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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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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 28, 2002          |  | 000-30733              



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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                  |  |                                             
|--------------------------------- |  | --------------------------------------------
|Delaware
(State of Incorporation) |  | 41-1978822
(IRS Employer Identification No.)

10700 Bren Road West
Minnetonka, MN 55343
(Address of Principal Executive Offices, Including Zip Code)

Registrants Telephone Number, Including Area Code:

952-930-6000



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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes x No o

As of June 28, 2002,the last business day of the registrants most
recently completed second fiscal quarter, the aggregate market value of the
voting and non-voting common stock of the registrant (based upon the closing
price of the voting Common Stock as of that date as reported by The Nasdaq
Stock Market and excluding shares beneficially owned by directors, executive
officers, and affiliates of AMS) was approximately $413,541,253.

As of March 20, 2003, 32,560,839 shares of Common Stock of the registrant
were outstanding, of which 32,219,139 shares were voting Common Stock and
341,700 shares were non-voting Common Stock.

Part III of this Annual Report on Form 10-K incorporates by
reference information (to the extent specific sections are referred to in this
Annual Report) from the registrants Proxy Statement for its 2003 Annual
Meeting of Stockholders to be held May 7, 2003 (the 2003 Proxy Statement).



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TABLE OF CONTENTS



|                                                  |                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | ITEM 1. BUSINESS.                                                                                       
|                                                  | ITEM 1A. CERTAIN IMPORTANT FACTORS.                                                                     
|                                                  | ITEM 2. PROPERTIES.                                                                                     
|                                                  | ITEM 3. LEGAL PROCEEDINGS.                                                                              
|                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                            
|                                                  | ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.                                                          
|PART II                                          
|                                                  | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.                          
|                                                  | ITEM 6. SELECTED FINANCIAL DATA.                                                                        
|                                                  | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.          
|                                                  | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                    
|                                                  | ITEM 8. FINANCIAL STATEMENTS.                                                                           
|                                                  | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.           
|PART III                                         
|                                                  | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                            
|                                                  | 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.                                                
|PART IV                                          
|                                                  | ITEM 14. CONTROLS AND PROCEDURES                                                                        
|                                                  | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.                              
|SIGNATURES                                       
|CERTIFICATIONS                                   
|EXHIBIT INDEX                                    
|EX-10.8 Employment Agreement - Ross Longhini     
|EX-10.14 2002 Management Incentive Plan          
|EX-10.15 Lease, Dated July 22, 2002              
|EX-10.28 Third Amendment to Credit Agreement     
|EX-21.1 Subsidiaries of Registrant               
|EX-23.1 Consent of Ernst & Young LLP             
|EX-99 Certification Pursuant to 18 USC Sect. 1350



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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

FORM 10-K

For the Fiscal Year Ended December 28, 2002

TABLE OF CONTENTS

|              |  |             |  |                                                                                                |  |  |  |    
|------------- |  | ----------- |  | ---------------------------------------------------------------------------------------------- |  |  |  | ---
|              |  | Description |  | Page                                                                                          
|              |  |             |  |                                                                                               
|PART I        |  |             |  |                                                                                                |  |  |  | 1  
|              |  | Item 1.     |  | Business                                                                                       |  |  |  | 1  
|              |  | Item 1a     |  | Certain Important Factors                                                                      |  |  |  | 7  
|              |  | Item 2.     |  | Properties                                                                                     |  |  |  | 9  
|              |  | Item 3.     |  | Legal Proceedings                                                                              |  |  |  | 9  
|              |  | Item 4.     |  | Submission of Matters to a Vote of Security Holders                                            |  |  |  | 9  
|              |  | Item 4a     |  | Executive Officers of The Registrant                                                           |  |  |  | 9  
|PART II       |  |             |  |                                                                                                |  |  |  | 12 
|              |  | Item 5.     |  | Market For Registrants Common Equity and Related Stockholder Matters                          |  |  |  | 12 
|              |  | Item 6.     |  | Selected Financial Data                                                                        |  |  |  | 13 
|              |  | Item 7.     |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations          |  |  |  | 14 
|              |  | Item 7a     |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  |  |  | 22 
|              |  | Item 8.     |  | Financial Statements                                                                           |  |  |  | 23 
|              |  | Item 9.     |  | Changes In And Disagreements With Accountants on Accounting
and Financial Disclosure           |  |  |  | 23 
|PART III      |  |             |  |                                                                                                |  |  |  | 23 
|              |  | Item 10.    |  | Directors and Executive Officers of The Registrant                                             |  |  |  | 23 
|              |  | Item 11.    |  | Executive Compensation                                                                         |  |  |  | 23 
|              |  | Item 12.    |  | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |  |  |  | 24 
|              |  | Item 13.    |  | Certain Relationships and Related Transactions                                                 |  |  |  | 24 
|PART IV       |  |             |  |                                                                                                |  |  |  | 24 
|              |  | Item 14.    |  | Controls And Procedures                                                                        |  |  |  | 24 
|              |  | Item 15.    |  | Exhibits, Financial Statement Schedules, and Reports On Form 8-K                               |  |  |  | 25 
|EXHIBIT INDEX |  |             |  |                                                                                                |  |  |  | E-1

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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. Important factors
known to us that could cause such material differences are identified in this
Annual Report on Form 10-K beginning on page 10, and in the Management
Discussion and Analysis of Results of Operations and Financial Condition
beginning on page 14 of this Annual Report on Form 10-K. 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

Since its inception in 1972, American Medical Systems has operated as a single
business developing, manufacturing, and marketing medical devices to physicians
who treat urological and gynecological disorders. These diseases affect
approximately 160 million people worldwide, profoundly diminishing their
quality of life and significantly impacting their relationships. We
manufacture and market a broad and well-established line of proprietary
products for erectile restoration; other mens health needs, including products
for incontinence, stricture, and prostate disease; and womens health needs,
including products for incontinence and other pelvic floor disorders. Our
product development and acquisition strategy has focused on expanding our
product offering and on adding less-invasive medical devices for surgeons and
their patients. We estimate that nearly 18 million men and women are potential
candidates for treatment with our products, although only a very small share of
them ever seek treatment.

Our company was founded in 1972, and acquired by Pfizer Inc. in 1985. In
September 1998, a group of investors led by Warburg, Pincus Equity Partners
L.P. (WPEP) purchased the assets of the Company from Pfizer. We formed
American Medical Systems Holdings Inc., our current holding company, in April
2000. In August 2000, we completed our initial public offering, selling 6.3
million shares or 22.6 percent of the post offering shares outstanding. In
July 2001, we completed a secondary offering, selling an additional 3.5 million
shares or 11.1 percent of the post offering shares outstanding. Since the IPO,
WPEP has sold many of its shares, in the secondary offering and in the open
market, and now owns approximately 30 percent of the shares outstanding.

We maintain a website at www.AmericanMedicalSystems.com.We are not including
the information contained on our website as a part of, nor incorporating it by
reference into, this Annual Report on Form 10-K. We make available free of
charge on our website our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to these reports, as
soon as reasonably practicable after we electronically file such material with,
or furnish such material to, the Securities and Exchange Commission.

Markets and Products

Approximately 160 million men and women, 80 million of them in the United
States, suffer from erectile dysfunction, incontinence, or other pelvic
disorders. While we estimate that approximately 18 million of these people have
a disorder severe enough to be potential candidates for treatment with our
products, the





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lack of information about potential therapies and the general discomfort with
discussing these disorders with others, including healthcare professionals,
means that very few of those who could benefit from our products and procedures
ever seek treatment. In recent years, the number of people seeking treatment
for these disorders has grown with the publicity for new treatment
alternatives, especially new drug therapies, but the portion seeking
treatment remains relatively small.
When patients do seek treatment, they generally begin with medical treatment
rather than surgical treatment, regardless of the severity of the disease. Only if
medical therapy is unsuccessful and the patient persists with seeking a cure,
is surgery considered.

Erectile Restoration.These products represented $69.5 million, or 49 percent,
of our 2002 net sales. Erectile dysfunction is the inability to achieve or
maintain an erection sufficient for sexual intercourse, most often caused by
vascular disease, or complications from diabetes, or prostate surgery which can
damage both nerves and arteries necessary for erectile function. This disease
can also be caused by spinal cord injury, and may have a psychogenic component.
Erectile dysfunction may affect 100 million of men and their partners around
the world. The primary treatment for erectile dysfunction is Viagra or a
similar-acting drug. If these drugs do not work, the patient may try a vacuum
device or a topical or injected drug before considering penile implants such
as those we offer. If the patient elects to have implant surgery, the surgeon
would replace the erectile tissues of the penis with a prosthesis which would
provide sufficient rigidity for sexual intercourse.

We lead the penile implant market, with a series of semi-rigid malleable
prostheses and a complete range of more naturally functioning inflatable
prostheses, including the AMS 700 CXand Ultrex. In 2001, we began offering
two significant improvements to our AMS 700inflatable prostheses: (1) a
parylene coating on certain internal surfaces of the prosthesis, to reduce
friction and increase durability, and (2) our InhibiZoneantibacterial surface
treatment, to help reduce the risk of surgical infections. Physician
preference for this new product, which carries a higher price than any of our
untreated products, was a major contributor to our growth in 2002.

Since 2001, we have been developing a new inflatable prostheses control pump
for patients with limited manual dexterity. While we had expected to have this
product on the market in 2002, our initial clinical evaluations in 2002
suggested that the new control system was not a significant enough
improvement over the existing
system, which has a very high satisfaction rate, to justify a change at that
time. These evaluations did, however, give us better information about how we
could improve the existing control system, and we are working to make these
changes as soon as we can complete testing and obtain necessary regulatory
approvals. Given the regulatory pathway, we do not expect to have this product
available for commercial distribution before the end of 2004.

Other Mens Health.These products represented $42.0 million, or 29 percent,
of our 2002 net sales. Approximately 7 million men suffer from urinary
incontinence, the uncontrolled release of urine from the body. In men, this
most often results from nerve and sphincter damage during prostate surgery.
Male incontinence may be managed with a catheter and leg bag to collect the
urine, or with pads and diapers to absorb the leaks. These measures are not
ideal, as they come with recurring replacement product costs and the potential
for infection and embarrassing leaks and odor.

Since 1972, when we introduced the Artificial Urinary Sphincter, we have been
the world leader with surgical solutions for male incontinence. This fully
enclosed system includes an inflatable urethral cuff to restrict flow through
the urethra, and a control pump which allows the patient to discretely open the
cuff when he wishes to urinate. Since 2000, we have also been selling the
InVancesling system, which is a less invasive procedure for men with mild to
moderate incontinence. This system uses technology which came with our 1999
acquisition of Influence Inc. to support the bulbous urethra and improve
urinary control. Sales of these products, included in the mens health total,
were $35.9 million in 2002.

We also have products to relieve the restrictions on the normal flow of urine
from the bladder caused by an enlarged prostate, generally the result of benign
prostatic hyperplasia (BPH) or urethral strictures. Symptoms of these
restrictions include increased urination frequency, sudden urges to urinate,
and weak

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urine flow. Nearly 3 million men in the United States (70 percent of men over
age 65) have severe BPH, most of whom find existing drug treatments acceptable.
The conventional treatment for men requiring surgery is a transurethral
resection of the prostate (TURP). We offer the Coaguloopresection electrode
for this procedure, and the UroLumeendoprostheis stent as a less invasive
procedure for men who may not be good surgical candidates. Newer,
less-invasive tissue ablation techniques such as lasers, RF energy needles, and
microwave therapy are becoming increasingly available as alternatives to
Urolumefor BPH symptoms. These alternative BPH procedures are not used for
relieving symptoms of urethral stricture, and we expect continuing growth in
Urolumesales for this indication. In 1999, we acquired exclusive worldwide
distribution rights for the ProstaJectsystem to inject ethanol or other
medicaments to treat prostate disease. This therapy, currently in U.S.
clinical trials, may prove to be more effective and less costly than any of the
currently marketed minimally invasive procedures. Sales of these products,
included in the Mens Health total were $6.1 million in 2002.

Womens Health.These products represented $30.1 million, or 21 percent of
2002 sales. Over 16 million women in the United States suffer from urinary or
fecal incontinence. These diseases can lead to debilitating medical and social
problems, from embarrassment to anxiety and depression. There are three types
of urinary incontinence: stress, urge, and mixed. Pads and diapers are often
used to contain and absorb leaks, and may be acceptable for controlling mild
incontinence; new drugs may be shown to be effective, especially for urge
incontinence. Our products treat stress incontinence, which generally results
from a weakening of the tissue surrounding the bladder, urethra, and bladder
neck from pregnancy and childbirth. Pregnancy and childbirth trauma may also
cause fecal incontinence, pelvic organ prolapse, and other pelvic floor
disorders. Incontinence may be relieved through exercise to strengthen pelvic
floor muscles, or the injection of collagen or some other bulking agent into
the wall of the urethra, bladder neck, or sphincter and narrow the passage.
Surgical solutions are generally recommended only if these therapies are not
effective. Prolapse and other pelvic floor defects may be repaired with a
variety of open, laparoscopic, and transvaginal surgeries.

We offer a broad range of systems to restore continence including the
Artificial Urinary Sphincter, and the In-Fast, Sparc, and Monarcsling systems.
This broad range allows the surgeon to select the procedure most appropriate
to the individual patients symptoms and anatomy. With an In-Fastprocedure,
which we have been selling since acquiring Influence in 1999, the surgeon uses
a transvaginal approach to support the urethra and bladder neck with a sling
attached to the back of the pubis. During 2002, we introduced the In-Fast
Ultra, with a new profile designed to allow better placement of the bone
anchors which hold the support material in place. We introduced the Sparc
procedure in 2001 as the first complete system to place a self-fixating,
mid-urethral sling with a suprapubic approach. During 2002, we launched Sparc
II, with several improvements in form and function. Since its introduction,
Sparchas been the major sales driver in our products for womens health.
The Monarcprocedure was introduced at the end of 2002, and uses unique helical
needles to place a self-fixating, sub-fascial hammock through the
transobturator foramina. This procedure may be done without disrupting the
endopelvic fascia and is especially valuable for women who have scarring from
previous abdominal surgery and are not good candidates for a Sparcprocedure.
We believe all of these products offer significant advantages over comparable
competitive products. The Acticonneosphincter, an extension of our urine
control technology, is used to cure severe fecal incontinence. We also offer
InteGraftpelvic reconstructive materials and a growing number of surgical
tools to repair bladder and other pelvic organ prolapse.

About 13 million American women suffer from excessive uterine bleeding, or
menorrhagia. Menorrhagia is socially debilitating and causes anemia. Drug
therapies are effective for some women, but most end up with a hysterectomy,
approximately 150,000 (25 percent all hysterectomies) in the United States each
year. Other procedures which have some efficacy include dilation and curettage
to remove the endometrial tissue from the uterus, and several new techniques to
destroy the endometrium with heat or cold. On December 30, 2002, two days
after the close of our 2002 fiscal year, we acquired CryoGen Inc.

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and its Her Optioncryoablation therapy. This system uses a
micro-processor-controlled probe to eliminate excessive menstrual bleeding by
freezing the lining of the uterus and reducing its ability to regenerate. The
procedure can be performed in the gynecologists office, allowing the woman to
keep her uterus and normal hormonal levels, and avoids the hospital stay and
recovery time associated with a hysterectomy. We believe that Her Option
offers significant advantages over other therapies to the woman, her physician,
and the healthcare system. These other therapies are, however, supported by
more marketing resources and have a greater installed base of experienced users
than CryoGen has. Further, this is our most significant venture into products
used primarily by gynecologists rather than urologists. Our success with this
product will depend on, among other things, our ability to quickly understand
the needs of gynecologists, and build a marketing and sales organization to
address those needs.

Sales and Marketing

We sell our products in the United States, Canada, Australia and most European
countries through direct field representatives. We have nearly 100 employees
in our U.S. sales force, and approximately 40 employees in our international
sales force. Fifteen of our U.S. sales team call on gynecologists in
relatively small geographical territories. All other U.S. sales personnel call
on urologists and gynecologists. We have approximately 47 independent
distributors who represent our products in other countries and account for less
than 5 percent of our world-wide sales. Local market conditions, including the
regulatory and competitive situation determine the type of products we sell in
each market.

Our marketing people are responsible for understanding patient and physician
needs, guiding new product development, and increasing the awareness,
understanding, and preference for our products among physicians and patients.

Manufacturing and Supply

We use approximately 20,000 square feet of the recently acquired CryoGen
facility in San Diego to manufacture the Her Optionproducts. We use
approximately 75,000 square feet of our facility in Minnetonka for
manufacturing, warehousing, and distribution of nearly all other products and
related components. In countries outside the U.S. where we have direct sales
representation, we maintain warehouses to support local distribution.

Although many of the materials we purchase for our products are available from
multiple sources, some materials are only supplied by a limited number of
vendors. We purchase the silicone used in most of our implantable products
from one supplier, the loss of which would have a material adverse effect on
our sales and earnings. We procure a limited supply of human cadaveric dermis through
two processors, and we have one supplier of porcine dermis.

We maintain a comprehensive quality assurance and quality control program,
which includes documentation of all material specifications, operating
procedures, equipment maintenance, and quality control test methods. Our
documentation systems comply with appropriate FDA and ISO requirements.

We are currently operating with one manufacturing shift and have adequate
physical capacity to serve our business operations for the foreseeable future.
We do not have a back up facility, and the loss of either the Minnetonka or San
Diego facility due to natural disaster or terrorist attack would have a
material adverse effect on our sales, earnings, and financial condition.

Research and Development

We are committed to developing new products and improving our current products
to provide physicians with better clinical outcomes through less invasive and
more efficient products and procedures. Most of our research and development
activities are carried out in our Minnetonka facility, although we work with
physicians, research hospitals, and universities around the world. Product
development for Her Optionand other cryoablation opportunities is conducted in
San Diego. None of this work is funded by customers or other outside
institutions. Many of the ideas for new and improved products come from a

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global network of leading physicians, who also work with us in evaluating new
concepts in conducting clinical trials to gain regulatory approvals. The
development process for any new product can range from several months to
several years, primarily depending on the regulatory pathway required for
approval. We spent $12.2 million in 2000, and $11.9 million
in 2001 and 2002,
on research and development activities.

Competition

Competition in the medical device industry is intense and is characterized by
extensive research efforts and rapid technological progress. The primary
competitive factors include clinical outcomes, distribution capabilities, and
price relative to competitive technologies and payments to physicians and
hospitals for their services. Many of our competitors have greater resources
to develop and market products, broader distribution resources, and potentially
higher economies of scale than we do. Our competitive capability depends on
our ability to develop new products and innovative procedures, obtain
regulatory clearance and ensure regulatory compliance for our products, assist
our customers to obtain reimbursement, protect the proprietary technology of
our products and manufacturing process, and maintain and develop preference for
our products among physicians and patients. All of these abilities require
recruiting, retaining, and developing skilled and dedicated employees, and
maintaining and developing excellent relationships with physicians and
suppliers.

Our principal competitors in the erectile restoration market include
pharmaceutical companies such as Pfizer, which makes Viagra, and Mentor
Corporation, which also makes penile prostheses. Principal competitors in
other mens health, primarily for treating BPH, include drug manufacturers and
other minimally-invasive treatment suppliers such as Medtronic, Urologix, and
Johnson & Johnson. Our principal competitors for womens health products
include, for treating menorrhagia, Boston Scientific, Johnson & Johnson, and
Novacept, and, for other products, Boston Scientific, C.R. Bard, and Johnson &
Johnson.

Our competitors also include medical schools and other public and private
research hospitals that continue to conduct research, seek patent protection,
and establish arrangements for commercializing products in this market which
will compete with our products.

Patents and Intellectual Property

We rely on patents, trade secrets, know-how, continuing technical innovations,
and various licensing agreements to protect and build our competitive position.
We have numerous issued U.S. patents and numerous corresponding international
patents covering various aspects of our technology. We also have U.S. and
international patent applications pending. We review third party products and
patents to protect our rights, and to avoid infringing the legitimate rights of
others.

We file patent applications to protect technology, inventions, and improvements
that we consider important, but we cannot be sure our applications will be
granted, or that, if granted, the patents will provide competitive advantages
for our products, or that our competitors will not challenge or circumvent
these patent rights. We could incur substantial costs in defending out patents
or in protecting our activities from the patent claims of others, even though
we do not believe that any of our products infringe any valid claims of patents
or other proprietary rights held by third parties, and even if we were
ultimately successful in defending the claim. If our products were found to
infringe any third-party right, we could be required to pay significant damages
or license fees to the third party or cease production and sale of the
infringing product.

Government Regulation

Numerous governmental authorities, principally the FDA and comparable foreign
regulatory agencies, regulate the development, testing, manufacturing,
labeling, marketing, and distribution of our products.

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Generally, before we can market a new medical device, we must obtain marketing
clearance through a 510(k) premarket notification, approval of a premarket
approval application, or PMA, or approval of product development protocol, or
PDP. A PMA or PDP application must be submitted if a proposed device does not
qualify for a 510(k) premarket clearance procedure. It generally takes several
months from the date of a 510(k) submission to obtain clearance, and it may
take longer, particularly if a clinical trial is required. The PMA and PDP
process can be expensive, uncertain, require detailed and comprehensive data,
and generally takes significantly longer than the 510(k) process.

