of Senior Subordinated Debt Security.
    
    Incorporated by reference to Exhibit 4.7
of the Companys Form S-3 filed on June
19, 2006 (File No. 333-135135).4.9
    
    Indenture, dated as of June 27, 2006,
between American Medical Systems Holdings,
Inc., the Notes Guarantors (as defined
therein), and U.S. Bank National
Association, as trustee.
    
    Incorporated by reference to Exhibit 4.1
of the Companys Form 8-K filed on June
28, 2006 (File No. 000-30733).4.10
    
    Form of 3 1/4% Convertible Senior Subordinated
Note.
    
    Incorporated by reference to Exhibit 4.2
of the Companys Form 8-K filed on June
28, 2006 (File No. 000-30733).4.11
    
    First Supplemental Indenture, dated as of
September 6, 2006, by and between Laserscope
and U.S. Bank National Association, as
trustee.
    
    Incorporated by reference to Exhibit 4.1
of the Companys Form 8-K filed on
September 8, 2006 (File No. 000-30733).4.12
    
    Guarantee, dated as of September 6, 2006,
made by Laserscope in favor of U.S. Bank
National Association, as trustee.
    
    Incorporated by reference to Exhibit 4.2
of the Companys Form 8-K filed on
September 8, 2006 (File No. 000-30733).10.1
    
    Employment Agreement, dated April 26, 2004,
between Martin J. Emerson and American
Medical Systems, Inc.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 10-Q for the Fiscal
Quarter Ended April 2, 2004 (File No.
000-30733).10.2
    
    First Amendment to Employment Agreement,
dated January 5, 2005, between Martin J.
Emerson and American Medical Systems, Inc.
    
    Incorporated by reference to Exhibit 10.2
of the Companys Form 8-K filed on January
5, 2005 (File No. 000-30733).10.3
    
    Employment Agreement, dated January 1, 2003,
between Ross Longhini and American Medical
Systems, Inc.
    
    Incorporated by reference to Exhibit 10.8
of the Companys Annual Report on Form
10-K for the Fiscal Year Ended December
28, 2002 (File No. 000-30733).10.4
    
    Employment Agreement, dated December18,
2006, between Mark A. Heggestad and American
Medical Systems, Inc.
    
    Filed with this Annual Report on Form 10-K.10.5
    
    2000 Equity Incentive Plan, as amended.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 10-Q for the Fiscal
Quarter Ended June 28, 2003 (File No.
000-30733).10.6
    
    Form of Incentive Stock Option Agreement
under the 2000 Equity Incentive Plan, as
amended.
    
    Incorporated by reference to Exhibit 10.10
of the Companys Registration Statement on
Form S-1 (File No. 333-37488).10.7
    
    Form of Non-Qualified Stock Option Agreement
under the 2000 Equity Incentive Plan, as
amended.
    
    Incorporated by reference to Exhibit 10.11
of the Companys Registration Statement on
Form S-1 (File No. 333-37488).
 E-3




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##### Table of Contents



Item No.
    
    Item
    
    Filing Method10.8
    
    Employee Stock Purchase Plan, as amended.
    
    Incorporated by reference to Exhibit 10.2
of the Companys Form 10-Q for the Fiscal
Quarter Ended October 1, 2005 (File No.
000-30733).10.9
    
    2005 Stock Incentive Plan, as amended.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 10-Q for the Fiscal
Quarter Ended October 1, 2005 (File No.
000-30733).10.10
    
    Form of Stock Option Certificate for
Directors under the 2005 Stock Incentive
Plan, as amended.
    
    Incorporated by reference to Exhibit 10.20
of the Companys Annual Report on Form
10-K for the Fiscal Year Ended December
31, 2005 (File No. 000-30733).10.11
    
    Form of Stock Option Certificate for
Executive Officers under the 2005 Stock
Incentive Plan, as amended.
    
    Incorporated by reference to Exhibit 10.21
of the Companys Annual Report on Form
10-K for the Fiscal Year Ended December
31, 2005 (File No. 000-30733).10.12
    
    Form of Notice of Amendment to Stock Option
Certificate/Agreement for Executive Officers
of American Medical Systems Holdings, Inc.
    
    Incorporated by reference to Exhibit 10.6
of the Companys Form 10-Q for the Fiscal
Quarter Ended July 2, 2006 (File No.
000-30733).10.13
    
    Form of Indemnification Agreement with
Executive Officers and Directors.
    
    Incorporated by reference to Exhibit 10.22
of the Companys Annual Report on Form
10-K for the Fiscal Year Ended December
31, 2005 (File No. 000-30733).10.14
    
    Summary of Director Compensation.
    
    Filed with this Annual Report on Form 10-K.10.15
    
    Summary of Named Executive Officer
Compensation.
    
    Filed with this Annual Report on Form 10-K.10.16
    
    License Agreement, dated April 26, 2006,
between American Medical Systems, Inc. and
BioControl Medical, Ltd.
    
    Incorporated by reference to 10.2 of the
Companys Form 8-K filed on April 27, 2006
(File No. 000-30733).10.17
    
    Credit and Guaranty Agreement, dated as of
July 20, 2006, by and among American Medical
Systems, Inc., as borrower, American Medical
Systems Holdings, Inc. and certain of its
subsidiaries, as guarantors, CIT Capital
Securities LLC, as co-lead arranger and sole
bookrunner, KeyBank National Association, as
co-lead arranger and syndication agent, CIT
Healthcare LLC, as administrative agent and
collateral agent, General Electric Capital
Corporation, as documentation agent, and
various lenders.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on July
26, 2006 (File No. 000-30733).
 E-4




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##### Table of Contents



Item No.
    
    Item
    
    Filing Method10.18
    
    Pledge and Security Agreement, dated as of
July 20, 2006, between each of the grantors
party thereto and CIT Healthcare LLC, as
administrative agent and collateral agent.
    
    Incorporated by reference to Exhibit 10.2
of the Companys Form 8-K filed on July
26, 2006 (File No. 000-30733).10.19
    
    Mortgage, Security Agreement, Assignment of
Rents and Leases and Fixture Financing
Statement, dated as of July 20, 2006,
executed by American Medical Systems, Inc.
to and for the benefit of CIT Healthcare
LLC, as administrative agent and collateral
agent.
    
    Incorporated by reference to Exhibit 10.3
of the Companys Form 8-K filed on July
26, 2006 (File No. 000-30733).10.20
    
    Services Agreement and Statement of Work,
effective August 8, 2006, by and between
American Medical Systems Holdings, Inc. and
Salo, LLC.
    
    Incorporated by reference to Exhibit 10.1
of the Companys Form 8-K filed on August
8, 2006 (File No. 000-30733).10.21
    
    Net Lease Agreement, dated as of June 20,
2000, by and between Laserscope and Realtec
Properties.
    
    Incorporated by reference to Exhibit 10.6
of Laserscopes Annual Report on Form 10-K
filed on March 28, 2001 (File No.
000-18053).10.22
    
    Net Lease Agreement, dated as of October 18,
2000, by and between Laserscope and Realtec
Properties.
    
    Incorporated by reference to Exhibit 10.6A
of Laserscopes Annual Report on Form 10-K
filed on March 28, 2001 (File No.
000-18053).21.1
    
    Subsidiaries of American Medical Systems
Holdings, Inc.
    
    Filed with this Annual Report on Form 10-K.23.1
    
    Consent of Ernst & Young LLP.
    
    Filed with this Annual Report on Form 10-K.31.1
    
    Certification by Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Annual Report on Form 10-K.31.2
    
    Certification by Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Annual Report on Form 10-K.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 Annual Report on Form 10-K.
 E-5