If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, the sponsor of the trial, usually the
manufacturer or the distributor of the device, must file an investigational
device exemption (IDE) application prior to commencing human clinical trials.
The FDA may not approve the IDE and, even if it is approved, the FDA may not
accept that the data derived from the studies support the safety and efficacy
of the device or warrant the continuation of clinical trials.

Our core implantable products have been approved through the PMA or PDP
application process. Most of our other products are approved through the
510(k) pre-marketing notification process. We have conducted clinical trials
to support many of our regulatory approvals.

The FDA and international regulatory authorities also periodically inspect our
company to assure compliance with applicable quality system regulations. We
must comply with the host of regulatory requirements that apply to medical
devices marketed in the United States and internationally. If we fail to
comply with these regulatory requirements, which are subject to change, our
business, financial condition, and results of operations could be significantly
harmed.

We are also subject to the National Organ Transplant Act, or NOTA, because we
provide human tissue in connection with our sling systems for urinary
incontinence. NOTA prohibits the purchase and sale of human organs, including
related tissue, for valuable consideration. NOTA permits the payment of
reasonable expenses associated with the removal, transportation, processing,
preservation, quality control, implantation and storage of human tissue. NOTA
enables the federal government to impose civil and criminal penalties on those
found to have violated this federal statute.

The FDA has proposed a more comprehensive regulatory framework that builds upon
and supersedes the existing regulations for human tissue-based products.
Implementation of this proposed regulatory approach may lead to medical device
submissions for some of the tissue products we provide with our sling kits. We
do not expect at this time that our human tissue products will be subject to
the device regulations.

Third-Party Reimbursement

Most of our products are purchased by hospitals
which are reimbursed for their services by third-party payers including Medicare,
Medicaid, comparable foreign agencies,
private health care insurance, and managed care plans.  The reimbursement environment
facing our customers varies widely, as do our customers systems for dealing with
such variation.  We support the efforts of our customers to obtain appropriate
reimbursement by providing them with the information necessary to align the
utilization of our products with procedures for which reimbursement is established.
We believe our support of customer reimbursement efforts is critical to the ongoing
acceptance and success of our products.

Many third-party payers (including Medicare, Medicaid, and other large, influential payers)
are seeking to reduce their costs by denying coverage for certain procedures, including new
procedures for which efficacy has not yet been well established, or reimbursing at rates
which do not cover the full cost of procedures.  These activities may be particularly
detrimental to AMS because our products treat quality-of-life conditions rather than
life-threatening conditions and we are developing new products, which may not find
market acceptance because of delays in third-party payer acceptance of the medical value
of the new procedures.  The reimbursement rates for several procedures that use our products
have been reduced over the last few years and it is likely that this trend will continue.

We are not able to determine what effect, if any, the Medicare reimbursement changes discussed
above have had on our revenues.  We believe the average age of patients receiving our products
is less than 60 and, therefore, a significant portion of our revenues are not directly
affected by Medicare reimbursement trends.  Further, we believe the amount that hospitals pay medical device suppliers is not always tied directly
to Medicare reimbursement rates.  Hospitals may consider the total volume generated by a
particular surgical specialty or practice and compensate suppliers at rates higher than
Medicare reimbursement rates for particular procedures to maintain volumes on other procedures
performed by that specialty.  Finally, Medicare reimbursement rates are affected by regional
variations and, for inpatient procedures, by disease severity factors, making the
correlation between national reimbursement rate adjustments and our sales and pricing less
than clear.  For example, while Medicare reimbursement for hospital-based outpatient
surgical procedures using our inflatable penile prostheses for erectile restoration, including
the "pass-through" payment for our device, decreased approximately 32 percent from 2001 to 2002,
U.S. sales of products used in these surgeries increased 18 percent.  (For 2003,
reimbursement for these procedures, including the payment for our device,
has decreased 9 percent.)  Ultimately, we cannot predict the frequency or severity of
future reimbursement reductions and such future reductions, if they occur, could have a
material adverse effect on our revenue growth rates and profitability.

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Employees

As of February 28, 2003, we employed 576
people in the following areas: 105 in manufacturing, 238 in sales and
marketing, 77 in administration, 53 in regulatory, clinical and quality
assurance, and 48 in research and development. We do not have any active
organized labor unions. We believe we have an excellent relationship with our
employees.

Financial Information about Geographic Areas

See Note 10 of our financial statements on page F-17 of this Annual Report on
Form 10-K for the information about geographic areas.




ITEM 1A. CERTAIN IMPORTANT FACTORS.

There are several important factors that could cause our actual results to
differ materially from our anticipated results or which are reflected in any
forward-looking statements in this Annual Report on Form 10-K. These factors,
and their impact on the success of our operations and our ability to achieve
our goals, include the following:

Continued Physician Use and Endorsement of our Products

In order for us to sell our products, physicians must recommend and endorse
them. We may not obtain the necessary recommendations or endorsements from
physicians. Many of the products we acquired or are developing are based on
new treatment methods. Acceptance of our products is dependent on educating
the medical community as to the distinctive characteristics, perceived
benefits, clinical efficacy and cost-effectiveness of our products compared to
competitive products, and on training physicians in the proper application of
our products. In particular, at the end of 2002, we introduced the Monarc
sub-fascial hammock for urinary incontinence, and with the acquisition of
CryoGen Inc., the Her Optiontherapy for excessive uterine bleeding. We
believe both of these products address major market opportunities, and we have
committed significant marketing and selling resources to making this therapy
available to physicians and their patients. If we are unsuccessful in
marketing either of them, our sales and earnings may be below expectations.

Successful Introduction of New Products and Product Improvements

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

Continued Use of Non-Invasive Treatment Alternatives

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

Actions Related to Reimbursement for our Products

Our revenues depend largely on U.S. and O.U.S. government health care programs
and private health insurers reimbursing patients medical expenses.
Physicians, hospitals, and other health care providers may not purchase our
products if they do not receive satisfactory reimbursement from these
third-party payors for the cost of procedures using our products.

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Effective January 1, 2003, the Centers for Medicare and Medicaid Services again
reduced the hospital payment rates for certain procedures in which our products
are used. We do not believe these reductions will have a material adverse
effect on our sales or earnings in 2003, but we cannot assure you that
hospitals which treat Medicare and Medicaid patients will not prohibit
physicians from performing procedures which use our products. If any hospital
were to prohibit these procedures, sales of our products would decline unless
physicians who had been performing these procedures in that hospital were able
to obtain surgical privileges in other hospitals which did allow these
procedures. Further, changes in the relative reimbursement rates for different
products may cause hospitals to encourage physicians to use lower cost products
from our product lines, thereby having a material adverse effect on our sales
and earnings. For a fuller discussion of these changes, please see Business-Third Party Reimbursement.

Costs of Physician Malpractice Insurance

Most of our products are used by physicians who are required to maintain
certain levels of medical malpractice insurance to maintain their hospital
privileges. As the cost of this insurance increases, certain physicians who
have used our products to treat their patients may stop performing surgeries.
Unless these patients who would have been treated by these physicians are
referred to other physicians, sales of our products will decline.

Potential Product Recalls

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

Increased Supply of Sling Material

In the past we have provided human cadaveric dermis as a service in conjunction
with the sale of our sling procedure kits for urinary incontinence. Currently,
the supply of human tissue is not sufficient to meet demand, and during 2002
sales of our sling procedure kits which require human tissue declined. We are supplying porcine dermis that can be used with
our sling procedure kits and are developing new sources of supply for human
dermis, but we cannot assure you that these supplies will be sufficient to meet
our customers demands and sales of certain sling procedure kits may continue
to decline.

Product Liability Lawsuits

The manufacture and sale of medical devices exposes
us to significant risk of product liability claims. In the past, we
have had a number of product liability claims relating to our
products. In the future, we may be subject to additional product
liability claims, some of which may have a negative impact on our
business. Additionally, we could experience a material design or
manufacturing failure in our products, a quality system failure,
other safety issues, or heightened regulatory scrutiny that would
warrant a recall of some of our products. Our existing product
liability insurance coverage may be inadequate to protect us from any
liabilities we might incur. If a product liability claim or series
of claims is brought against us for uninsured liabilities or in
excess of our insurance coverage, our business could suffer. In
addition, a recall of some of our products, whether or not the result
of a product liability claim, could result in significant costs to us.

Acquisition Integration

On December 30, 2002, we acquired CryoGen Inc., which we are maintaining as a
San Diego-based subsidiary with full responsibility for product development and
manufacturing of all components and final assembly and testing of all of the
components for the Her Optionsystem for endometrial ablation, including
product enhancements and new products based on CryoGen technologies. Failure
to retain and develop the CryoGen workforce, or establish and maintain
appropriate communications, performance expectations, regulatory compliance
procedures, accounting controls, and reporting procedures could adversely
affect our future sales and earnings.

Seasonality

Our business is seasonal, with the third quarter of each year typically having
the lowest sales and earnings, and fourth quarter of each year typically having
the highest sales and earnings. There can be no assurance that future seasonal
fluctuations will not vary from this pattern or that these or other variations
will not adversely affect our business and results of operations.

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ITEM 2. PROPERTIES.




Our corporate headquarters, main warehouse and manufacturing operations are
located in a 180,000 square foot building we own in Minnetonka, Minnesota. The
manufacturing operations at this location include sufficient capacity to expand
production of our current products.

We lease a 26,000 square foot office and manufacturing facility in San Diego,
California for Her Option therapy products. The manufacturing operations at
this location include sufficient capacity to expand production.

We lease office space for our international operations in France, Spain,
Germany, Belgium, England, Australia and Canada.




ITEM 3. LEGAL PROCEEDINGS.

We have been and are also currently subject to various legal proceedings and
other matters which arise in the ordinary course of business, including product
liability claims. In connection with the purchase of our assets from Pfizer in
1998, Pfizer retained liability for claims relating to products that were sold
before the completion of the acquisition. We are liable for claims relating to
products sold after the completion of the acquisition.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 28, 2002.




ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

Our executive officers, with their ages and biographical information as of
March 7, 2003, are as follows:

|                      |  |     |    |       |  |                                                                
|--------------------- |  | --- | -- | ----- |  | ---------------------------------------------------------------
|Name                  |  | Age |    | Title
|                      |  |     |    |      
|Douglas W. Kohrs      |  |     | 45 |       |  | President, Chief Executive Officer and Director                
|M. James Call         |  |     | 57 |       |  | Executive Vice President, Chief Financial Officer
and Secretary
|Janet L. Dick         |  |     | 46 |       |  | Vice President, Human Resources                                
|Martin J. Emerson     |  |     | 39 |       |  | Executive Vice President, Global Sales and Marketing           
|Richard J. Faleschini |  |     | 56 |       |  | Vice President and General Manager, Cryogen                    
|Lawrence W. Getlin    |  |     | 57 |       |  | Vice President, Regulatory, Medical Affairs and
Quality Systems
|Ross A. Longhini      |  |     | 41 |       |  | Executive Vice
President, Chief Technology Officer             

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Douglas W. Kohrshas served as our President, Chief Executive Officer and one
of our directors since April 1999. Mr. Kohrs has 20 years of experience in the
medical device industry, most recently as general manager of Sulzer Spine-Tech,
Inc. from May 1998 to April 1999. Mr. Kohrs was part of the founding team at
Spine-Tech when it was formed in 1991 to develop and commercialize the BAK
spinal fusion cage, a novel implantable device to improve the surgical
treatment of degenerative disc disease. Mr. Kohrs also served as Vice
President of Research and Development and Vice President of Marketing during
his tenure at Spine-Tech. Mr. Kohrs currently serves as a director of Disc
Dynamics, Inc. and Pioneer Surgical Technologies, both of which are
privately-held companies, and Kyphon, Inc., which is publicly-held company
engaged in orthopedic medical devices.

M.  James Callhas served as our Executive Vice President, Chief Financial
Officer and Secretary since July 2001. From 1995 through May 2001, Mr. Call
was Chief Financial Officer of Interventional Technologies Inc., a private
company acquired by Boston Scientific Corporation in April 2001. From 1990
through 1994, Mr. Call was with Medalist Industries, as Vice President Business
Planning & Development, Corporate Secretary, and, from 1992, Chief Financial
Officer.

Janet L. Dickhas served as our Vice President, Human Resources since 1996.
Overall, Ms. Dick has spent almost 18 years in positions of increasing
responsibility within our human resources department and Schneiders human
resources department, both of which were divisions of Pfizer at the time.

Martin J. Emersonhas served as our Executive Vice President, Global Sales and
Marketing since January 2003. From June 2000 through December 2002, he served
as our Vice President and General Manager of International. Mr. Emerson has 17
years experience in the medical device field in finance and general management
capacities. From September 1998 to February 2000, he served as General Manager
and Finance Director for Boston Scientific Corporation in Singapore. Also in
Singapore, he was Vice President and Regional Financial Officer with MasterCard
International from April 1997 to September 1998. Mr. Emersons earlier
experience was with Baxter International from June 1985 to March 1998 most
recently holding the position of Vice President Finance  Hospital Business,
Brussels, from September 1995 to April 1997.

Richard J. Faleschinihas served as our Vice President and General Manager,
Cryogen since January 2003. From November 1999 through December 2002, he
served as our Vice President, Sales and Marketing. Mr. Faleschini has over 23
years experience in medical device sales, marketing and general management.
From July 1995 to August 1999, he served in various executive positions at
Medtronic, Inc. with responsibilities for several sectors of its cardiovascular
businesses, including coronary stents, most recently as Vice President, U.S.
Cardiovascular Health Care Systems Marketing.

Lawrence W. Getlin, J.D.has served as our Vice President, Regulatory, Medical
Affairs and Quality Systems and Compliance since 1990. He is a member of the
American Bar Association and the California State Bar, as well as the U.S.
Court of Appeals 9th District, and District Court, Central District of
California, and is Regulatory Affairs Certified. Mr. Getlin currently serves
as AMS representative on the board of directors of InjecTx, Inc., a privately
held company that supplies us with our ProstaJect ethanol injection systems.

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Ross A. Longhinihas served as our Executive
Vice President, Chief
Technology Officer since January 2003. Mr. Longhini has 20 years of experience
in the field of medical device product development. From 1998 to 2002, he
served in various management positions in Sulzer Spine-Tech of Minnesota
including Vice President, Research and Development, Clinical & Regulatory.
From 1991 to 1998, he worked at I.V. Infusion Therapy of Minnesota which was
sold to Gaseby in 1996 then purchased by Smiths Medical Systems in 1997, and
from 1983 to 1991, he worked at 3M Dental Products and contributed to the rapid
growth of the division.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

Our common stock began trading on the Nasdaq National Market System on August
11, 2000 under the symbol AMMD. Before that date, no public market for our
common stock existed. The following table sets forth, for the periods
indicated, the high and low closing sales prices per share of our common stock
as reported on the Nasdaq National Market. These prices do not include
adjustments for retail mark-ups, mark-downs or commissions.

|                  |                |  |      |       |     |  |   |       | 
|----------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                  |                |  | High |       | Low
|                  |                |  |      |       |    
|Fiscal Year 2002: |                |  |      |       |     |  |   |      
|                  | First Quarter  |  | $    | 24.54 |     |  | $ | 18.20 | 
|                  | Second Quarter |  | $    | 24.56 |     |  | $ | 20.06 | 
|                  | Third Quarter  |  | $    | 22.91 |     |  | $ | 15.62 | 
|                  | Fourth Quarter |  | $    | 21.01 |     |  | $ | 13.08 | 

|                  |                |  |      |       |     |  |   |       | 
|----------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                  |                |  | High |       | Low
|                  |                |  |      |       |    
|Fiscal Year 2001: |                |  |      |       |     |  |   |      
|                  | First Quarter  |  | $    | 14.50 |     |  | $ | 8.25  | 
|                  | Second Quarter |  | $    | 17.48 |     |  | $ | 7.50  | 
|                  | Third Quarter  |  | $    | 21.85 |     |  | $ | 15.04 | 
|                  | Fourth Quarter |  | $    | 21.15 |     |  | $ | 16.07 | 

Holders

As of March 7, 2003, there were approximately 87 shareholders of record and an
estimated 2,400 beneficial stockholders.

Dividends

We have never declared or paid cash dividends. We intend to retain all future
earnings for the operation and expansion of our business. We do not anticipate
declaring or paying cash dividends on our common stock in the foreseeable
future. In addition, our current senior credit facility prohibits us from
paying you any cash dividends without out lenders consent.

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ITEM 6. SELECTED FINANCIAL DATA.

|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |        | 
|------------------------------------- | ----------------------------------- | ------------ | ------------ | ----------- | --------------------------------------------------- | ---- | -------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                      |                                     |              | Combined     |             | Consolidated American Medical Systems Holdings, Inc
|                                      |                                     |              | Predecessor  |             |                                                    
|                                      |                                     |              | Period from  |             | Period from                                         |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|                                      |                                     |              | Jan. 1, 1998 |             | Sept. 11                                            |      | Year end
|Statement of Operations Data:         |                                     | to Sept. 10, |              | to Dec. 31, |                                                     |     
|(in thousands, except per share data) |                                     | 1998         |              | 1998        |                                                     | 1999 |          | 2000   |  | 2001 |         | 2002  
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |       
|Net sales                             |                                     | $            | 54,615       |             |                                                     | $    | 23,115   |        |  | $    | 81,353  |        |  | $ | 100,317 |        |  | $ | 117,938 |        |  |   | 141,648 |       
|Operating expenses:                   |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|                                      | Cost of sales (1)                   |              |              | 14,050      |                                                     |      |          | 15,551 |  |      |         | 31,419 |  |   |         | 21,891 |  |   |         | 23,140 |  |   |         | 24,605 | 
|                                      | Marketing and sales                 |              |              | 18,486      |                                                     |      |          | 8,261  |  |      |         | 30,400 |  |   |         | 39,277 |  |   |         | 44,931 |  |   |         | 50,152 | 
|                                      | General and administrative          |              |              | 19,846      |                                                     |      |          | 1,951  |  |      |         | 7,889  |  |   |         | 12,128 |  |   |         | 12,047 |  |   |         | 13,186 | 
|                                      | Research and development            |              |              | 10,177      |                                                     |      |          | 2,884  |  |      |         | 9,552  |  |   |         | 12,225 |  |   |         | 11,899 |  |   |         | 11,858 | 
|                                      | Transition and reorganization       |              |              |            |                                                     |      |          | 2,517  |  |      |         | 3,000  |  |   |         | 1,000  |  |   |         | 1,000  |  |   |         |       | 
|                                      | Amortization of intangibles         |              |              | 19          |                                                     |      |          | 965    |  |      |         | 4,260  |  |   |         | 8,360  |  |   |         | 9,374  |  |   |         | 3,775  | 
|                                      | In-process research and development |              |              |            |                                                     |      |          |       |  |      |         | 7,354  |  |   |         |       |  |   |         |       |  |   |         |       | 
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|Total operating expenses              |                                     |              | 62,578       |             |                                                     |      | 32,129   |        |  |      | 93,874  |        |  |   | 94,881  |        |  |   | 102,391 |        |  |   | 103,576 |       
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|Operating income (loss)               |                                     |              | (7,963       | )           |                                                     |      | (9,014   | )      |  |      | (12,521 | )      |  |   | 5,436   |        |  |   | 15,547  |        |  |   | 38,072  |       
|Royalty and other income (expense)    |                                     |              | (155         | )           |                                                     |      | 180      |        |  |      | 4,205   |        |  |   | 2,928   |        |  |   | (213    | )      |  |   | 4,172   |       
|Interest income (expense)             |                                     |              |             |             |                                                     |      | (1,672   | )      |  |      | (6,873  | )      |  |   | (6,943  | )      |  |   | (2,932  | )      |  |   | (1,628  | )     
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|Income (loss) before income taxes     |                                     |              | (8,118       | )           |                                                     |      | (10,506  | )      |  |      | (15,189 | )      |  |   | 1,421   |        |  |   | 12,402  |        |  |   | 40,616  |       
|Income tax benefit (expense)          |                                     |              | 3,241        |             |                                                     |      | 4,024    |        |  |      | 5,340   |        |  |   | (1,369  | )      |  |   | (5,872  | )      |  |   | (15,730 | )     
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|Net income (loss)                     |                                     | $            | (4,877       | )           |                                                     | $    | (6,482   | )      |  | $    | (9,849  | )      |  | $ | 52      |        |  | $ | 6,530   |        |  | $ | 24,886  |       
|                                      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  |   |         |        |  |   |         |        |  |   |         |       
|Net income per share  basic (2)      |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  | $ | 0.00    |        |  | $ | 0.22    |        |  | $ | 0.77    |       
|Net income per share  diluted (2)    |                                     |              |              |             |                                                     |      |          |        |  |      |         |        |  | $ | 0.00    |        |  | $ | 0.20    |        |  | $ | 0.73    |       



---

|(1) |  | In connection with the Companys acquisition from Pfizer, Inc., inventories were recorded at fair market value on the date of
acquisition. This accounting treatment required a $21.8 million write-up of inventories above costs. The write-up was charged to
cost of sales over the following six months as the acquired inventory was sold. Cost of sales were charged $10.2 million in the
period from September 11 to December 31, 1998, and $11.6 million in the first quarter of 1999 related to this fair market value cost
adjustment.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | No net income per share is presented during the period from January 1 through September 10, 1998, the period from September 11
through December 31, 1998, and fiscal year 1999, because no shares of common stock were outstanding.                                                                                                                                                                                                                                                                                                            

|                               |  |      |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|Balance Sheet Data:            |  |      |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|(in thousands)                 |  | 1998 |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                               |  |      |         |      |  |      |         |      |  |     
|Cash and cash equivalents      |  | $    | 2,808   |      |  | $    | 6,940   |      |  | $    | 12,165  |  |  | $ | 28,755  |  |  | $ | 79,429  | 
|Working capital                |  |      | 26,193  |      |  |      | 5,844   |      |  |      | 22,068  |  |  |   | 50,908  |  |  |   | 97,286  | 
|Total assets                   |  |      | 155,600 |      |  |      | 179,008 |      |  |      | 181,262 |  |  |   | 235,151 |  |  |   | 251,645 | 
|Long-term liabilities          |  |      | 95,000  |      |  |      | 95,821  |      |  |      | 38,980  |  |  |   | 25,884  |  |  |   | 18,860  | 
|Redeemable preferred stock     |  |      | 40,981  |      |  |      | 67,465  |      |  |      |        |  |  |   |        |  |  |   |        | 
|Stockholders equity (deficit) |  |      | (7,908  | )    |  |      | (21,836 | )    |  |      | 109,523 |  |  |   | 174,087 |  |  |   | 204,262 | 

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Managements Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Words such as may,
expect, believe, anticipate, or estimate, 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. Some of the factors that could cause such
material differences are identified in Certain Important Factors. We
undertake no obligation to correct or update any forward-looking statements,
whether as a result of new information, future events, or otherwise. You are
advised, however, to consult any future disclosures we make on related subjects
in future filings with the SEC.

Critical Accounting Policies and Estimates

We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Managements
discussion and analysis of financial condition and results of operations is
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgements that affect (1) the reported amounts of assets, liabilities,
revenues, and expenses and (2) the related disclosure of contingent assets and
liabilities. At each balance sheet date, we evaluate our estimates, including
but not limited to, those related to accounts receivable and sales return
obligations, inventories, long-lived assets, warranty, legal contingencies, and
income taxes. The critical accounting policies that are most important in fully
understanding and evaluating the financial condition and results of operations
are discussed below.

Revenue Recognition Policy.A significant portion of our revenue is generated
from inventory temporarily loaned to customers or from consigned inventory
maintained at hospitals or with field representatives. In these situations,
revenue is recognized at the time that the product has been implanted or used.
In all other instances, revenue is recognized at the time product is shipped,
net of allowances for estimated returns.

Allowance for Doubtful Accounts and Other Accounts Receivable Related Valuation
Accounts. We maintain an allowance for doubtful accounts and sales returns,
that are calculated using subjective judgments and estimates to establish these
valuation accounts. Different judgements could have material variances in the
amount and timing of our reported results for any period. In addition, actual
results could be different from current estimates, possibly resulting in
increased future charges to earnings.

An allowance for doubtful accounts is maintained for all individual accounts
receivable that we believe are unlikely to be collected. For all other
accounts receivable, an allowance for doubtful accounts based on the age of
receivable balances is recorded. At December 28, 2002, the allowance for
doubtful accounts was $1.0 million compared to $.8 million at December 29,
2001. As a percentage of total accounts receivable, the allowance was 3.4% at
December 2002 compared to 3.1% at December 2001.

We maintain an allowance for returns based on historical and current trends in
product returns. At December 28, 2002, this allowance was $.4 million compared
to $.5 million at December 29, 2001.

Inventory Valuation.Inventories are recorded at the lower of manufacturing
cost or net realizable value. Each quarter, we evaluate our inventories for
obsolescence and excess quantities. This evaluation includes analyses of
inventory levels, historical loss trends, expected product lives, sales levels
by product and projections of future sales demand. Inventories that are
considered obsolete are written off. In

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addition, an allowance for inventory quantities in excess of forecasted demand
is recorded. Inventory allowances were $2.7 million at December 28, 2002 and
December 29, 2001. If future demand or market conditions are less favorable
than current estimates, additional inventory adjustments would be required and
would adversely affect income in the period the adjustment is made. As a
percentage of total inventories, the allowance was 16.9% at December 28, 2002
compared to 16.2% at December 29, 2001.

Warranty Accrual / Allowance.We warrant all of our products to be free from
manufacturing defects. In addition, if a product fails, we provide replacement
prostheses at substantial discounts from its list price. We maintain a
warranty allowance to cover the cost of these replacements. To recognize this
liability, we record the expected costs of warranty-related claims when
products are sold. The amount of the accrued warranty allowance is the
estimate of the expected future cost of honoring our warranty obligation.
Factors influencing this estimate include historical claim rates, changes in
product performance, the frequency of use by the patient, and the patients
performance expectations. Product reliability is a function of raw material
properties, manufacturing processes, and surgical technique. During 2002, we
noted a significant decrease in warranty claims. With further investigation,
we concluded that this decrease is primarily the result of recent product
improvements and customers preferring enhanced, newer generation products
rather than a replacement of their original prosthesis. Because we expect
these trends to affect warranty claims for the foreseeable future, a
determination that the warranty allowance should be reduced by approximately
$2.9 million was made. This adjustment has been recorded as a reduction to
cost of goods sold and as an increase reported operating income and net income. At
December 28, 2002, our allowance for estimated future warranty costs was $4.5
million compared to $7.6 million at December 29, 2001. If we experience
further changes in any of the factors that influence this estimate, we may make
additional adjustments to this accrual.

Legal Liability Accrual.Each quarter, we estimate the uninsured portion of
legal representation and settlement costs of possible future product liability.
This evaluation consists of reviewing historical claims costs as well as
assessing future trends in medical device liability cases. Social and
political factors, as well as surgeon and medical facility responsibility, make
litigation costs hard to predict. Accruals for future litigation costs were
$1.1 million on December 28, 2002 compared to $1.5 million at December 29,
2001. If, in the future, we determine that this accrual is inadequate, the
adjustment would reduce reported income in the period the adjustment is
recorded.

Income Taxes.In the preparation of the consolidated financial statements,
income taxes in each of the jurisdictions in which we operate are estimated.
This process involves estimating actual current tax exposures and assessing
temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in our consolidated balance sheet.

We have significant amounts of deferred tax assets that are reviewed for
recoverability and then valued accordingly. An evaluation on the realizability
of the deferred tax assets is made on a quarterly and yearly basis as well as
an assessment for the need for valuation allowances. These deferred tax assets
are evaluated by considering historical levels of income, estimates of future
taxable income, and the impact of tax planning strategies. We record a
valuation allowance to reduce deferred tax assets when we believe all or part
of our deferred tax assets will not be realized.

A valuation allowance of $0.7 million is maintained to offset tax loss carry
forwards created in a foreign jurisdiction, which, if subsequently recognized,
would be allocated to goodwill. No other allowances against net deferred tax
assets are maintained at December 28, 2002. If a determination that we would
not realize all or part of the deferred tax assets, an adjustment to the
deferred tax asset valuation allowance and a charge to income in the period of
the determination would be made.

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Overview

We manufacture and market a broad and well-established line of proprietary
surgical products directly to urologists and gynecologists focusing on four
major urological and gynecological disorders: incontinence and other pelvic
floor disorders, erectile dysfunction, and prostate disease. We focus on
expanding our product offering and adding less-invasive medical devices for
urological and gynecological disorders through product development and
acquisitions.

Effective January 1, 2001, we changed our fiscal year end from a calendar year
ending on December 31 to a 52 or 53-week fiscal year ending on the Saturday
nearest December 31. Accordingly, fiscal years 2000, 2001, and 2002 ended on
December 31, 2000, December 29, 2001, and December 28, 2002. Our next fiscal
year will be a 53-week year and will end on January 3, 2004. Fiscal years are
identified in this report according to the calendar year in which they end.
For example, the fiscal year ended December 28, 2002 is alternatively referred
to as fiscal 2002 or 2002.

On December 30, 2002, two days after the end of the 2002 fiscal year, we
acquired CryoGen Inc. Accordingly, the following discussion does not include
CyroGen operations.

Results of Operations

The following is a discussion of the results of our operations and financial
condition for fiscal 2000 compared to fiscal 2001 and fiscal 2001 compared to
fiscal 2002.

Net Sales.The erectile restoration product line includes four types of
inflatable and non-inflatable prostheses and smaller amounts of diagnostic
equipment. Male urinary control products include all sales of the inflatable
urinary sphincter even though a very small share of this product is used in
women. Womens health product line sales include sales of Acticon Neosphincter
to control fecal incontinence even though a small percentage of the product is
used in males. Prostate treatments include all sales of our Urolume product
even though this product is also used to treat urethral strictures.

The following table compares net sales of our product lines between 2000 and
2001 and between 2001 and 2002.

|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |      |   |   |        |         |  |   |         |         |          |   |        |        |   |  |      |       |  
|--------------------------- | -------------------- | ---- | ------ | ------- |  | ---------- | ------ | ------- |  | ---- | -------- | ------ |  | ---------- | ---- | ---- | - | - | ------ | ------- |  | - | ------- | ------- | -------- | - | ------ | ------ | - |  | ---- | ----- | -
|                            |                      |      |        |         |  |            |        |         |  |      | Increase |        |  |            |      |      |   |   |        |         |  |   |         |         | Increase |   |        |        |  
|(thousands)                 |                      | 2000 |        | 2001    |  | (Decrease) |        | %       |  | 2001 |          | 2002   |  | (Decrease) |      | %   
|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |     
|Erectile restoration        |                      | $    | 51,285 |         |  | $          | 59,230 |         |  | $    | 7,945    |        |  |            | 15.5 | %    |   | $ | 59,230 |         |  | $ | 69,553  |         |          | $ | 10,323 |        |   |  | 17.4 | %    
|Men
Health                
|                            | Male
urinary control |      |        | 26,343  |  |            |        | 31,369  |  |      |          | 5,026  |  |            |      | 19.1 | % |   |        | 31,369  |  |   |         | 35,980  |          |   |        | 4,611  |   |  |      | 14.7  | %
|                            | Other                |      |        | 6,588   |  |            |        | 7,100   |  |      |          | 512    |  |            |      | 7.8  | % |   |        | 7,100   |  |   |         | 6,065   |          |   |        | (1,035 | ) |  |      | -14.6 | %
|Womens health              |                      |      | 16,101 |         |  |            | 20,239 |         |  |      | 4,138    |        |  |            | 25.7 | %    |   |   | 20,239 |         |  |   | 30,050  |         |          |   | 9,811  |        |   |  | 48.5 | %    
|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |      |   |   |        |         |  |   |         |         |          |   |        |        |   |  |      |      
|                            | Total                |      | $      | 100,317 |  |            | $      | 117,938 |  |      | $        | 17,621 |  |            |      | 17.6 | % |   | $      | 117,938 |  |   | $       | 141,648 |          |   | $      | 23,710 |   |  |      | 20.1  | %
|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |      |   |   |        |         |  |   |         |         |          |   |        |        |   |  |      |      
|Sales within United States  |                      |      | 81,670 |         |  |            | 97,069 |         |  | $    | 15,399   |        |  |            | 18.9 | %    |   |   | 97,069 |         |  |   | 116,522 |         |          | $ | 19,453 |        |   |  | 20.0 | %    
|Sales outside United States |                      |      | 18,647 |         |  |            | 20,869 |         |  |      | 2,222    |        |  |            | 11.9 | %    |   |   | 20,869 |         |  |   | 25,126  |         |          |   | 4,257  |        |   |  | 20.4 | %    
|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |      |   |   |        |         |  |   |         |         |          |   |        |        |   |  |      |      
|                            | Total                |      | $      | 100,317 |  |            | $      | 117,938 |  |      | $        | 17,621 |  |            |      | 17.6 | % |   | $      | 117,938 |  |   | $       | 141,648 |          |   | $      | 23,710 |   |  |      | 20.1  | %
|                            |                      |      |        |         |  |            |        |         |  |      |          |        |  |            |      |      |   |   |        |         |  |   |         |         |          |   |        |        |   |  |      |      

During 2001, the 15.5% increase in erectile restoration sales was primarily due
to a shift to our new InhibiZone antibiotic coated penile implant which was
released in the U.S. during the second quarter of 2001. The 19.1% increase in
male urinary control sales was due to a combination of unit increases,
especially in the InVance male sling system, and price and unit increases on
the AMS 800 Artificial Urinary Sphincter. The 25.7% increase in sales of
womens health products was primarily due to sales of

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SPARC, a suprapubic mid-urethral sling system which we released internationally
in the second quarter of 2001 and in the U.S. in the third quarter of 2001.
The 7.8% increase in other men's health sales was due to sales of Prostaject,
an ethanol injection system for the treatment of BPH.

During 2002, approximately half of the 17.4% increase in erectile restoration sales was due to a
continued shift to the InhibiZone antibiotic coated penile implant introduced
in 2001 and price increases. We plan to release InhibiZone to international
markets during the second quarter of 2003. The 14.7% increase in male urinary
control sales was due to a combination of unit increases, especially in the
InVance male sling system, and price increases on the AMS 800 Artificial
Urinary Sphincter. The 48.5% increase in womens health sales is attributable
to greater unit sales of SPARC. The 14.6% decrease in other
men's health sales was due to lower unit sales partially offset by a price increase.

The following table compares the dollar and percentage change in the Statement
of Operations between 2000 and 2001 and between 2001 and 2002.

|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |        |  
|-------------------------- | ----------------------------- | ---- | ------- | ------ |  | ---------- | ------- | ------ |  | ---- | -------- | ----- | - | ---------- | ------- | ---- | - | - | ------- | ------ |  | - | ------- | ------ | -------- | - | ------ | ------ | - |  | ----- | ------ | -
|                           |                               |      |         |        |  |            |         |        |  |      | Increase |       |   |            |         |      |   |   |         |        |  |   |         |        | Increase |   |        |        |  
|(thousands)                |                               | 2000 |         | 2001   |  | (Decrease) |         | %      |  | 2001 |          | 2002  |   | (Decrease) |         | %   
|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |     
|Net sales                  |                               | $    | 100,317 |        |  | $          | 117,938 |        |  | $    | 17,621   |       |   |            | 17.6    | %    |   | $ | 117,938 |        |  | $ | 141,648 |        |          | $ | 23,710 |        |   |  | 20.1  | %     
|Operating expenses:        |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |       
|                           | Cost of sales                 |      |         | 21,891 |  |            |         | 23,140 |  |      |          | 1,249 |   |            |         | 5.7  | % |   |         | 23,140 |  |   |         | 24,605 |          |   |        | 1,465  |   |  |       | 6.3    | %
|                           | Marketing and sales           |      |         | 39,277 |  |            |         | 44,931 |  |      |          | 5,654 |   |            |         | 14.4 | % |   |         | 44,931 |  |   |         | 50,152 |          |   |        | 5,221  |   |  |       | 11.6   | %
|                           | General and administrative    |      |         | 12,128 |  |            |         | 12,047 |  |      |          | (81   | ) |            |         | -0.7 | % |   |         | 12,047 |  |   |         | 13,186 |          |   |        | 1,139  |   |  |       | 9.5    | %
|                           | Research and development      |      |         | 12,225 |  |            |         | 11,899 |  |      |          | (326  | ) |            |         | -2.7 | % |   |         | 11,899 |  |   |         | 11,858 |          |   |        | (41    | ) |  |       | -0.3   | %
|                           | Transition and reorganization |      |         | 1,000  |  |            |         | 1,000  |  |      |          |      |   |            |         | 0.0  | % |   |         | 1,000  |  |   |         |       |          |   |        | (1,000 | ) |  |       | -100.0 | %
|                           | Amortization of intangibles   |      |         | 8,360  |  |            |         | 9,374  |  |      |          | 1,014 |   |            |         | 12.1 | % |   |         | 9,374  |  |   |         | 3,775  |          |   |        | (5,599 | ) |  |       | -59.7  | %
|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |       
|Total operating expenses   |                               |      | 94,881  |        |  |            | 102,391 |        |  |      | 7,510    |       |   |            | 7.9     | %    |   |   | 102,391 |        |  |   | 103,576 |        |          |   | 1,185  |        |   |  | 1.2   | %     
|Operating income           |                               |      | 5,436   |        |  |            | 15,547  |        |  |      | 10,111   |       |   |            | 186.0   | %    |   |   | 15,547  |        |  |   | 38,072  |        |          |   | 22,525 |        |   |  | 144.9 | %     
|Royalty income             |                               |      | 2,928   |        |  |            | 2,926   |        |  |      | (2       | )     |   |            | -0.1    | %    |   |   | 2,926   |        |  |   | 3,032   |        |          |   | 106    |        |   |  | 3.6   | %     
|Other income (expense)     |                               |      |        |        |  |            | (3,139  | )      |  |      | (3,139   | )     |   |            |         |      |   |   | (3,139  | )      |  |   | 1,140   |        |          |   | 4,279  |        |   |  |      |       
|Interest income            |                               |      | 427     |        |  |            | 881     |        |  |      | 454      |       |   |            | 106.3   | %    |   |   | 881     |        |  |   | 1,130   |        |          |   | 249    |        |   |  | 28.3  | %     
|Interest expense           |                               |      | (7,370  | )      |  |            | (3,813  | )      |  |      | (3,557   | )     |   |            | -48.3   | %    |   |   | (3,813  | )      |  |   | (2,758  | )      |          |   | (1,055 | )      |   |  | -27.7 | %     
|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |       
|Income before income taxes |                               |      | 1,421   |        |  |            | 12,402  |        |  |      | 10,981   |       |   |            | 772.8   | %    |   |   | 12,402  |        |  |   | 40,616  |        |          |   | 28,214 |        |   |  | 227.5 | %     
|Income tax expense         |                               |      | 1,369   |        |  |            | 5,872   |        |  |      | 4,503    |       |   |            | 328.9   | %    |   |   | 5,872   |        |  |   | 15,730  |        |          |   | 9,858  |        |   |  | 167.9 | %     
|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |       
|Net income                 |                               | $    | 52      |        |  | $          | 6,530   |        |  | $    | 6,478    |       |   |            | 12457.7 | %    |   | $ | 6,530   |        |  | $ | 24,886  |        |          | $ | 18,356 |        |   |  | 281.1 | %     
|                           |                               |      |         |        |  |            |         |        |  |      |          |       |   |            |         |      |   |   |         |        |  |   |         |        |          |   |        |        |   |  |       |       

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The following table shows the Statement of Operations as a percentage of net
sales for 2000, 2001, and 2002.

|                           |                               |      |       |      |   |      |       |      |   |  |       |      |  
|-------------------------- | ----------------------------- | ---- | ----- | ---- | - | ---- | ----- | ---- | - |  | ----- | ---- | -
|(thousands)                |                               | 2000 |       | 2001 |   | 2002
|                           |                               |      |       |      |   |     
|Net sales                  |                               |      | 100.0 | %    |   |      | 100.0 | %    |   |  | 100.0 | %   
|Operating expenses:        |                               |      |       |      |   |      |       |      |   |  |       |     
|                           | Cost of sales                 |      |       | 21.8 | % |      |       | 19.6 | % |  |       | 17.4 | %
|                           | Marketing and sales           |      |       | 39.2 | % |      |       | 38.1 | % |  |       | 35.4 | %
|                           | General and administrative    |      |       | 12.1 | % |      |       | 10.3 | % |  |       | 9.3  | %
|                           | Research and development      |      |       | 12.2 | % |      |       | 10.1 | % |  |       | 8.4  | %
|                           | Transition and reorganization |      |       | 1.0  | % |      |       | 0.8  | % |  |       | 0.0  | %
|                           | Amortization of intangibles   |      |       | 8.3  | % |      |       | 7.9  | % |  |       | 2.7  | %
|                           |                               |      |       |      |   |      |       |      |   |  |       |     
|Total operating expenses   |                               |      | 94.6  | %    |   |      | 86.9  | %    |   |  | 73.1  | %   
|Operating income           |                               |      | 5.4   | %    |   |      | 13.1  | %    |   |  | 26.9  | %   
|Royalty income             |                               |      | 2.9   | %    |   |      | 2.5   | %    |   |  | 2.1   | %   
|Other income (expense)     |                               |      | 0.0   | %    |   |      | -2.6  | %    |   |  | 0.8   | %   
|Interest income            |                               |      | 0.4   | %    |   |      | 0.7   | %    |   |  | 0.8   | %   
|Interest expense           |                               |      | -7.3  | %    |   |      | -3.2  | %    |   |  | -1.9  | %   
|                           |                               |      |       |      |   |      |       |      |   |  |       |     
|Income before income taxes |                               |      | 1.4   | %    |   |      | 10.5  | %    |   |  | 28.7  | %   
|Income tax expense         |                               |      | 1.4   | %    |   |      | 5.0   | %    |   |  | 11.1  | %   
|                           |                               |      |       |      |   |      |       |      |   |  |       |     
|Net income                 |                               |      | 0.1   | %    |   |      | 5.5   | %    |   |  | 17.6  | %   
|                           |                               |      |       |      |   |      |       |      |   |  |       |     

Cost of sales.Recent cost of sales trends have benefited from greater
spreading of fixed overhead costs over higher manufacturing volumes. During
2002, we noted a significant decrease in warranty claims. With further
investigation, we concluded that this decrease is primarily the result of
recent product improvements and customers preferring enhanced, newer generation
products rather than a replacement of their original prosthesis. This change
resulted in a $2.9 million reduction in the allowance for future warranty
claims. This change in estimate was recorded as a reduction in cost of sales
during 2002. Without this change in estimate, cost of sales during 2002 would
have been $27.5 million, or 19.4% of sales. Operating income would have been
$35.2 million, and net income would have been $23.1 million, or $.68 per
diluted earnings per share. See Critical Accounting Policies and Estimates for
further details.

Marketing and sales.Although decreasing as a percentage of sales, cost
increases for 2001 and 2002 resulted from higher employee and commission
expenses to support higher sales and new product rollout costs. A significant portion of this
increase built international infrastructure leading to increased international sales in 2002. In the future,
we expect marketing and selling costs to increase as sales increase, but
decrease as a percentage of sales.

General and administrative.Cost increases in 2002 compared to 2001 were
primarily due to professional fees and services, recruiting and relocation
costs, and corporate insurance, partially offset by a $0.6 million savings due to the closing of our Israeli
manufacturing facility during 2001. We expect spending in general and
administrative to increase in 2003 compared to 2002 at a percentage less than
our sales growth.

Research and development.Research and development includes costs to develop
and improve current and possible future products and the costs for regulatory
and clinical activities for these products. Cost increases during 2001 and 2002 in clinical studies and product development costs were more than offset by the savings of $0.4 million and $0.7
million due to the closing of our Israeli R&D facility during 2001. We expect total
spending in research and development to increase in

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2003 compared to 2002 and, longer term, to be in the range of 8 to 10 percent
of net sales. In addition, costs in this area could vary as a result of
spending on purchased technologies as new opportunities are discovered.

Transition and reorganization.During 2000 and 2001, assessments were
completed of management personnel needs and transition and reorganization
costs of $1.0 million were recorded for employee termination costs.

Amortization of intangibles.The increase in amortization of intangibles in
2001 compared to 2000 is attributable to milestone payments and contingent
purchase price payments following the Influence acquisition. Cost decreases in
2002 compared to 2001 are attributable to the Companys adoption on December
30, 2001, of SFAS No. 142, Goodwill and Other Intangible Assets.Under the
provisions of SFAS No. 142, goodwill and other intangible assets with
indefinite lives are no longer amortized. For a fuller description of this
change and its impact on financial results, see Notes to Consolidated Financial
Statements.

Royalty income.We license our stent delivery technology for medical use
outside of the urology field. All royalty income is from this license.

Other income(expense).Other expense in 2001 includes the receipt of a
non-recurring payment of $0.4 million representing reimbursement to resolve a
quality issue with a supplier netted against a $3.4 million write-off relating
to an investment in Collagenesis Corporation and certain equipment related to
the investment.

On January 1, 2002, we terminated the AMS Retirement Annuity. In conjunction
with this termination, we made a settlement contribution to the pension trust
of approximately $5.8 million and recorded as other income in 2002 a gain on
pension plan termination of $0.7 million.

Substantially all of the remainder of other income and expense relates to
exchange gains and losses resulting from the weakening and strengthening of
foreign currencies, mainly the Euro, against the U.S. dollar and relate to translating foreign denominated inter-company receivables to current rates.

Interest income and interest expense.Interest income was higher in 2001 than
in 2000 due to the investments of the proceeds of a follow-on public offering
completed in July 2001. During 2002, interest income was higher as these
proceeds were invested for the full year versus a partial year in 2001.

Interest expense was lower in 2001 than in 2000 as average borrowings under
notes payable were approximately $37 million lower. Interest expense decreased
further in 2002 as average borrowings again declined by approximately $5
million.

Income tax expense.As part of our adoption of Statements of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets", we no
longer record goodwill amortization that previously had been a permanent
non-deductible expense. In 2000 and 2001, the total of this
non-deductible amortization was approximately $1.1 million and $1.9 million. If the new rules
that were adopted in 2002 were in place in 2001, the effective tax rate in 2001
would have been approximately 41%. Effective tax rate comparisons for 2000 are
not meaningful as permanent non-deductible expenses were abnormally high in
comparison to pretax income.

Net income.Increases in net income in 2001 and 2002 resulted from the
increase in sales while maintaining control over operating costs, the change in
accounting for amortization of goodwill, and the reduction in the allowance for
future warranty claims, all of which are described above.

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Liquidity and Capital Resources

Cash and cash equivalents plus investments in short-term and long-term
marketable securities were $79.4 million as of December 28, 2002, compared to
$56.6 million as of December 29, 2001. This increase is due to cash provided
from operations plus cash flows from investing and financing activities.

Cash flows from operating activities.During 2000, net income plus the
non-cash expenses of depreciation and amortization of intangibles totaled $12.1
million compared to $19.8 million in 2001 and $32.6 million in 2002. During
2000, accounts payable and accrued expenses decreased $4.8 million as accrued
acquisition expenses, mostly relating to the Influence acquisition, and
transition and reorganization expenses incurred in 1999, were paid. During
2001, we incurred a non-cash expense of $0.7 million due to the acceleration of
stock option vesting for a terminated employee and a non-cash expense of $3.4
million related to the write-off of an investment in Collagenesis. In
addition, we built inventories by approximately $4.3 million to support new
products. During 2002, we made a $5.8 million pension plan termination payment
and realized a $2.9 million non-cash gain on the reduction in the allowance for
warranty claims. Both of these items are reflected in a reduction of accrued
expense.

Cash flows from investing activities.During 2000 and 2001, we made milestone
and contingent purchase price payments relating to the Influence acquisition
totaling $3.7 million and $11.5 million. During 2000, we paid the second $1.0
million installment related to a patent purchase and $1.6 million in up-front
financing fees on our senior credit facility. During 2001 and 2002 we made
investments of $1.5 million and $1.0 million in InjecTx. In 2001 we acquired
worldwide distribution rights to distribute DermMatrix, a porcine dermis graft
material used in sling and pelvic prolapse procedures, for an initial payment
of $1.5 million and another $1.0 million in 2002. During 2001, we made a $3.0
million investment in Collagenesis Corporation.

Cash flows from financing activities.We have a senior credit facility, which
consists of term debt and a $15 million revolving line of credit. The senior
credit facility expires in March 2006. This facility is secured by
substantially all of our assets, and contains restrictions concerning the
payment of dividends, incurrence of additional debt and capital expenditures.
In addition, we are subject to, and in compliance with, certain financial
covenants including ratios related to fixed charges coverage and leverage.
During 2000, 2001, and 2002, we made regular principal payments and prepayments
of $61.5 million, $15.6 million, and $4.9 million. As of December 28, 2002,
the outstanding principal balance under the senior credit facility was $24.0
million. As of December 28, 2002, we did not have an outstanding balance under
the revolving line of credit and had $15 million of availability under the
revolving line of credit. The following table sets forth the future payment
obligations under the senior credit facility and operating leases:

|                                   |  |                        |        |      |  |          |       |        |  |         |        |  |  |   |     | 
|---------------------------------- |  | ---------------------- | ------ | ---- |  | -------- | ----- | ------ |  | ------- | ------ |  |  | - | --- | 
|                                   |  | Payments Due By Period
|                                   |  |                       
|                                   |  |                        |        |      |  | Less     |       | One to |  | Four to
|Contractual Obligations            |  |                        |        |      |  | Than One |       | Three  |  | Five   
|(amounts in thousands)             |  | Total                  |        | Year |  | Years    |       | Years 
|                                   |  |                        |        |      |  |          |       |       
|Long-term debt                     |  | $                      | 24,000 |      |  | $        | 6,000 |        |  | $       | 18,000 |  |  | $ |    | 
|Capital lease obligations          |  |                        |       |      |  |          |      |        |  |         |       |  |  |   |    | 
|Operating leases                   |  |                        | 1,533  |      |  |          | 636   |        |  |         | 548    |  |  |   | 349 | 
|                                   |  |                        |        |      |  |          |       |        |  |         |        |  |  |   |     | 
|Total contractual cash obligations |  | $                      | 25,533 |      |  | $        | 6,636 |        |  | $       | 18,548 |  |  | $ | 349 | 
|                                   |  |                        |        |      |  |          |       |        |  |         |        |  |  |   |     | 

20



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In 2000, we received $63.3 million in net proceeds from our initial public
offering of common stock and the exercise of stock options. In 2001, we
received $55.0 million in net proceeds from a follow-on public offering of
common stock and the exercise of stock options.

Cash Commitments.

On December 30, 2002, two days after our
fiscal year end, we completed the acquisition of Cryogen, Inc. Pursuant
to the acquisition agreement, we paid former Cryogen shareholders cash proceeds
of $40 million, net of certain transaction expenses and subject to certain
adjustments. The initial payment made by us to former Cryogen shareholders,
after payment of transaction expenses and all adjustments, was approximately
$36.2 million. We deposited $3.0 million of this initial consideration in
escrow to be held for eighteen months after closing of the merger to cover
certain contingencies.

In addition to the initial consideration described above, Cryogens former
shareholders will receive an earnout payment equal to three times our net
revenues from sales of Cryogens products over a period of four consecutive
Company fiscal quarters ending three years after closing, less $40 million. If
our net product revenues attributable to sales of Cryogens products during any
such four-quarter period do not exceed $13.3 million, no earnout payment will
be made. The maximum amount of the earnout payment is $110 million. The
earnout payment, if any, will be distributed to former Cryogen shareholders
subject to certain rights of set-off.

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Hedging and Currency Fluctuations

We have not purchased options or entered into forward or futures contracts,
except as required by our senior credit facility. As of December 28, 2002, all
of our derivatives, designated as cash flow hedges, are interest rate swaps.
We hedged a portion of our original $65.0 million variable rate term note, as
required by our senior credit facility, by entering into an interest rate swap
agreement in which we agree to exchange, at specified intervals, the calculated
difference between the fixed interest rate of the swap and the variable
interest rate on a portion of our debt. This interest rate swap agreement
expires June 30, 2003. We expect that pre-tax losses totaling approximately
$0.9 million, which are recorded in other comprehensive income (loss) at
December 28, 2002 and represent the difference between the fixed rate of the
swap agreement and variable interest of the term note, will be recognized
within the next twelve months as part of interest expense. At December 28,
2002, the fair value of the interest rate swap, based upon quoted market prices
for contracts with similar maturities, was approximately $0.9 million. The pay
rate of the interest rate swap is 10.065% and the predicted future receive rate
on our senior credit facility is approximately 3.41%.

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

Inflation

We do not believe that inflation has had a material effect on our results of
operations in recent years and periods. There can be no assurance, however,
that our business will not be adversely affected by inflation in the future.

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##### Table of Contents






ITEM 8. FINANCIAL STATEMENTS.

Our Consolidated Financial Statements and the report of our independent
certified public accountants are included in this Annual Report on Form 10-K
beginning on page F-1. The index to this report and the financial statements
is included in Item 14 (a) (1) below.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.




PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.



| | A. |  | Directors of the Registrant.                                                                                                                                                                                                                                                       
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The information in the Election of Directors-Information About
Nominees and Other Directors and Election of Directors-Additional
Information About the Board of Directors sections of our 2003 Proxy
Statement is incorporated in this Annual Report on Form 10-K by
reference.
|
| | B. |  | Executive Officers of the Registrant.                                                                                                                                                                                                                                              
|
| |    |  | Information about our executive officers is included in this Annual
Report on Form 10-K under Item 4A, Executive Officers of the
Registrant.                                                                                                                                     
|
| | C. |  | Compliance with Section 16(a) of the Exchange Act.                                                                                                                                                                                                                                 
|
| |    |  | The information in the Section 16(a) Beneficial Ownership Reporting
Compliance section of our 2003 Proxy Statement is incorporated in
this Annual Report on Form 10-K by reference.                                                                                              
|
| | D. |  | Audit Committee Financial Expert                                                                                                                                                                                                                                                   
|
| |    |  | The information in the Election of Directors-Additional Information
About the Board of Directors section of our 22003 Proxy Statement is
incorporated in this Annual Report on Form 10-K by reference.                                                                           




ITEM 11. EXECUTIVE COMPENSATION.

The information in the Election of Directors-Director Compensation, Election
of Directors-Compensation Committee Interlocks and Insider Participation,
Compensation Committee Report on Executive Compensation, and Compensation
and Other Benefits sections of our 2003 Proxy Statement is incorporated in
this Annual Report on Form 10-K by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information in the Compensation and Other BenefitsSecurities Authorized
for Issuance Under Equity Compensation Plans and Principal Stockholders and
Beneficial Ownership of Management sections of our 2003 Proxy Statement is
incorporated in this Annual Report on Form 10-K by reference.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information in the Certain Transactions section of our 2003 Proxy
Statement is incorporated in this Annual Report on Form 10-K by reference.




PART IV




ITEM 14. CONTROLS AND PROCEDURES



|(a) |  | Evaluation of Disclosure Controls and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Our chief executive officer and chief financial officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date (the
Evaluation Date) within 90 days before the filing date of this annual
report on Form 10-K, have concluded that, as of the Evaluation Date, our
disclosure controls and procedures were adequate and designed to ensure
that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.
|   
|(b) |  | Changes in Internal Controls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | There were no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect our
disclosure controls and procedures subsequent to the Evaluation Date.                                                                                                                                                                                                                                                                                                                                                                        

24



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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.



| | (a)                                                                                                                                                                                |  | 1. Financial Statements:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|
| | Our following Consolidated Financial Statements and the Independent
Auditors Report thereon are included herein (page numbers refer to
pages in this Annual Report on Form 10-K): |  |                         

|                                                                                                                                           |  |                       
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------
|Report of Independent Auditors                                                                                                             |  | Page F-1              
|Consolidated Balance Sheets as of December 29, 2001
and December 28, 2002.                                                                 |  | Page F-2              
|Consolidated Statements of
Operations for the years ended
December 31, 2000, December 29, 2001, and
December 28, 2002.                     |  | Page F-3              
|Consolidated Statements of Stockholders Equity (Deficit)
for the years ended December 31, 2000, December 29, 2001, and December 28, 2002. |  | Pages F-4 and F-5     
|Consolidated Statements of Cash
Flows for the years ended
December 31, 2000, December 29, 2001,
and December 28, 2002.                     |  | Page F-6              
|Notes to Consolidated Financial Statements for the
years ended December 31, 2000, December 29, 2001, and December 28, 2002.                |  | Pages F-7 through F-22

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| |  |  | 2. Financial Statement Schedules:
| |  |  | ---------------------------------

American Medical Systems Holdings, Inc.
Schedule II  Valuation and Qualifying Accounts
(In thousands)

|                             |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |   |       | 
|---------------------------- | ---------------------------- | ---------------------------------- |  | ---------- | ----- | ---------- |  | ----------- | ------ | ------------ |  | ---------- |  | ---------- |  | - | ----- | --- |  | - | ----- | 
|                             |                              |                                    |  |            |       |            |  | Additions - |        |              |  |            |  |            |  |  
|                             |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |  
|                             |                              |                                    |  |            |       |            |  |             |        |              |  | Charged to |  |            |  |   |       |     |  |  
|                             |                              |                                    |  | Balance at |       | Charged to |  | Other       |        |              |  |            |  | Balance at
|                             |                              |                                    |  | Beginning  |       | Costs and  |  | Accounts -  |        | Deductions - |  | End       
|Description                  |                              | of Period                          |  | Expenses   |       | Describe   |  | Describe    |        | of Period   
|                             |                              |                                    |  |            |       |            |  |             |        |             
|Column A                     |                              | Column B                           |  | Column C   |       | Column D   |  | Column E   
|                             |                              |                                    |  |            |       |            |  |            
|Valuation Accounts:          |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|Year ended December 28, 2002 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             | Deducted from asset accounts |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |   |      
|                             |                              | Allowance for doubtful accounts    |  | $          | 802   |            |  | $           | 580    |              |  |            |  |            |  | $ | 426   | (1) |  | $ | 956   | 
|                             |                              | Allowance for obsolete inventories |  | $          | 2,699 |            |  | $           | 1,659  |              |  |            |  |            |  | $ | 1,610 | (2) |  | $ | 2,748 | 
|Year ended December 29, 2001 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             | Deducted from asset accounts |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |   |      
|                             |                              | Allowance for doubtful accounts    |  | $          | 696   |            |  | $           | 580    |              |  |            |  |            |  | $ | 474   | (1) |  | $ | 802   | 
|                             |                              | Allowance for obsolete inventories |  | $          | 3,140 |            |  | $           | 310    |              |  |            |  |            |  | $ | 751   | (2) |  | $ | 2,699 | 
|Year ended December 31, 2000 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             | Deducted from asset accounts |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |   |      
|                             |                              | Allowance for doubtful accounts    |  | $          | 404   |            |  | $           | 953    |              |  |            |  |            |  | $ | 661   | (1) |  | $ | 696   | 
|                             |                              | Allowance for obsolete inventories |  | $          | 2,193 |            |  | $           | 1,761  |              |  |            |  |            |  | $ | 814   | (2) |  | $ | 3,140 | 
|Qualifying Accounts:         |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|Year ended December 28, 2002 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             |                              | Product liability allowance        |  | $          | 1,498 |            |  | $           | 360    |              |  |            |  |            |  | $ | 720   | (3) |  | $ | 1,138 | 
|                             |                              | Product warranty allowance         |  | $          | 7,587 |            |  | $           | (2,913 | )(5)         |  |            |  |            |  | $ | 148   | (4) |  | $ | 4,526 | 
|Year ended December 29, 2001 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             |                              | Product liability allowance        |  | $          | 1,211 |            |  | $           | 300    |              |  |            |  |            |  | $ | 13    | (3) |  | $ | 1,498 | 
|                             |                              | Product warranty allowance         |  | $          | 7,548 |            |  | $           | 516    |              |  |            |  |            |  | $ | 477   | (4) |  | $ | 7,587 | 
|Year ended December 31, 2000 |                              |                                    |  |            |       |            |  |             |        |              |  |            |  |            |  |   |       |     |  |  
|                             |                              | Product liability allowance        |  | $          | 1,043 |            |  | $           | 571    |              |  |            |  |            |  | $ | 403   | (3) |  | $ | 1,211 | 
|                             |                              | Product warranty allowance         |  | $          | 7,385 |            |  | $           | 1,234  |              |  |            |  |            |  | $ | 1,071 | (4) |  | $ | 7,548 | 



---

|(1) |  | Uncollectible accounts written off, net of recoveries.                   
|--- |  | -------------------------------------------------------------------------
|   
|(2) |  | Obsolete inventory disposals.                                            
|   
|(3) |  | Product liability claims.                                                
|   
|(4) |  | Product warranty claims.                                                 
|   
|(5) |  | Reduction of warranty allowance recorded as a reduction in cost of sales.

26



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##### Table of Contents





| | 3. | Exhibits: |                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                          
| | -- | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------
|
| |    |           | The exhibits to this Annual Report on Form 10-K are listed in
the Exhibit Index attached hereto. A copy of any of the
exhibits listed in the Exhibit Index will be sent at a
reasonable cost to any stockholder as of March 20, 2003, upon
receipt from any such person of a written request for any
such exhibit. Requests should be sent to the attention of M.
James Call at American Medical Systems, 10700 Bren Road West,
Minnetonka, MN 55343. |                                                                                                                          
|
| |    |           | The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10-K under Item 14(c):                                                                                                                                                                                                                                                                       |                                                                                                                          
|
| |    |           | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Employment Agreement, dated April 23, 1999, between Douglas Kohrs and
American Medical Systems, Inc.                     
|
| |    |           | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Amendment to the Employment Agreement, dated April 17, 2000, between
Douglas Kohrs and American Medical Systems, Inc.    
|
| |    |           | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Second Amendment to Employment Agreement, dated January 1, 2002,
between Douglas Kohrs and American Medical Systems, Inc.
|
| |    |           | 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Stock Option Agreement, dated April 23, 1999, between Douglas Kohrs
and American Medical Systems, Inc.                   
|
| |    |           | 5.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Separation Agreement, dated September 27, 2001, between Gregory J.
Melsen and American Medical Systems, Inc.             
|
| |    |           | 6.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Employment Agreement, dated July 30, 2001, between M. James Call and
American Medical Systems, Inc.                      
|
| |    |           | 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Consulting Agreement, dated September 1, 1999, between Medical Genesis
and American Medical Systems, Inc.                
|
| |    |           | 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Employment Agreement, dated January 1, 2003, between Ross Longhini and
American Medical Systems, Inc.                    
|
| |    |           | 9.                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2000 Equity Incentive Plan, as amended.                                                                                  
|
| |    |           | 10.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Form of Incentive Stock Option Agreement.                                                                                
|
| |    |           | 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Form of Non-Qualified Stock Option Agreement.                                                                            
|
| |    |           | 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Employee Stock Purchase Plan.                                                                                            
|
| |    |           | 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 2002 Management Incentive Plan.                                                                                          

27



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| | (b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                               
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On December 17, 2002, we filed a Current Report on Form 8-K
reporting that we had entered into an Agreement and Plan of Merger
by and among American Medical Systems, Inc., Snowball Acquisition
Corp., Cryogen, Inc. and Robert Knarr, dated as of December 13,
2002. We did not file any financial statements with this Form
8-K.
|
| |     |  | On January 6, 2003, we filed a Current Report on Form 8-K
reporting that we had completed our acquisition of CryoGen, Inc.                                                                                                                                                                                                         
|
| |     |  | On March 17, 2003, we filed a Current Report on Form 8-K with the
pro forma financial statements relating to our acquisition of
Cryogen, Inc.                                                                                                                                                                                      

28



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##### Table of Contents



FINANCIAL STATEMENTS AND NOTES THERETO

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of

American Medical Systems Holdings, Inc.


We have audited the accompanying consolidated balance sheets of American
Medical Systems Holdings, Inc. as of December 29, 2001 and December 28, 2002,
and the related consolidated statements of operations, changes in stockholders
equity (deficit) and cash flows for each of the three years in the period ended December
28, 2002. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Medical
Systems Holdings, Inc. as of December 29, 2001 and December 28, 2002, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 28, 2002, in conformity with accounting
principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill to conform to Statement of
Financial Accounting Standards No. 142 effective December 30, 2001.

Ernst & Young LLP

Minneapolis, Minnesota
January 28, 2003

F-1



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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |         | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ------------ | ------- | ------------ | ------ | ------- | ------- | 
|                                           |                                                                                                                                                                                                                                                    |                           |        | December 29, |         | December 28,
|                                           |                                                                                                                                                                                                                                                    |                           |        | 2001         |         | 2002        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |             
|Assets                                     |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |        
|Current assets:                            |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |        
|                                           | Cash and cash equivalents                                                                                                                                                                                                                          |                           | $      | 28,755       |         |              | $      | 79,429  |        
|                                           | Short term investments                                                                                                                                                                                                                             |                           |        | 9,013        |         |              |        |        |        
|                                           | Accounts receivable, net                                                                                                                                                                                                                           |                           |        | 25,306       |         |              |        | 27,208  |        
|                                           | Inventories                                                                                                                                                                                                                                        |                           |        | 13,991       |         |              |        | 13,475  |        
|                                           | Deferred taxes                                                                                                                                                                                                                                     |                           |        | 7,471        |         |              |        | 3,542   |        
|                                           | Other current assets                                                                                                                                                                                                                               |                           |        | 1,552        |         |              |        | 2,155   |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|                                           |                                                                                                                                                                                                                                                    | Total current assets      |        |              | 86,088  |              |        |         | 125,809 | 
|Property, plant and equipment, net         |                                                                                                                                                                                                                                                    |                           | 23,604 |              |         |              | 21,328 |        
|Goodwill, net                              |                                                                                                                                                                                                                                                    |                           | 80,607 |              |         |              | 80,607 |        
|Intangibles, net                           |                                                                                                                                                                                                                                                    |                           | 18,876 |              |         |              | 15,691 |        
|Deferred income taxes                      |                                                                                                                                                                                                                                                    |                           | 3,180  |              |         |              | 3,068  |        
|Investments                                |                                                                                                                                                                                                                                                    |                           | 18,783 |              |         |              |       |        
|Investments in technology and other assets |                                                                                                                                                                                                                                                    |                           | 4,013  |              |         |              | 5,142  |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|                                           |                                                                                                                                                                                                                                                    | Total assets              |        | $            | 235,151 |              |        | $       | 251,645 | 
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|Liabilities and Stockholders Equity       |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |        
|Current liabilities:                       |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |        
|                                           | Accounts payable                                                                                                                                                                                                                                   |                           | $      | 2,678        |         |              | $      | 3,000   |        
|                                           | Accrued compensation expenses                                                                                                                                                                                                                      |                           |        | 15,656       |         |              |        | 10,246  |        
|                                           | Accrued warranty expense                                                                                                                                                                                                                           |                           |        | 7,587        |         |              |        | 4,526   |        
|                                           | Other accrued expenses                                                                                                                                                                                                                             |                           |        | 4,350        |         |              |        | 4,751   |        
|                                           | Current portion of notes payable                                                                                                                                                                                                                   |                           |        | 4,909        |         |              |        | 6,000   |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|                                           |                                                                                                                                                                                                                                                    | Total current liabilities |        |              | 35,180  |              |        |         | 28,523  | 
|Long-term notes payable                    |                                                                                                                                                                                                                                                    |                           | 24,000 |              |         |              | 18,000 |        
|Other long-term liabilities                |                                                                                                                                                                                                                                                    |                           | 1,884  |              |         |              | 860    |        
|Stockholders equity:                      |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |        
|                                           | Common stock, par value $.01 per share; authorized
95,000,000 shares; issued and outstanding 29,587,378
voting shares and 2,372,941 non-voting shares for
December 29, 2001; 32,156,873 voting and 341,700
non-voting shares for December 28, 2002 |                           |        | 320          |         |              |        | 325     |        
|                                           | Additional paid-in capital                                                                                                                                                                                                                         |                           |        | 194,630      |         |              |        | 197,991 |        
|                                           | Deferred compensation                                                                                                                                                                                                                              |                           |        | (448         | )       |              |        | (198    | )      
|                                           | Accumulated other comprehensive loss:                                                                                                                                                                                                              |                           |        |              |         |              |        |         |        
|                                           | Cumulative translation adjustment                                                                                                                                                                                                                  |                           |        | (1,646       | )       |              |        | (678    | )      
|                                           | Derivative financial instruments                                                                                                                                                                                                                   |                           |        | (1,164       | )       |              |        | (459    | )      
|                                           | Retained earnings (accumulated deficit)                                                                                                                                                                                                            |                           |        | (17,605      | )       |              |        | 7,281   |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|                                           | Total stockholders equity                                                                                                                                                                                                                         |                           |        | 174,087      |         |              |        | 204,262 |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        
|                                           | Total liabilities and stockholders equity                                                                                                                                                                                                         |                           | $      | 235,151      |         |              | $      | 251,645 |        
|                                           |                                                                                                                                                                                                                                                    |                           |        |              |         |              |        |         |        

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

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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

|                                |         |                               |         |                     |        |              |         |              |        |   |         |        |        | 
|------------------------------- | ------- | ----------------------------- | ------- | ------------------- | ------ | ------------ | ------- | ------------ | ------ | - | ------- | ------ | ------ | 
|                                |         |                               |         | For the years ended
|                                |         |                               |         |                    
|                                |         |                               |         | December 31,        |        | December 29, |         | December 28,
|                                |         |                               |         | 2000                |        | 2001         |         | 2002        
|                                |         |                               |         |                     |        |              |         |             
|Net sales                       |         | $                             | 100,317 |                     |        | $            | 117,938 |              |        | $ | 141,648 |       
|Operating expenses:             |         |                               |         |                     |        |              |         |              |        |   |         |       
|                                |         | Cost of sales                 |         |                     | 21,891 |              |         |              | 23,140 |   |         |        | 24,605 | 
|                                |         | Marketing and sales           |         |                     | 39,277 |              |         |              | 44,931 |   |         |        | 50,152 | 
|                                |         | General and administrative    |         |                     | 12,128 |              |         |              | 12,047 |   |         |        | 13,186 | 
|                                |         | Research and development      |         |                     | 12,225 |              |         |              | 11,899 |   |         |        | 11,858 | 
|                                |         | Transition and reorganization |         |                     | 1,000  |              |         |              | 1,000  |   |         |        |       | 
|                                |         | Amortization of intangibles   |         |                     | 8,360  |              |         |              | 9,374  |   |         |        | 3,775  | 
|                                |         |                               |         |                     |        |              |         |              |        |   |         |       
|Total operating expenses        |         |                               | 94,881  |                     |        |              | 102,391 |              |        |   | 103,576 |       
|                                |         |                               |         |                     |        |              |         |              |        |   |         |       
|Operating income                |         |                               | 5,436   |                     |        |              | 15,547  |              |        |   | 38,072  |       
|Royalty income                  |         |                               | 2,928   |                     |        |              | 2,926   |              |        |   | 3,032   |       
|Other income (expense)          |         |                               |        |                     |        |              | (3,139  | )            |        |   | 1,140   |       
|Interest income                 |         |                               | 427     |                     |        |              | 881     |              |        |   | 1,130   |       
|Interest expense                |         |                               | (7,370  | )                   |        |              | (3,813  | )            |        |   | (2,758  | )     
|                                |         |                               |         |                     |        |              |         |              |        |   |         |       
|Income before income taxes      |         |                               | 1,421   |                     |        |              | 12,402  |              |        |   | 40,616  |       
|Income tax expense              |         |                               | 1,369   |                     |        |              | 5,872   |              |        |   | 15,730  |       
|                                |         |                               |         |                     |        |              |         |              |        |   |         |       
|Net income                      |         | $                             | 52      |                     |        | $            | 6,530   |              |        | $ | 24,886  |       
|                                |         |                               |         |                     |        |              |         |              |        |   |         |       
|Earnings per share:             |         |                               |         |                     |        |              |         |              |        |   |         |       
|                                | Basic   |                               | $       | 0.00                |        |              | $       | 0.22         |        |   | $       | 0.77   |       
|                                | Diluted |                               | $       | 0.00                |        |              | $       | 0.20         |        |   | $       | 0.73   |       
|Weighted average common shares: |         |                               |         |                     |        |              |         |              |        |   |         |       
|                                | Basic   |                               |         | 10,478              |        |              |         | 29,792       |        |   |         | 32,232 |       
|                                | Diluted |                               |         | 12,809              |        |              |         | 32,068       |        |   |         | 34,176 |       

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

F-3



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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
(In thousands)

|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |       |   | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | ------ | ------------ |  | ---------- | --- | ----------- |  | --------- | ------- | ------- |  | ---- | ------- | ----- |  | - | ------ | - |  | - | ------ | ----------- | - | - | ------- | ----- | - | 
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        | Accumulated |   |   |         |      
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        | Other       |   |   |         |      
|                                                                                              |                                                                                                                  |  |        | Common Stock |  | Additional |     | Accumulated |  | Deferred  |         | Compre- |  |      |         |      
|                                                                                              |                                                                                                                  |  |        |              |  | Paid-In    |     | Earnings    |  | Compen-   |         | hensive |  |      |         |      
|                                                                                              |                                                                                                                  |  |        | Shares       |  | Par Value  |     | Capital     |  | (Deficit) |         | sation  |  | Loss |         | Total
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |      
|Balances at December 31, 1999                                                                 |                                                                                                                  |  |       |              |  | $          | 0   |             |  | $         | 0       |         |  | $    | (20,843 | )     |  | $ | 0      |   |  | $ | (993   | )           |   | $ | (21,836 | )    
|Comprehensive loss                                                                            |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|                                                                                              | Net income                                                                                                       |  |        |             |  |            |     |            |  |           |         |        |  |      |         | 52    |  |   |        |  |  |   |        |            |   |   |         | 52    |  
|                                                                                              | Cumulative translation adjustment                                                                                |  |        |             |  |            |     |            |  |           |         |        |  |      |         |      |  |   |        |  |  |   |        | (80         | ) |   |         | (80   | )
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|Total comprehensive loss                                                                      |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | (28     | )    
|Accretion of cumulative preferred
stock dividends                                             |                                                                                                                  |  |       |              |  |            |    |             |  |           |        |         |  |      | (3,344  | )     |  |   |       |   |  |   |       |             |   |   | (3,344  | )    
|Conversion of preferred stock
to common stock                                                 |                                                                                                                  |  | 21,269 |              |  |            | 213 |             |  |           | 70,644  |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 70,857  |      
|Issuance of common stock, net of
offering expenses                                            |                                                                                                                  |  | 6,250  |              |  |            | 63  |             |  |           | 62,871  |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 62,934  |      
|Issuance of common stock pursuant
to stock options exercised                                  |                                                                                                                  |  | 246    |              |  |            | 2   |             |  |           | 407     |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 409     |      
|Income tax benefit related to
stock option plans                                              |                                                                                                                  |  |       |              |  |            |    |             |  |           | 96      |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 96      |      
|Issuance of compensatory
stock options                                                        |                                                                                                                  |  |       |              |  |            |    |             |  |           | 1,431   |         |  |      |        |       |  |   | (1,431 | ) |  |   |       |             |   |   |        |      
|Amortization of deferred
compensation                                                         |                                                                                                                  |  |       |              |  |            |    |             |  |           |        |         |  |      |        |       |  |   | 435    |   |  |   |       |             |   |   | 435     |      
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|Balances at December 31, 2000                                                                 |                                                                                                                  |  | 27,765 |              |  |            | 278 |             |  |           | 135,449 |         |  |      | (24,135 | )     |  |   | (996   | ) |  |   | (1,073 | )           |   |   | 109,523 |      
|Comprehensive income                                                                          |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|                                                                                              | Net income                                                                                                       |  |        |             |  |            |     |            |  |           |         |        |  |      |         | 6,530 |  |   |        |  |  |   |        |            |   |   |         | 6,530 |  
|                                                                                              | Cumulative effect of change in
accounting principle for derivative
and hedging activities (SFAS 133), net of tax |  |        |             |  |            |     |            |  |           |         |        |  |      |         |      |  |   |        |  |  |   |        | (712        | ) |   |         | (712  | )
|                                                                                              | Net loss on derivative financial
instruments, net of tax                                                         |  |        |             |  |            |     |            |  |           |         |        |  |      |         |      |  |   |        |  |  |   |        | (928        | ) |   |         | (928  | )
|                                                                                              | Amounts reclassified to interest
expense during the period from
derivative and hedging activities,
net of tax    |  |        |             |  |            |     |            |  |           |         |        |  |      |         |      |  |   |        |  |  |   |        | 476         |   |   |         | 476   |  
|                                                                                              | Cumulative translation adjustment                                                                                |  |        |             |  |            |     |            |  |           |         |        |  |      |         |      |  |   |        |  |  |   |        | (573        | ) |   |         | (573  | )
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|Total comprehensive income                                                                    |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 4,793   |      
|Issuance of common stock
pursuant to stock options exercised                                  |                                                                                                                  |  | 425    |              |  |            | 4   |             |  |           | 735     |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 739     |      
|Issuance of common stock
pursuant to ESPP                                                     |                                                                                                                  |  | 55     |              |  |            | 1   |             |  |           | 498     |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 499     |      
|Issuance of common stock
pursuant to secondary offering                                       |                                                                                                                  |  | 3,500  |              |  |            | 35  |             |  |           | 53,786  |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 53,821  |      
|Issuance of common stock
pursuant to direct grants                                            |                                                                                                                  |  | 1      |              |  |            |    |             |  |           | 27      |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 27      |      
|Issuance of common stock
pursuant to purchase of minority
interest in consolidated subsidiary |                                                                                                                  |  | 214    |              |  |            | 2   |             |  |           | 3,231   |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 3,233   |      
|Acceleration of stock option vesting
recorded as compensation costs                           |                                                                                                                  |  |        |              |  |            |     |             |  |           | 747     |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 747     |      
|Compensation costs related to issuance
of non-qualified stock options                         |                                                                                                                  |  |       |              |  |            |    |             |  |           | 19      |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   | 19      |      
|Income tax benefit related to
stock option plans                                              |                                                                                                                  |  |       |              |  |            |    |             |  |           | 240     |         |  |      |        |       |  |   |       |   |  |   |       |             |   |   | 240     |      
|Amortization of deferred
compensation                                                         |                                                                                                                  |  |       |              |  |            |    |             |  |           |        |         |  |      |        |       |  |   | 446    |   |  |   |       |             |   |   | 446     |      
|Deferred compensation forfeitures                                                             |                                                                                                                  |  |       |              |  |            |    |             |  |           | (102    | )       |  |      |        |       |  |   | 102    |   |  |   |       |             |   |   |        |      
|                                                                                              |                                                                                                                  |  |        |              |  |            |     |             |  |           |         |         |  |      |         |       |  |   |        |   |  |   |        |             |   |   |         |      
|Balances at December 29, 2001                                                                 |                                                                                                                  |  | 31,960 |              |  | $          | 320 |             |  | $         | 194,630 |         |  | $    | (17,605 | )     |  | $ | (448   | ) |  | $ | (2,810 | )           |   | $ | 174,087 |      

F-4



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##### Table of Contents



|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   |         |   |  | 
|------------------------------------------------------------------------------------------------------------- |  |  | ------ | ------------ |  | ---------- | --- | ----------- |  | --------- | ------- | ------- |  | ---- | ------ | ----- |  | - | ---- | - |  | - | ------ | ----------- |  | - | ------- | - |  | 
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        | Accumulated |  |   |         |  
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        | Other       |  |   |         |  
|                                                                                                              |  |  |        | Common Stock |  | Additional |     | Accumulated |  | Deferred  |         | Compre- |  |      |        |      
|                                                                                                              |  |  |        |              |  | Paid-In    |     | Earnings    |  | Compen-   |         | hensive |  |      |        |      
|                                                                                                              |  |  |        | Shares       |  | Par Value  |     | Capital     |  | (Deficit) |         | sation  |  | Loss |        | Total
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |      
|Comprehensive income                                                                                          |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   |         |  
|Net income                                                                                                    |  |  |       |              |  |            |    |             |  |           |        |         |  |      | 24,886 |       |  |   |     |   |  |   |       |             |  |   | 24,886  |  
|Net loss on derivative financial
instruments, net of tax                                                      |  |  |       |              |  |            |    |             |  |           |        |         |  |      |       |       |  |   |     |   |  |   | (271   | )           |  |   | (271    | )
|Amounts reclassified to interest
expense during the period from
derivative and hedging activities,
net of tax |  |  |       |              |  |            |    |             |  |           |        |         |  |      |       |       |  |   |     |   |  |   | 973    |             |  |   | 973     |  
|Cumulative translation adjustment                                                                             |  |  |       |              |  |            |    |             |  |           |        |         |  |      |       |       |  |   |     |   |  |   | 971    |             |  |   | 971     |  
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   |         |  
|Total comprehensive income                                                                                    |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   | 26,559  |  
|Issuance of common stock
pursuant to stock options exercised                                                  |  |  | 495    |              |  |            | 5   |             |  |           | 1,653   |         |  |      |       |       |  |   |     |   |  |   |       |             |  |   | 1,658   |  
|Issuance of common stock
pursuant to ESPP                                                                     |  |  | 42     |              |  |            |    |             |  |           | 693     |         |  |      |       |       |  |   |     |   |  |   |       |             |  |   | 693     |  
|Issuance of common stock
pursuant to direct grants                                                            |  |  | 2      |              |  |            |    |             |  |           | 20      |         |  |      |       |       |  |   |     |   |  |   |       |             |  |   | 20      |  
|Compensation costs related to issuance
of non-qualified stock options                                         |  |  |       |              |  |            |    |             |  |           | 26      |         |  |      |       |       |  |   |     |   |  |   |       |             |  |   | 26      |  
|Income tax benefit related to
stock option plans                                                              |  |  |       |              |  |            |    |             |  |           | 1,043   |         |  |      |       |       |  |   |     |   |  |   |       |             |  |   | 1,043   |  
|Amortization of deferred
compensation                                                                         |  |  |       |              |  |            |    |             |  |           |        |         |  |      |       |       |  |   | 176  |   |  |   |       |             |  |   | 176     |  
|Deferred compensation forfeitures                                                                             |  |  |       |              |  |            |    |             |  |           | (74     | )       |  |      |       |       |  |   | 74   |   |  |   |       |             |  |   |        |  
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   |         |  
|Balances at December 28, 2002                                                                                 |  |  | 32,499 |              |  | $          | 325 |             |  | $         | 197,991 |         |  | $    | 7,281  |       |  | $ | (198 | ) |  | $ | (1,137 | )           |  | $ | 204,262 |  
|                                                                                                              |  |  |        |              |  |            |     |             |  |           |         |         |  |      |        |       |  |   |      |   |  |   |        |             |  |   |         |  

F-5



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##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)

|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |       |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ----- | ------------------- | ------ | ------------ | ----- | ------------ | ------- | ------ | ----- | ------ | ------ | -
|                                               |                                                                                   |                                                 |                                       |                                                     |       | For the years ended
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                    
|                                               |                                                                                   |                                                 |                                       |                                                     |       | December 31,        |        | December 29, |       | December 28,
|                                               |                                                                                   |                                                 |                                       |                                                     |       | 2000                |        | 2001         |       | 2002        
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |             
|Cash flows from operating activities:          |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |       
|                                               | Net income                                                                        |                                                 | $                                     | 52                                                  |       |                     | $      | 6,530        |       |              | $       | 24,886 |      
|                                               | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|                                               |                                                                                   | Depreciation                                    |                                       |                                                     | 3,723 |                     |        |              | 3,867 |              |         |        | 3,971 |       
|                                               |                                                                                   | Amortization of intangibles                     |                                       |                                                     | 8,360 |                     |        |              | 9,374 |              |         |        | 3,775 |       
|                                               |                                                                                   | Deferred financing costs                        |                                       |                                                     | 215   |                     |        |              | 270   |              |         |        | 420   |       
|                                               |                                                                                   | Noncash deferred compensation                   |                                       |                                                     | 435   |                     |        |              | 446   |              |         |        | 176   |       
|                                               |                                                                                   | Noncash transition and reorganization           |                                       |                                                     |      |                     |        |              | 747   |              |         |        |      |       
|                                               |                                                                                   | Noncash impairment of investment in technology  |                                       |                                                     |      |                     |        |              | 3,000 |              |         |        |      |       
|                                               |                                                                                   | Noncash stock-based compensation                |                                       |                                                     |      |                     |        |              | 45    |              |         |        | 46    |       
|                                               |                                                                                   | Income tax benefit related to stock option plan |                                       |                                                     | 96    |                     |        |              | 240   |              |         |        | 1,043 |       
|                                               |                                                                                   | Change in net deferred taxes                    |                                       |                                                     | 1,093 |                     |        |              | 3,876 |              |         |        | 3,652 |       
|                                               |                                                                                   | Changes in operating assets and liabilities:    |                                       |                                                     |       |                     |        |              |       |              |         |        |       |       
|                                               |                                                                                   |                                                 | Accounts receivable                   |                                                     |       | (3,242              | )      |              |       | (2,418       | )       |        |       | (1,215 | )     
|                                               |                                                                                   |                                                 | Inventories                           |                                                     |       | 1,290               |        |              |       | (4,360       | )       |        |       | 673    |       
|                                               |                                                                                   |                                                 | Accounts payable and accrued expenses |                                                     |       | (4,809              | )      |              |       | 3,898        |         |        |       | (7,857 | )     
|                                               |                                                                                   |                                                 | Other assets                          |                                                     |       | 94                  |        |              |       | (257         | )       |        |       | (732   | )     
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|                                               |                                                                                   |                                                 |                                       | Net cash provided by operating activities           |       |                     | 7,307  |              |       |              | 25,258  |        |       |        | 28,838 |  
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Cash flows from investing activities:          |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |       
|                                               | Purchase of property, plant and equipment                                         |                                                 |                                       | (1,675                                              | )     |                     |        | (2,698       | )     |              |         | (1,695 | )    
|                                               | Purchase of business                                                              |                                                 |                                       | (3,744                                              | )     |                     |        | (11,499      | )     |              |         |       |      
|                                               | Purchase of investments in technology                                             |                                                 |                                       |                                                    |       |                     |        | (4,500       | )     |              |         | (1,000 | )    
|                                               | Purchase of short and long-term investments                                       |                                                 |                                       |                                                    |       |                     |        | (27,796      | )     |              |         | (9,446 | )    
|                                               | Sale of short and long-term investments                                           |                                                 |                                       |                                                    |       |                     |        |             |       |              |         | 37,242 |      
|                                               | Purchase of other intangibles                                                     |                                                 |                                       | (2,611                                              | )     |                     |        | (1,500       | )     |              |         | (1,010 | )    
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|                                               |                                                                                   |                                                 |                                       | Net cash (used in) provided by investing activities |       |                     | (8,030 | )            |       |              | (47,993 | )      |       |        | 24,091 |  
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Cash flows from financing activities:          |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |       
|                                               | Issuance of common stock                                                          |                                                 |                                       | 63,343                                              |       |                     |        | 55,059       |       |              |         | 2,351  |      
|                                               | Borrowings on long-term debt                                                      |                                                 |                                       | 4,700                                               |       |                     |        |             |       |              |         |       |      
|                                               | Payments on long-term debt                                                        |                                                 |                                       | (61,508                                             | )     |                     |        | (15,583      | )     |              |         | (4,909 | )    
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|                                               |                                                                                   |                                                 |                                       | Net cash provided by (used in) financing activities |       |                     | 6,535  |              |       |              | 39,476  |        |       |        | (2,558 | )
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Effect of exchange rates                       |                                                                                   |                                                 | (587                                  | )                                                   |       |                     | (151   | )            |       |              | 303     |       
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Net increase in cash and cash equivalents      |                                                                                   |                                                 | 5,225                                 |                                                     |       |                     | 16,590 |              |       |              | 50,674  |       
|Cash and cash equivalents at beginning of year |                                                                                   |                                                 | 6,940                                 |                                                     |       |                     | 12,165 |              |       |              | 28,755  |       
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Cash and cash equivalents at end of year       |                                                                                   | $                                               | 12,165                                |                                                     |       | $                   | 28,755 |              |       | $            | 79,429  |       
|                                               |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |        |      
|Supplemental disclosure:                       |                                                                                   |                                                 |                                       |                                                     |       |                     |        |              |       |              |         |       
|Cash paid for interest                         |                                                                                   | $                                               | 7,542                                 |                                                     |       | $                   | 3,403  |              |       | $            | 2,447   |       
|Cash paid for taxes                            |                                                                                   | $                                               | 56                                    |                                                     |       | $                   | 2,084  |              |       | $            | 10,308  |       

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

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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business Description and Significant Accounting Policies

Business Description

American Medical Systems Holdings, Inc. (the
Company), manufactures and markets a
broad and well-established line of proprietary surgical products directly to
urologists and gynecologists. The Company principally focuses on four major
urological and gynecological disorders: male incontinence, female incontinence,
erectile dysfunction, and prostate disease.

Principles of Consolidation

The consolidated financial statements include the accounts of American Medical
Systems Holdings, Inc. and its subsidiaries after elimination of all
significant intercompany transactions and accounts.

Accounting periods

Effective January 1, 2001, the Company changed its fiscal year end from a
calendar year ending on December 31 to a 52 or 53-week fiscal year ending on
the Saturday nearest December 31. Accordingly, fiscal years 2000, 2001, and
2002 ended on December 31, 2000, December 29, 2001, and December 28, 2002, and
are identified herein as 2000, 2001, and 2002.

Cash and Cash Equivalents

For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. The Companys cash and cash equivalent balances are
concentrated primarily with one investment manager and the majority is invested
in daily money market funds.

Short and Long-Term Investments

The Company considered investments with an original maturity longer than three
months but less than one year short-term investments. Investments with an
original maturity longer than one year were classified as long-term
investments. The Companys investments are concentrated primarily with one
investment manager and were invested in asset backed securities, commercial
paper, corporate bonds, and government securities. Investments were classified
as available for sale and were carried at cost, which approximated market.

Concentration of Risks

The Companys accounts receivable are primarily due from hospitals and
independent foreign distributors located mainly in the United States and
Western Europe. Although the Company does not require collateral from its
customers, concentrations of credit risk in the United States are somewhat
mitigated by a large number of geographically dispersed customers. The Company
does not presently anticipate credit risk associated with foreign trade
receivables, although collection could be impacted by the underlying economies
of the respective countries.

Inventories

Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.

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Property, Plant and Equipment

Property, plant and equipment, and computer software, are carried at cost less
accumulated depreciation. Depreciation and amortization are generally recorded
using the straight-line method over the following estimated useful asset lives:

|                              |  |           
|----------------------------- |  | ----------
|Building                      |  | 20 years  
|Machinery and equipment       |  | 8-12 years
|Furniture, fixtures and other |  | 3-12 years
|Software                      |  | 3-5 years 

Maintenance, repairs and minor improvements are charged to expense as incurred.
Significant improvements are capitalized. When assets are sold or retired,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gain or loss is included in operations.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price over the fair value of net assets
of acquired businesses. With the adoption of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assetson December 30,
2001, the first day of fiscal 2002, the Company no longer amortizes goodwill,
but instead is required to test for impairment at least annually. See Note 5
for the pro forma effects of adopting this standard.

Other intangible assets include patents, non-compete agreements, tradenames,
and developed research and development technologies; and are amortized using
the straight-line method over their respective estimated useful lives. SFAS
No. 142 requires that intangible assets with definite useful lives be reviewed
for impairment in accordance with SFAS No. 144, Accounting for the Impairment
and Disposal of Long-Lived Assets.

Long-Lived Assets

The Company follows SFAS No. 144, which requires impairment losses to be
recorded on long-lived assets used in operations when events and circumstances
indicate the assets may be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of those
assets. If an impairment exists, the Company measures the impairment utilizing
discounted cash flows.

Revenue Recognition

A significant portion of Company revenue is generated from inventory
temporarily loaned to customers or from consigned inventory maintained at
hospitals or with field representatives. In these situations, revenue is
recognized at the time that the product has been implanted or used. In all
other instances, revenue is recognized at the time product is shipped, net of
allowances for estimated returns.

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are charged to operations in the year incurred. Advertising
costs charged to operations during the years ended 2000, 2001, and 2002 were
$2.6 million, $2.1 million, and $2.5 million.

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Product Warranty Costs

The Company provides a warranty on its products and accrues estimated future
warranty costs based on its history of actual warranty costs incurred.
Warranty costs are included as part of cost of sales.

Software Development Costs

The Company capitalizes certain costs incurred in connection with developing or
obtaining software for internal use in accordance with AICPA Statement of
Position 98-1, Accounting For Computer Software Developed For Or Obtained For
Internal Use.

Income Taxes

The Company accounts for income taxes using the liability method. With this
method, deferred tax assets and liabilities are recorded based on the
differences between the tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes using enacted tax rates in effect in
the years in which the differences are expected to reverse.

Foreign Currency Translation

The financial statement amounts attributed to operations outside the United
States are maintained in their local currency. All assets and liabilities of
the Companys international subsidiaries are translated to United States
dollars at year-end exchange rates, while elements of the statement of
operations are translated at average exchange rates in effect during the year.
Translation adjustments arising from the use of differing exchange rates are
included in accumulated other comprehensive loss in stockholders equity.
Gains and losses on foreign currency transactions are included in other income
(loss) and were not material during the periods presented.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of managements estimates relate to the determination
of the allowances for doubtful accounts receivable, obsolete inventories,
and product warranty; the extent of the contingency for product liability claims;
and the need for a valuation allowance on deferred tax assets. The Company is
subject to risks and uncertainties, such as changes in the health care
environment, competition, and legislation that may cause actual results to
differ from estimated results.

Stock Based Compensation

At December 28, 2002, the Company has one stock-based employee compensation
plan, which is described more fully in Note 8. The Company accounts for this
plan under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees,and related interpretations. The
exercise price of the Companys employee stock options generally
equals the
market price of the underlying stock on the date of grant for all options
granted, and thus, under APB 25, no compensation expense is recognized.
However, during 2000, the Company recognized deferred compensation of $1.4
million, reflecting the excess of the fair value of the underlying stock on the
date of grant over the exercise price. The deferred compensation is being
amortized over vesting periods of two to four years.

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The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation,to stock-based
employee compensation.

|                                                                                                                                              |                       |      |      |      |  |      |        |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ---- | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|(in thousands, except per share data)                                                                                                         |                       | 2000 |      | 2001 |  | 2002
|                                                                                                                                              |                       |      |      |      |  |     
|Net income, as reported                                                                                                                       |                       | $    | 52   |      |  | $    | 6,530  |      |  | $ | 24,886 |     
|Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects                                    |                       |      | 435  |      |  |      | 446    |      |  |   | 176    |     
|Subtract: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects |                       |      | (348 | )    |  |      | (1,860 | )    |  |   | (3,389 | )   
|                                                                                                                                              |                       |      |      |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                                          |                       | $    | 139  |      |  | $    | 5,116  |      |  | $ | 21,673 |     
|                                                                                                                                              |                       |      |      |      |  |      |        |      |  |   |        |     
|Earnings per share:                                                                                                                           |                       |      |      |      |  |      |        |      |  |   |        |     
|                                                                                                                                              | Basic  as reported   |      | $    | 0.00 |  |      | $      | 0.22 |  |   | $      | 0.77 | 
|                                                                                                                                              | Basic  pro forma     |      | $    | 0.01 |  |      | $      | 0.17 |  |   | $      | 0.67 | 
|                                                                                                                                              | Diluted  as reported |      | $    | 0.00 |  |      | $      | 0.20 |  |   | $      | 0.73 | 
|                                                                                                                                              | Diluted  pro forma   |      | $    | 0.02 |  |      | $      | 0.18 |  |   | $      | 0.65 | 

Earnings per Share

The following table presents information necessary to calculate basic and
diluted earnings per common share and common share equivalents for the years
ended 2000, 2001, and 2002.

|                                                                                                    |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|(In thousands, except per share data)                                                               |  | 2000 |        | 2001 |  | 2002
|                                                                                                    |  |      |        |      |  |     
|Earnings                                                                                            |  | $    | 52     |      |  | $    | 6,530  |  |  | $ | 24,886 | 
|Weighted-average shares outstanding for
basic earnings per share                                    |  |      | 10,478 |      |  |      | 29,792 |  |  |   | 32,232 | 
|Dilutive effect of stock options                                                                    |  |      | 2,331  |      |  |      | 2,276  |  |  |   | 1,944  | 
|                                                                                                    |  |      |        |      |  |      |        |  |  |   |        | 
|Adjusted weighted-average shares outstanding and
assumed conversions for diluted earnings per share |  |      | 12,809 |      |  |      | 32,068 |  |  |   | 34,176 | 
|                                                                                                    |  |      |        |      |  |      |        |  |  |   |        | 
|Basic earnings per share                                                                            |  | $    | 0.00   |      |  | $    | 0.22   |  |  | $ | 0.77   | 
|Diluted earnings per share                                                                          |  | $    | 0.00   |      |  | $    | 0.20   |  |  | $ | 0.73   | 

Reclassification

Certain 2000 and 2001 amounts have been reclassified to conform to the 2002
presentation.

2. Acquisitions

Influence

On December 16, 1999, the Company acquired Influence Inc., a supplier of bone
anchors and sling products used in the treatment of female incontinence.
During 2000 and 2001,the Company made contingent purchase price and milestone
payments totaling $15.7 million that have been recorded as goodwill. In
September 2001, the Company acquired the minority interest relating to the
original acquisition of Influence, Inc., and in December 2001 made the final
milestone payment relating to this minority interest, by issuing 214,436 shares
of common stock valued at $3.2 million. The issuance of this common stock has
been recorded as goodwill. The Company has made all contingent purchase price
and milestone payments required under the acquisition agreement.

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Investments in Technology

On October 4, 1999, the Company signed an exclusive, long-term agreement with
InjecTx to distribute its injection system worldwide. The Company made an
initial $2.0 million equity investment in InjecTx in October 1999 and
additional equity investments of $1.5 million in March 2001 and $1.0 million in
May 2002. The Company currently owns 19% of the capital stock of InjecTx.
This investment will continue to be accounted for on a cost basis.

On January 5, 2001, the Company made a $3.0 million equity investment in
Collagenesis Corporation. At the time of the investment, Collagenesis was
working with its existing debt holders to exchange its outstanding debt into
equity and raise additional capital. Pursuant to the terms of the agreement
with Collagenesis, the Company converted its equity position into a $3.0
million 10% Senior Subordinated Convertible Voting Promissory Note in April
2001. In December 2001, Collagenesis declared bankruptcy and during 2002 was
liquidated with the Company receiving no proceeds from the liquidation of the
Collagenesis assets. During the year ended 2001, the investment in
Collagenesis was written off and charged to other expense.

3. Transition and Reorganization Expense

In the second quarter of 2000, the Company completed an assessment of senior
management personnel needs. As a result of this review, the Company incurred
$1.0 million of transition and reorganization expenses for the year ended
December 31, 2000, primarily related to employee termination benefits. Seven
employees were terminated as a result of this reorganization. In the third
quarter of 2001, the Company completed another assessment of senior management
personnel needs. As a result of this review, the Company recorded $1.0 million
of transition and reorganization expenses for the year ended December 29, 2001.
Four employees resigned or were terminated as a result of this reorganization.
All benefits under Company transition and reorganization plans have been paid
as of December 28, 2002.

Below is a summary of transition and reorganization expenditures:

|                             |  |              |        |         |  |        |      |       |  |   |     |   |  |   |        |  
|---------------------------- |  | ------------ | ------ | ------- |  | ------ | ---- | ----- |  | - | --- | - |  | - | ------ | -
|                             |  | Acceleration |        |         |  |        |      |       |  |  
|                             |  |              |        |         |  |        |      |       |  |  
|                             |  |              |        |         |  | Stock  |      |       |  |   |     |   |  |  
|                             |  |              |        |         |  | Option |      |       |  |   |     |   |  |  
|(thousands)                  |  | Severance    |        | Vesting |  | Other  |      | Total
|                             |  |              |        |         |  |        |      |      
|Balance at
December 31, 1999 |  | $            | 878    |         |  | $      | 0    |       |  | $ | 51  |   |  | $ | 929    |  
|Accrued                      |  |              | 1,000  |         |  |        |     |       |  |   |    |   |  |   | 1000   |  
|Paid                         |  |              | (1,213 | )       |  |        |     |       |  |   | (51 | ) |  |   | (1,264 | )
|                             |  |              |        |         |  |        |      |       |  |   |     |   |  |   |        |  
|Balance at
December 31, 2000 |  |              | 665    |         |  |        |     |       |  |   |    |   |  |   | 665    |  
|Accrued                      |  |              | 222    |         |  |        | 747  |       |  |   | 31  |   |  |   | 1,000  |  
|Paid                         |  |              | (695   | )       |  |        | (747 | )     |  |   | (31 | ) |  |   | (1,473 | )
|                             |  |              |        |         |  |        |      |       |  |   |     |   |  |   |        |  
|Balance at
December 29, 2001 |  |              | 192    |         |  |        |     |       |  |   |    |   |  |   | 192    |  
|Accrued                      |  |              |       |         |  |        |     |       |  |   |    |   |  |   |       |  
|Paid                         |  |              | (192   | )       |  |        |     |       |  |   |    |   |  |   | (192   | )
|                             |  |              |        |         |  |        |      |       |  |   |     |   |  |   |        |  
|Balance at
December 28, 2002 |  |              |       |         |  |        |     |       |  |   |    |   |  |   |       |  
|                             |  |              |        |         |  |        |      |       |  |   |     |   |  |   |        |  

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4. Balance Sheet Information

The following provides additional information concerning selected balance sheet
accounts (in thousands):

|                                    |                                 |   |         |        |      |   |         |        |  
|----------------------------------- | ------------------------------- | - | ------- | ------ | ---- | - | ------- | ------ | -
|                                    |                                 |   | 2001    |        | 2002
|                                    |                                 |   |         |        |     
|Accounts receivable, net:           |                                 |   |         |        |      |   |         |       
|                                    | Trade accounts receivable       |   | $       | 24,926 |      |   | $       | 25,973 |  
|                                    | Other receivables               |   |         | 1,182  |      |   |         | 2,191  |  
|                                    | Allowance for doubtful accounts |   |         | (802   | )    |   |         | (956   | )
|                                    |                                 |   |         |        |      |   |         |        |  
|                                    |                                 | $ | 25,306  |        |      | $ | 27,208  |       
|                                    |                                 |   |         |        |      |   |         |        |  
|Inventories:                        |                                 |   |         |        |      |   |         |       
|                                    | Raw materials                   |   | $       | 3,366  |      |   | $       | 4,147  |  
|                                    | Work-in-progress                |   |         | 2,210  |      |   |         | 1,938  |  
|                                    | Finished goods                  |   |         | 11,114 |      |   |         | 10,138 |  
|                                    | Obsolescence allowance          |   |         | (2,699 | )    |   |         | (2,748 | )
|                                    |                                 |   |         |        |      |   |         |        |  
|                                    |                                 | $ | 13,991  |        |      | $ | 13,475  |       
|                                    |                                 |   |         |        |      |   |         |        |  
|Property, plant and equipment, net: |                                 |   |         |        |      |   |         |       
|                                    | Land and building               |   | $       | 13,664 |      |   | $       | 13,915 |  
|                                    | Machinery and equipment         |   |         | 12,567 |      |   |         | 13,071 |  
|                                    | Furniture, fixtures and other   |   |         | 2,764  |      |   |         | 2,812  |  
|                                    | Software                        |   |         | 5,872  |      |   |         | 5,987  |  
|                                    |                                 |   |         |        |      |   |         |        |  
|                                    |                                 |   | 34,867  |        |      |   | 35,785  |       
|Accumulated depreciation            |                                 |   | (11,263 | )      |      |   | (14,457 | )     
|                                    |                                 |   |         |        |      |   |         |        |  
|                                    |                                 | $ | 23,604  |        |      | $ | 21,328  |       
|                                    |                                 |   |         |        |      |   |         |        |  

5. Goodwill and Intangible Assets

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.
Under SFAS No. 142, goodwill and other intangible assets with indefinite lives
are not amortized, but tested for impairment annually, or whenever there is an
impairment indicator. In addition, upon adoption of SFAS No. 142, all goodwill
is assigned to reporting units for purposes of impairment testing. Intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their estimated useful
lives.

The Company adopted SFAS No. 142 on December 30, 2001, the first day of fiscal
2002. SFAS No. 142 requires goodwill and intangible assets with indefinite
lives be tested for impairment at a reporting unit level at adoption and at
least once annually. An impairment charge is recognized only when the
calculated fair value of a reporting unit, including goodwill, is less than its
carrying amount. In accordance with SFAS 142, the Company completed the
required impairment tests of goodwill and intangible assets with indefinite
lives and determined the fair value to be in excess of the carrying value of
these assets, and therefore there was no indication of impairment.

The following table presents a reconciliation of net income and earnings per
share adjusted for the exclusion of goodwill amortization, net of income taxes:

|                                        |  |      |       |      |  |      |        |  |  |   |        | 
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|(In thousands, except per share data)   |  | 2000 |       | 2001 |  | 2002
|                                        |  |      |       |      |  |     
|Net income                              |  | $    | 52    |      |  | $    | 6,530  |  |  | $ | 24,886 | 
|Add goodwill amortization, net of taxes |  |      | 2,904 |      |  |      | 4,218  |  |  |   |       | 
|                                        |  |      |       |      |  |      |        |  |  |   |        | 
|Adjusted net income                     |  | $    | 2,956 |      |  | $    | 10,748 |  |  | $ | 24,886 | 
|                                        |  |      |       |      |  |      |        |  |  |   |        | 
|Adjusted diluted earnings per share     |  | $    | 0.23  |      |  | $    | 0.34   |  |  | $ | 0.73   | 
|                                        |  |      |       |      |  |      |        |  |  |   |        | 

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The changes in carrying amount of goodwill for the years ended 2001 and 2002
are as follows:

|                           |  |      |        |      |  |   |        | 
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|(in thousands)             |  | 2001 |        | 2002
|                           |  |      |        |     
|Balance, beginning of year |  | $    | 75,708 |      |  | $ | 80,607 | 
|Additions                  |  |      | 10,457 |      |  |   |       | 
|Amortization               |  |      | (5,558 | )    |  |   |       | 
|                           |  |      |        |      |  |   |        | 
|Balance, end of year       |  | $    | 80,607 |      |  | $ | 80,607 | 
|                           |  |      |        |      |  |   |        | 

Additions to goodwill in 2001 were contingent purchase price and milestone
payments related to the Influence acquisition.

The following provides additional information concerning goodwill and
intangible assets:

|                  |                                    |                          |        |         |        |   |        |         |        | 
|----------------- | ---------------------------------- | ------------------------ | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|(in thousands)    |                                    | 2001                     |        | 2002   
|                  |                                    |                          |        |        
|Goodwill          |                                    |                          |        |         |        |   |        |        
|                  | Goodwill                           |                          | $      | 94,553  |        |   | $      | 94,553  |       
|                  | Accumulated amortization           |                          |        | (13,946 | )      |   |        | (13,946 | )     
|                  |                                    |                          |        |         |        |   |        |         |       
|                  |                                    | $                        | 80,607 |         |        | $ | 80,607 |        
|                  |                                    |                          |        |         |        |   |        |         |       
|Intangible assets |                                    |                          |        |         |        |   |        |        
|                  | Indefinite-lived assets
Trademarks |                          | $      | 2,233   |        |   | $      | 2,233   |       
|                  | Definite-lived assets              |                          |        |         |        |   |        |         |       
|                  |                                    | Developed technologies   |        |         | 12,073 |   |        |         | 12,073 | 
|                  |                                    | Patents                  |        |         | 9,683  |   |        |         | 9,693  | 
|                  |                                    | Licenses                 |        |         | 1,762  |   |        |         | 2,762  | 
|                  |                                    | Non-compete agreements   |        |         | 1,111  |   |        |         | 1,111  | 
|                  |                                    | Deferred financing costs |        |         | 1,611  |   |        |         | 1,611  | 
|                  |                                    |                          |        |         |        |   |        |         |       
|                  |                                    |                          | 28,473 |         |        |   | 29,483 |        
|                  | Accumulated amortization           |                          |        | (9,597  | )      |   |        | (13,792 | )     
|                  |                                    |                          |        |         |        |   |        |         |       
|                  |                                    | $                        | 18,876 |         |        | $ | 15,691 |        
|                  |                                    |                          |        |         |        |   |        |         |       

Under the provisions of SFAS No. 142, trademarks have been classified as an
indefinite-lived asset, and accordingly, are no longer being amortized.
Definite-lived intangibles are being amortized over periods ranging from two to
ten years.

6. Long-Term Debt

Senior Credit Facility

In April 2000, the Company established a new credit facility, consisting of a
$65.0 million term note, a $35.0 million guaranteed note, and a $15.0 million
guaranteed revolving line of credit. Subsequent to December 31, 2000, the
guarantee on the revolving line of credit was removed. During 2000, the
Company used proceeds from its initial public offering to pay $35.0 million
outstanding under the guaranteed note, approximately $6.0 million under its
then guaranteed revolving line of credit, and a $15.0 million prepayment under
the $65.0 million term note. In addition, during 2000, the Company has made
quarterly principal payments aggregating $5.5 million under the $65.0 million
term note. During 2001, the Company prepaid another $11.5 million under the
$65.0 million term note and a total of $4.1 million in quarterly principal
payments. During 2002, the Company made total quarterly principal payments of
$4.9 million. The term note now requires quarterly principal payments of $1.3
million through March 2003, $1.6 million from June 2003 through March 2004, and
$1.8 million from June 2004 through March 2006.

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The Company has an interest swap agreement covering the term
note, establishing a fixed rate of 10.065% on this portion of the debt. The
term note bears interest, payable quarterly, at the Base Rate (the higher of
the Federal Funds rate plus 0.5% or the Prime Rate) plus from 1% to 2% for Base
Rate loans, or LIBOR plus 2% to 3% for Eurodollar loans. On December 28, 2002,
the Base Rate was 5.25% and LIBOR was 1.41%. Through December 28, 2002, the
Company has only requested Eurodollar loans.

The debt carrying value of the $24.0 million outstanding at December 28, 2002,
approximates fair value estimated using the Companys incremental borrowing
rate for similar liabilities. The senior credit facility is secured by
substantially all of the Companys assets. The Company is subject to, and is
in compliance with, certain covenants including ratios related to fixed charge
coverage and leverage. The Company is prohibited from paying dividends under
its senior credit facility without the lenders consent.

Derivatives and Hedging

The Company adopted Statement of Financial Accounting Standards No. 133, as
amended by SFAS No. 138, Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001. SFAS 133 requires that all derivatives be
recorded on the consolidated balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in earnings or other
comprehensive income (loss) (OCI) depending on the type of hedging instrument
and the effectiveness of those hedges. In accordance with the transition
provisions of SFAS 133, the Company recorded a cumulative loss adjustment to
OCI of $0.7 million, after taxes, to recognize the fair value of its
derivatives as of the date of adoption.

All of the derivatives used by the Company were designated as cash flow hedges
at the time of adoption of SFAS 133. The effective portion of the cumulative
gain or loss on the derivative instrument is reported as a component of OCI in
stockholders equity and recognized in earnings in the same period or periods
during which the hedged transaction affects earnings. The ineffective portion
of the derivative instrument, if any, is reported as part of other expense and
was immaterial in 2001 and 2002. All derivatives are adjusted to their fair
market values at the end of each quarter. Unrealized net gains and losses for
cash flow hedges, net of any amounts reported as part of interest expense, are
recorded in OCI. The Companys credit risk related to derivatives is
considered low because they are entered into with only strong creditworthy
counterparties.

As of December 28, 2002, all of the Companys derivatives, designated as
hedges, are interest rate swaps. They do not qualify for evaluation using the
short cut method for assessing effectiveness as all critical terms of the swap
did not match those of the variable rate note. As such, there is an assumption
of ineffectiveness. The Company hedged a portion of its original $65.0 million
variable rate term note, as required by its senior credit facility, by entering
into an interest rate swap agreement in which the Company agreed to exchange,
at specified intervals, the calculated difference between the fixed interest
rate of the swap and the variable interest rate on a portion of its debt. This
interest rate swap agreement expires June 30, 2003. The Company expects that
pre-tax losses totaling approximately $0.9 million, which are recorded in OCI
at December 28, 2002 and represent the difference between the fixed rate of the
swap agreement and variable interest of the term note, will be recognized
within the next twelve months as part of interest expense. At December 28,
2002, the fair value of the interest rate swap, based upon quoted market prices
for contracts with similar maturities, was approximately $0.9 million. For 2002, unrealized net losses totaling $0.3 million after taxes were
recorded in OCI. Pre-tax realized losses of $1.6 million were transferred to
interest expense from OCI.

7. Investments

The Companys investments were classified as available-for-sale and were
carried at cost, which approximated market. At December 29, 2001, the Company
had investments in debt securities, classified as available-for-sale, with a
fair market value and cost of $27.8 million.

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The contractual maturities of these available-for-sales debt securities on
December 29, 2001, were as follows:

|                      |  |          |       |      |  |        |        |  |  |   |        | 
|--------------------- |  | -------- | ----- | ---- |  | ------ | ------ |  |  | - | ------ | 
|                      |  | Years    |       |      |  |       
|                      |  |          |       |      |  |       
|                      |  |          |       |      |  | Over 1 |        |  |  |  
|                      |  | Within 1 |       | to 5 |  | Total 
|                      |  |          |       |      |  |       
|Asset-backed debt     |  | $        | 0     |      |  | $      | 13,615 |  |  | $ | 13,615 | 
|Commercial paper debt |  |          | 993   |      |  |        |       |  |  |   | 993    | 
|Corporate debt        |  |          | 5,433 |      |  |        | 2,065  |  |  |   | 7,498  | 
|U.S. agency debt      |  |          | 2,587 |      |  |        | 3,103  |  |  |   | 5,690  | 
|                      |  |          |       |      |  |        |        |  |  |   |        | 
|Total investments     |  | $        | 9,013 |      |  | $      | 18,783 |  |  | $ | 27,796 | 
|                      |  |          |       |      |  |        |        |  |  |   |        | 

8. Stockholders Equity

Public Offerings

In August 2000, the Company completed an initial public offering of 6,250,000
shares of common stock at an offering price of $11.00 per share. The Company
received proceeds of $62.9 million after deducting $5.8 million for
underwriting and issuance costs. Net proceeds were used for the retirement of
debt, working capital, and other general corporate purposes.

In July 2001, the Company completed a follow-on public offering of 3,500,000
shares of common stock at an offering price of $16.40 per share. The Company
received proceeds of $53.8 million after deducting $3.7 million for
underwriting and issuance costs. Net proceeds were used for the retirement of
debt, working capital, and other general corporate purposes.

Preferred Stock

In conjunction with the Companys initial public offering of common stock, all
outstanding shares of Preferred Stock and cumulative dividends were converted
into shares of voting and non-voting common stock. Series A Preferred Stock
and accumulated dividends totaling $32.5 million were converted into 242,895
shares of voting common stock and 2,712,945 shares of non-voting common stock.
Series B Preferred Stock and accumulated dividends totaling $3.8 million were
converted into 2,265,939 shares of voting common stock. Series C Preferred
Stock and accumulated dividends totaling $18.9 million were converted into
11,355,297 shares of non-voting common stock. Series D Preferred Stock and
accumulated dividends totaling $3.5 million were converted into 1,057,014
shares of voting common stock. Series E Preferred Stock and accumulated
dividends totaling $12.1 million were converted into 3,634,959 shares of
non-voting common stock. Subsequent to the Companys initial public offering,
15,330,260 shares of non-voting common stock have been converted into voting
common stock. Since conversion, Series A through E of Preferred Stock have
been cancelled and are not re-issuable.

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Stock Incentive Plan

The Companys 2000 Equity Incentive Plan, as amended, provides for granting to
eligible employees and certain other individuals nonqualified and incentive
stock options. The Company has reserved 5,355,000 shares of common stock for
issuance under the Plan at December 28, 2002. Twenty-five percent of the
options granted under the Plan generally become exercisable on the first
anniversary date of the grant and 6.25% at the end of each quarter thereafter.
The options typically expire, if not exercised, ten years after the date of
grant. Options are granted at the fair market value on the date of the grant.
Activity in the Plan was as follows:

|                             |                         |  |           |          |                |   |          |       | 
|---------------------------- | ----------------------- |  | --------- | -------- | -------------- | - | -------- | ----- | 
|                             |                         |  |           |          |                |   | Weighted
|                             |                         |  |           |          |                |   | Average 
|                             |                         |  | Number    |          | Exercise Price
|                             |                         |  | of Shares |          | Per Share     
|                             |                         |  |           |          |               
|Balance at December 31, 1999 |                         |  | 2,694,000 |          |                | $ | 1.67     |      
|                             | Granted                 |  |           | 878,150  |                |   |          | 7.76  | 
|                             | Exercised               |  |           | (245,779 | )              |   |          | 1.67  | 
|                             | Cancelled or terminated |  |           | (180,301 | )              |   |          | 2.00  | 
|                             |                         |  |           |          |                |   |          |      
|Balance at December 31, 2000 |                         |  | 3,146,070 |          |                |   | 3.35     |      
|                             | Granted                 |  |           | 899,875  |                |   |          | 13.23 | 
|                             | Exercised               |  |           | (424,938 | )              |   |          | 1.74  | 
|                             | Cancelled or terminated |  |           | (123,327 | )              |   |          | 4.78  | 
|                             |                         |  |           |          |                |   |          |      
|Balance at December 29, 2001 |                         |  | 3,497,680 |          |                |   | 6.03     |      
|                             | Granted                 |  |           | 680,555  |                |   |          | 20.45 | 
|                             | Exercised               |  |           | (495,126 | )              |   |          | 3.35  | 
|                             | Cancelled or terminated |  |           | (267,989 | )              |   |          | 10.63 | 
|                             |                         |  |           |          |                |   |          |      
|Balance at December 28, 2002 |                         |  | 3,415,120 |          |                | $ | 8.93     |      
|                             |                         |  |           |          |                |   |          |      

Options to purchase 771,512 common shares are available for grant under the
Plan at December 28, 2002. At the end of 2000, 2001, and 2002, 1,072,244, 1,376,780, and 1,831,121 shares were exercisable. Exercise prices
and weighted-average remaining contractual life for options outstanding as of
December 28, 2002 are summarized as follows:

|                |       |            |                     |             |                     |           |           |           |       |          |  |  |           |           |  |   |       |      |  |  | 
|--------------- | ----- | ---------- | ------------------- | ----------- | ------------------- | --------- | --------- | --------- | ----- | -------- |  |  | --------- | --------- |  | - | ----- | ---- |  |  | 
|                |       |            | Options Outstanding |             | Options Exercisable
|                |       |            |                     |             |                    
|                |       |            |                     |             |                     |           | Weighted  |           |       |          |  |  |           |           |  |   |       |      | 
|                |       |            | Number              |             | Average             |           | Weighted  |           |       |          |  |  | Weighted 
|                |       |            | Outstanding         |             | Remaining           |           | Average   |           |       |          |  |  | Average  
|Range of        |       | as of      |                     | Contractual |                     | Exercise  |           | Number    |       | Exercise
|Exercise Prices |       | 12/28/2002 |                     | Life        |                     | Price     |           | of Shares |       | Price   
|                |       |            |                     |             |                     |           |           |           |       |         
|                | $1.67 |            |                     | 1,586,639   |                     |           | 6.3 years |           | $     | 1.67     |  |  |           | 1,370,422 |  |   | $     | 1.67 | 
|$6.67 - $11.49  |       |            | 483,338             |             |                     | 7.9 years |           |           | 9.04  |          |  |  | 215,363   |           |  |   | 9.06  |     
|$12.56 - $17.00 |       |            | 825,693             |             |                     | 8.6 years |           |           | 15.04 |          |  |  | 245,336   |           |  |   | 14.53 |     
|$20.30 - $22.71 |       |            | 519,450             |             |                     | 9.2 years |           |           | 21.29 |          |  |  |          |           |  |   |      |     
|                |       |            |                     |             |                     |           |           |           |       |          |  |  |           |           |  |   |       |      | 
|                |       |            | 3,415,120           |             |                     | 7.5 years |           | $         | 8.93  |          |  |  | 1,831,121 |           |  | $ | 4.26  |     
|                |       |            |                     |             |                     |           |           |           |       |          |  |  |           |           |  |   |       |      | 

Pro forma information regarding net income and income per share is required by
Statement 123, and as amended by Statement 148, has been determined as if the Company had accounted for its
employee stock options under the fair value method of Statement 123. The fair
value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

|                                         |  |         |              |         |  |         |       |  |  |  |       | 
|---------------------------------------- |  | ------- | ------------ | ------- |  | ------- | ----- |  |  |  | ----- | 
|                                         |  | 2000    |              | 2001    |  | 2002   
|                                         |  |         |              |         |  |        
|Risk free interest rate                  |  |         | 5.75%        |         |  |         | 4.25% |  |  |  | 3.00% | 
|Stock price volatility                   |  |         | 0001 - .8256 |         |  |         | .4582 |  |  |  | .6175 | 
|Expected dividend rate                   |  |         | 0%           |         |  |         | 0%    |  |  |  | 0%    | 
|Weighted-average expected life
of option |  | 5 years |              | 5 years |  | 5 years

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The weighted average fair value of options granted during 2000, 2001, and 2002
was $3.98, $6.03, and $9.66.

In managements opinion, the existing models do not provide a reliable single
measure of the fair value of its employee stock options because the Companys
employee stock options have characteristics significantly different from those
of traded options and have vesting restrictions, and because changes in the
subjective input assumptions can materially affect the fair value estimates.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require input of
highly subjective assumptions.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (ESPP) that allows employees
to elect, at three-month intervals, to contribute up to 10 percent of their
compensation, subject to certain limitations, to purchase shares of common
stock at the lower of 85 percent of the fair market value on the first or last
day of each quarter. A total of 300,000 common shares are reserved for
issuance under the ESPP and through December 28, 2002, 96,720 shares have been
issued.

9. Commitments and Contingent Liabilities

The Company is self-insured on product liability claims below $1 million for
each occurrence and $3 million in the aggregate, and maintains product
liability insurance above these limitations. Product liability events and
claims prior to the September 1998 acquisition of the Company from Pfizer are
the responsibility of Pfizer.

The Company is involved in a number of claims and lawsuits considered normal in
its business, including product liability matters. While it is not possible to
predict the outcome of legal actions brought against the Company, the Company
believes that the liability resulting from the pending claims and suits would
not have a material adverse effect on its financial position at December 28,
2002, or, on the results of its operations and cash flows for the year then
ended.

The Company has future minimal rental payments as of December 28, 2002, as
follows: $636,000 for 2003, $331,000 for 2004, $217,000 for 2005, $183,000 for
2006, and $166,000 for 2007.

Rent expense was $1.5 million, $1.6 million, and $1.3 million for the years
ended 2000, 2001, and 2002.

10. Industry Segment Information and Foreign Operations

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

The Company distributes its products through its direct sales force and
independent sales representatives in the United States, Canada, Australia, and most of
Europe. Additionally, the Company distributes its products through foreign
independent distributors, primarily in Europe and Asia, who then market the
products directly to medical institutions. No customer or distributor
accounted for 10 percent or more of the Companys net sales during 2000, 2001,
and 2002. Foreign subsidiary sales are predominantly to customers in Western
Europe, Australia, and Canada. Substantially all of the Companys foreign
subsidiary assets are located in Western Europe, Australia, and Canada. At
December 29, 2001 and December 28, 2002, consolidated accounts receivable
included $5.8 million and $9.5 million due from customers located outside of
the United States.

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The following table presents net sales and long-lived assets by geographical
territory. No individual foreign countrys net sales or long-lived assets are
material.

|                      |                   |      |            |         |  |      |   |         |  |  |   |         | 
|--------------------- | ----------------- | ---- | ---------- | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                      |                   |      | Year Ended
|                      |                   |      |           
|(in thousands)        |                   | 2000 |            | 2001    |  | 2002
|                      |                   |      |            |         |  |     
|United States         |                   |      |            |         |  |      |   |         |  |  |   |        
|                      | Net sales         |      | $          | 81,670  |  |      | $ | 97,069  |  |  | $ | 116,522 | 
|                      | Long-lived assets |      | $          | 110,522 |  |      | $ | 113,481 |  |  | $ | 110,121 | 
|Outside United States |                   |      |            |         |  |      |   |         |  |  |   |        
|                      | Net sales         |      | $          | 18,647  |  |      | $ | 20,869  |  |  | $ | 25,126  | 
|                      | Long-lived assets |      | $          | 14,076  |  |      | $ | 13,619  |  |  | $ | 12,647  | 

11. Pension and Postretirement Benefits

Prior to 2002, the Company had pension plans covering most employees worldwide.
For U.S. employees, the Company sponsored the AMS Retirement Annuity Plan.
Plan benefits depended on years of service and employee final average earnings.
Participants vested in their benefits after as few as five years of service.

On January 1, 2002, the Company terminated its AMS Retirement Annuity Plan
which covered substantially all U.S. employees hired before January 1, 2000.
Effective December 31, 2001, all benefits ceased accruing with respect to
service and salary. Therefore, benefits were frozen as of that date. In
conjunction with the termination, the Company contributed $5.8 million to the
Plan and recorded a $0.7 million gain on pension plan termination as other
income. Plan assets were distributed to participants during fiscal 2002.

The Company still sponsors a post-retirement plan in the United States, which
provides medical and life insurance benefits to retirees and their eligible
dependents. Employees are eligible if they meet age and service requirements
and qualify for retirement benefits. The Company does not fund other
post-retirement benefit plans, but contributes to the plans as benefits are
paid.

The following tables present reconciliations of the benefit obligation of the
plans, the plan assets of the pension plan and the funded status of the plans
(in thousands):

|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|---------------------------------------- | ---------------------------------------------- | ---- | ------- | ------ | -------------- | ---- | - | ------- | - | - | ------ | ------ | - | - | ------ | ----- | -
|                                         |                                                |      | Pension |        | Other Benefits
|                                         |                                                |      |         |        |               
|(in thousands)                           |                                                | 2001 |         | 2002   |                | 2001 |   | 2002   
|                                         |                                                |      |         |        |                |      |   |        
|Change in benefit obligation:            |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |      
|                                         | Benefit obligation at
beginning of year        |      | $       | 16,695 |                |      | $ | 19,367  |   |   | $      | 2,757  |   |   | $      | 1,726 |  
|                                         | Service cost                                   |      |         | 1,305  |                |      |   |        |   |   |        | 103    |   |   |        | 100   |  
|                                         | Interest cost                                  |      |         | 1,237  |                |      |   |        |   |   |        | 112    |   |   |        | 125   |  
|                                         | Actuarial (gains) or losses                    |      |         | 433    |                |      |   | 6,882   |   |   |        | (92    | ) |   |        | 149   |  
|                                         | Plan amendments                                |      |         |       |                |      |   |        |   |   |        | (1,106 | ) |   |        |      |  
|                                         | Benefit payments                               |      |         | (303   | )              |      |   |        |   |   |        | (32    | ) |   |        | (80   | )
|                                         | Curtailments                                   |      |         |       |                |      |   | (6,206  | ) |   |        |       |   |   |        |      |  
|                                         | Settlements                                    |      |         |       |                |      |   | (20,043 | ) |   |        | (16    | ) |   |        |      |  
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|                                         | Benefit obligation at
end of year              |      | $       | 19,367 |                |      | $ | 0       |   |   | $      | 1,726  |   |   | $      | 2,021 |  
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|Change in plan assets:                   |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |      
|                                         | Fair value of plan assets
at beginning of year |      | $       | 13,034 |                |      | $ | 14,221  |   |   | $      | 0      |   |   | $      | 0     |  
|                                         | Actual return on
plan assets                   |      |         | 733    |                |      |   | 11      |   |   |        |       |   |   |        |      |  
|                                         | Employer contributions                         |      |         | 757    |                |      |   | 5,811   |   |   |        |       |   |   |        |      |  
|                                         | Benefit payments                               |      |         | (303   | )              |      |   | (20,043 | ) |   |        |       |   |   |        |      |  
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|Fair value of plan assets
at end of year |                                                | $    | 14,221  |        |                | $    | 0 |         |   | $ | 0      |        |   | $ | 0      |      
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|Funded status                            |                                                | $    | (5,146  | )      |                | $    | 0 |         |   | $ | (1,726 | )      |   | $ | (2,021 | )    
|Prior service cost                       |                                                |      |        |        |                |      |  |         |   |   | (972   | )      |   |   | (838   | )    
|Unrecognized net
actuarial (gain)        |                                                |      | (889    | )      |                |      |  |         |   |   | (763   | )      |   |   | (394   | )    
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  
|Net amount of (accrued)
benefit cost     |                                                | $    | (6,035  | )      |                | $    | 0 |         |   | $ | (3,461 | )      |   | $ | (3,253 | )    
|                                         |                                                |      |         |        |                |      |   |         |   |   |        |        |   |   |        |       |  

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The weighted-average assumptions used and the annual cost related to these
plans consist of:

|                                         |  |         |        |                |  |      |     |      |  |   |     |   |  |   |     |  
|---------------------------------------- |  | ------- | ------ | -------------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                         |  | Pension |        | Other Benefits
|                                         |  |         |        |               
|                                         |  | 2001    |        | 2002           |  | 2001 |     | 2002
|                                         |  |         |        |                |  |      |     |     
|Discount rate                            |  |         | 7.5    | %              |  |      | N/A |      |  |   | 7.5 | % |  |   | 6.8 | %
|Rate of future compensation
increase     |  |         | 4.5    | %              |  |      | N/A |      |  |   | 4.5 | % |  |   | 6.0 | %
|Expected long-term return
on plan assets |  |         | 8.5    | %              |  |      | N/A |      |  |   | 0.0 | % |  |   | 0.0 | %
|Service cost                             |  | $       | 1,305  |                |  | $    | 0   |      |  | $ | 103 |   |  | $ | 100 |  
|Interest cost                            |  |         | 1,237  |                |  |      |    |      |  |   | 112 |   |  |   | 125 |  
|Amortization of net
actuarial losses     |  |         | (638   | )              |  |      |    |      |  |   | (92 | ) |  |   | 149 |  
|Expected return on plan assets           |  |         | (1,127 | )              |  |      |    |      |  |   |    |   |  |   |    |  
|                                         |  |         |        |                |  |      |     |      |  |   |     |   |  |   |     |  
|Net periodic benefit costs               |  | $       | 777    |                |  | $    | 0   |      |  | $ | 123 |   |  | $ | 375 |  
|                                         |  |         |        |                |  |      |     |      |  |   |     |   |  |   |     |  

An average increase of 6.0 percent in the cost of covered health care benefits
was assumed for 2003 and is projected to gradually decrease to 5.0% for 2004
and remain at that level thereafter. Since the employee subsidy cap is close
to being reached, the health care cost trend rate sensitivity analysis is no
longer applicable.

12. Savings and Investment Plan

The AMS Savings and Investment Plan allows employees in the United States to
contribute a portion of their salaries to the plan. The Company matches a
portion of these contributions. In addition, the Company makes additional
contributions to the Plan based upon operating profit. The plan is intended to
satisfy the requirements of Section 401(a)(27) of the Internal Revenue Code.
Generally, all employees of the Company are eligible to participate in the
plan. The Company made matching contributions of $0.9 million in 2000 and $1.1
million in 2001 and 2002. In addition, the Company made contributions based on operating
profit of $1.1 million in 2002.

13. Income Taxes

Components of the Companys income before income taxes are as follows:

|               |       |      |            |       |  |      |        |        |  |   |        |        | 
|-------------- | ----- | ---- | ---------- | ----- |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|               |       |      | Year Ended
|               |       |      |           
|(in thousands) |       | 2000 |            | 2001  |  | 2002
|               |       |      |            |       |  |     
|Domestic       |       | $    | 57         |       |  | $    | 11,915 |        |  | $ | 40,716 |       
|Foreign        |       |      | 1,364      |       |  |      | 487    |        |  |   | (100   | )     
|               |       |      |            |       |  |      |        |        |  |   |        |       
|               | Total |      | $          | 1,421 |  |      | $      | 12,402 |  |   | $      | 40,616 | 
|               |       |      |            |       |  |      |        |        |  |   |        |       

F-19



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##### Table of Contents



Components of the Companys income tax expense are as follows:

|                |         |      |            |       |  |      |       |       |  |   |        |        | 
|--------------- | ------- | ---- | ---------- | ----- |  | ---- | ----- | ----- |  | - | ------ | ------ | 
|                |         |      | Year Ended
|                |         |      |           
|(in thousands)  |         | 2000 |            | 2001  |  | 2002
|                |         |      |            |       |  |     
|Current
Federal |         | $    | 1,648      |       |  | $    | 4,431 |       |  | $ | 11,125 |       
|                | State   |      |            | 296   |  |      |       | 684   |  |   |        | 953    | 
|                | Foreign |      |            | 518   |  |      |       | 185   |  |   |        |       | 
|Deferred        |         |      | (1,093     | )     |  |      | 572   |       |  |   | 3,652  |       
|                |         |      |            |       |  |      |       |       |  |   |        |       
|                | Total   |      | $          | 1,369 |  |      | $     | 5,872 |  |   | $      | 15,730 | 
|                |         |      |            |       |  |      |       |       |  |   |        |       

A reconciliation of income tax expense computed at the United States statutory
rate to the effective income tax rate is as follows:

|                      |       |      |            |       |  |      |       |       |  |   |        |        | 
|--------------------- | ----- | ---- | ---------- | ----- |  | ---- | ----- | ----- |  | - | ------ | ------ | 
|                      |       |      | Year Ended
|                      |       |      |           
|(in thousands)        |       | 2000 |            | 2001  |  | 2002
|                      |       |      |            |       |  |     
|Statutory rate        |       | $    | 483        |       |  | $    | 4,217 |       |  | $ | 14,216 |       
|Meals &
entertainment |       |      | 165        |       |  |      | 142   |       |  |   | 162    |       
|Goodwill              |       |      | 385        |       |  |      | 639   |       |  |   |       |       
|Foreign               |       |      | 55         |       |  |      | 20    |       |  |   | 3      |       
|Other                 |       |      | 86         |       |  |      | 262   |       |  |   | 106    |       
|State taxes           |       |      | 195        |       |  |      | 592   |       |  |   | 1,243  |       
|                      |       |      |            |       |  |      |       |       |  |   |        |       
|                      | Total |      | $          | 1,369 |  |      | $     | 5,872 |  |   | $      | 15,730 | 
|                      |       |      |            |       |  |      |       |       |  |   |        |       

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Companys deferred income tax assets and liabilities as of December 29,
2001 and December 28, 2002 are as follows (in thousands):

|                               |                                   |      |        |       |   |   |        |       |  
|------------------------------ | --------------------------------- | ---- | ------ | ----- | - | - | ------ | ----- | -
|(in thousands)                 |                                   | 2001 |        | 2002 
|                               |                                   |      |        |      
|Deferred tax assets:           |                                   |      |        |       |   |   |        |      
|                               | Intellectual property             |      | $      | 8,260 |   |   | $      | 7,665 |  
|                               | Foreign NOL/credits               |      |        | 684   |   |   |        | 684   |  
|                               | Pension liability                 |      |        | 1,853 |   |   |        | 1,392 |  
|                               | Accrued warranty expenses         |      |        | 2,883 |   |   |        | 1,720 |  
|                               | Swap                              |      |        | 716   |   |   |        | 327   |  
|                               | UroSurge assets                   |      |        | 483   |   |   |        | 728   |  
|                               | Compensation accruals             |      |        | 582   |   |   |        | 866   |  
|                               | Start up costs                    |      |        | 126   |   |   |        | 50    |  
|                               | Workforce and patents             |      |        | 618   |   |   |        | 721   |  
|                               | Other, primarily certain reserves |      |        | 1,798 |   |   |        | 397   |  
|                               | Valuation allowance               |      |        | (684  | ) |   |        | (684  | )
|                               |                                   |      |        |       |   |   |        |       |  
|Total deferred tax assets      |                                   |      | 17,319 |       |   |   | 13,866 |      
|Deferred tax liabilities:      |                                   |      |        |       |   |   |        |      
|                               | Acquired technology               |      |        | 3,220 |   |   |        | 2,554 |  
|                               | Influence goodwill                |      |        | 2,002 |   |   |        | 2,002 |  
|                               | Tax over book amortization        |      |        | 1,282 |   |   |        | 2,308 |  
|                               | Other                             |      |        | 164   |   |   |        | 392   |  
|                               |                                   |      |        |       |   |   |        |       |  
|Total deferred tax liabilities |                                   |      | 6,668  |       |   |   | 7,256  |      
|                               |                                   |      |        |       |   |   |        |       |  
|Net deferred tax asset         |                                   | $    | 10,651 |       |   | $ | 6,610  |      
|                               |                                   |      |        |       |   |   |        |       |  

On December 28, 2002, the Company has foreign tax loss carryforwards of
approximately $1.8 million with no expiration. Realization of the future tax
benefits related to the net deferred tax assets is dependent on many factors,
including the Companys ability to generate taxable income within the net
operating loss carryforward period. To the extent the net operating losses
were created in a foreign

F-20



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##### Table of Contents



jurisdiction, the Company has included a valuation allowance of $684,000,
which, if subsequently recognized, will be allocated to goodwill. This amount
represents the approximate amount by which the net operating losses are
projected to exceed future income in that foreign jurisdiction. Management
believes that, at a minimum, it is more likely than not that future taxable
income will be sufficient to realize the remaining recorded asset.

14. Subsequent Event

On December 30, 2002, the Company completed the acquisition of Cryogen, Inc.,
an emerging growth medical device company focused on the development and
marketing of its patented cryoablation technology for gynecological and other
applications. CryoGen received FDA approval for HerOption, a minimally
invasive, closed cycle cryoablation device and supporting system that enables
physicians to ablate (destroy) tissue at extremely low temperatures. Pursuant
to the acquisition agreement, the Company paid former Cryogen shareholders cash
proceeds of $40 million, net of certain transaction expenses and subject to
certain adjustments. The initial payment made by the Company to former Cryogen
shareholders, after payment of transaction expenses and all adjustments, was
approximately $36.2 million. The Company deposited $3.0 million
of this initial consideration in escrow to be held for eighteen months after
closing of the merger to cover certain contingencies.

In addition to the initial consideration described above, Cryogens former
shareholders will receive an earnout payment equal to three times the Companys
net revenues from sales of Cryogens products over a period of four consecutive
Company fiscal quarters ending three years after closing, less $40 million. If
the Companys net product revenues attributable to sales of Cryogens products
during any such four-quarter period do not exceed $13.3 million, no earnout
payment will be made. The maximum amount of the earnout payment is $110
million. The earnout payment, if any, will be distributed among Cryogens
shareholders subject to certain rights of set-off.

The Company has made a preliminary allocation of the December 30, 2002
estimated purchase price of Cryogen, Inc. as follows:

|                                            |  |        |        | 
|------------------------------------------- |  | ------ | ------ | 
|(amounts in thousands)                      |  | Amount
|                                            |  |       
|Goodwill                                    |  | $      | 35,698 | 
|Assets acquired, net of liabilities assumed |  |        | 4,302  | 
|                                            |  |        |        | 
|                                            |  | $      | 40,000 | 
|                                            |  |        |        | 

The purchase price allocation to the assets and liabilities assumed was based
on a preliminary estimate to determine their respective values. The Company
believes that the preliminary allocations set forth herein are reasonable, but
are subject to revision upon completion of a planned independent valuation
study.

14. Quarterly Financial Data (unaudited)

|                              |         |      |         |      |         |   |         |      |         |   |         |      |         |   |         |      |         |   |        |      |  |   |        |      |  |   |        |      |  |   |        |      | 
|----------------------------- | ------- | ---- | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|(thousands, except per        |         |      |         |      |         |   |         |      |         |   |         |      |         |   |         |      |         |   |        |      |  |   |        |      |  |   |        |      |  |   |        |     
|share data)                   |         | 2001 |         | 2002
|                              |         |      |         |     
|                              |         |      | First   |      | Second  |   | Third   |      | Fourth  |   | First   |      | Second  |   | Third   |      | Fourth 
|                              |         |      | Quarter |      | Quarter |   | Quarter |      | Quarter |   | Quarter |      | Quarter |   | Quarter |      | Quarter
|                              |         |      |         |      |         |   |         |      |         |   |         |      |         |   |         |      |        
|Net sales                     |         | $    | 27,548  |      |         | $ | 28,438  |      |         | $ | 28,637  |      |         | $ | 33,315  |      |         | $ | 34,715 |      |  | $ | 36,330 |      |  | $ | 32,771 |      |  | $ | 37,832 |     
|Gross profit                  |         |      | 22,151  |      |         |   | 22,651  |      |         |   | 23,199  |      |         |   | 26,797  |      |         |   | 27,583 |      |  |   | 29,210 |      |  |   | 26,538 |      |  |   | 33,712 |     
|Operating income              |         |      | 2,714   |      |         |   | 3,184   |      |         |   | 3,276   |      |         |   | 6,373   |      |         |   | 7,721  |      |  |   | 8,609  |      |  |   | 8,448  |      |  |   | 13.294 |     
|Net income                    |         |      | 1,404   |      |         |   | 1,534   |      |         |   | 2,007   |      |         |   | 1,585   |      |         |   | 5,417  |      |  |   | 5,730  |      |  |   | 5,408  |      |  |   | 8,331  |     
|Net income per common
share - |         |      |         |      |         |   |         |      |         |   |         |      |         |   |         |      |         |   |        |      |  |   |        |      |  |   |        |      |  |   |        |     
|                              | Basic   |      | $       | 0.05 |         |   | $       | 0.05 |         |   | $       | 0.06 |         |   | $       | 0.05 |         |   | $      | 0.17 |  |   | $      | 0.18 |  |   | $      | 0.17 |  |   | $      | 0.25 | 
|                              | Diluted |      | $       | 0.05 |         |   | $       | 0.05 |         |   | $       | 0.06 |         |   | $       | 0.05 |         |   | $      | 0.16 |  |   | $      | 0.17 |  |   | $      | 0.16 |  |   | $      | 0.24 | 

F-21



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##### Table of Contents



During the fourth quarter of 2002, the Company reduced the allowance for
estimated warranty claims by $2.9 million. This adjustment was recorded as a
reduction in cost of sales and an increase in gross profit and operating income.

Quarterly and annual earnings per share are calculated independently based on
the weighted average number of shares outstanding during the period.

The Companys sales and operating results have varied and are expected to
continue to vary significantly from quarter to quarter as a result of seasonal
patterns. The Company believes the business is seasonal, with the third
quarter of each year typically having the lowest sales and the fourth quarter
of each typically having the highest sales. There can be no assurance that
future seasonal fluctuations will not adversely affect the business and results
of operations.

F-22



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                      |  |                                         |                     
|--------------------- |  | --------------------------------------- | --------------------
|Dated: March 27, 2003 |  | AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
|                      |  |                                         |                     
|                      |  | By                                      | /s/ Douglas W. Kohrs
|                      |  |                                         |                     
|                      |  | Douglas W. Kohrs                       
|                      |  | President and Chief Executive Officer  

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 27, 2003 by the following persons on
behalf of the registrant and in the capacities indicated.

|                                                      |  |                                                                                                  
|----------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|Signature                                             |  | Title                                                                                            
|                                                      |  |                                                                                                  
|                                                     
|/s/ Douglas W. KohrsDouglas W. Kohrs                  |  | President and Chief Executive Officer
(Principal Executive Officer) and Director                 
|                                                     
|/s/ M. James CallM. James Call                        |  | Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|                                                     
|/s/ Richard B. EmmittRichard B. Emmitt                |  | Director                                                                                         
|                                                     
|/s/ Christopher H. PorterChristopher H. Porter, Ph.D. |  | Director                                                                                         
|                                                     
|/s/ David W. StassenDavid W. Stassen                  |  | Director                                                                                         
|                                                     
|/s/ Albert Jay GrafAlbert Jay Graf                    |  | Director                                                                                         
|                                                     
|/s/ Elizabeth H. WeathermanElizabeth H. Weatherman    |  | Director                                                                                         
|                                                     
|/s/ Thomas E. TimbieThomas E. Timbie                  |  | Director                                                                                         





---



##### Table of Contents






CERTIFICATIONS

Certification by Chief Executive Officer

I, Douglas W. Kohrs, certify that:

1.     I have reviewed this annual report on Form 10-K of American Medical Systems
Holdings, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                              |                     
|-------------------- |  | -------------------------------------------- | --------------------
|Date: March 27, 2003 |  | By:                                          | /s/ Douglas W. Kohrs
|                     |  |                                              |                     
|                     |  | Name: Douglas W. Kohrs                      
|                     |  | Title: President and Chief Executive Officer





---



##### Table of Contents



Certification by Chief Financial Officer

I, M. James Call, certify that:

1.     I have reviewed this annual report on Form 10-K of American Medical Systems
Holdings, Inc.;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                                        |                  
|-------------------- |  | ---------------------------------------------------------------------- | -----------------
|Date: March 27, 2003 |  | By:                                                                    | /s/ M. James Call
|                     |  |                                                                        |                  
|                     |  | Name: M. James Call                                                   
|                     |  | Title: Executive Vice President,
Chief Financial Officer and Secretary





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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 28, 2002

|         |  |                                                                                                                                                                                                                  |  |                                                                                                                                       
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Item No. |  | Item                                                                                                                                                                                                             |  | Filing Method                                                                                                                         
|         |  |                                                                                                                                                                                                                  |  |                                                                                                                                       
|3.1      |  | Amended and Restated Certificate of
Incorporation of the Company.                                                                                                                                                |  | Incorporated by reference to Exhibit
3.1 of the Companys
Form 10-Q for the
Quarter Ended
September 30, 2000
(File No. 30733).        
|3.2      |  | Bylaws, as amended, of the Company.                                                                                                                                                                              |  | Incorporated by
reference to Exhibit
3.2 of the Companys
Form 10-Q for the
Quarter Ended
September 29, 2001
(File No. 30733).        
|4.1      |  | Registration Rights Agreement, dated June
30, 2000, among the investors listed on
Schedule 1 to the Agreement and American
Medical Systems Holdings, Inc.                                                        |  | Incorporated by reference to Exhibit 4.1 of the Companys Registration
Statement on Form S-1
(File No. 333-37488).                    
|4.2      |  | Certificate of Incorporation of the Company.                                                                                                                                                                     |  | See Exhibit 3.1 above.                                                                                                                
|4.3      |  | Bylaws of the Company.                                                                                                                                                                                           |  | See Exhibit 3.2 above.                                                                                                                
|10.1     |  | Stockholders Agreement, dated April 17,
2000, among Warburg, Pincus Equity
Partners, L.P., the then existing
stockholders of American Medical Systems
Holdings, Inc. and American Medical
Systems Holdings, Inc. |  | Incorporated by reference to Exhibit 10.1 of the Companys Registration Statement on Form S-1 (File No. 333-37488).                   
|10.2     |  | Employment Agreement, dated April 23,
1999, between Douglas Kohrs and American
Medical Systems, Inc.                                                                                                             |  | Incorporated by
reference to Exhibit
10.2 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   
|10.3     |  | Amendment to the Employment Agreement,
dated April 17, 2000, between Douglas
Kohrs and American Medical Systems, Inc.                                                                                            |  | Incorporated by
reference to Exhibit
10.3 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   
|10.4     |  | Second Amendment to Employment Agreement,
dated January 23, 2002, between Douglas
Kohrs and American Medical Systems, Inc.                                                                                       |  | Incorporated by
reference to Exhibit
10.4 of the Companys
Form 10-K for the
Fiscal Year Ended
December 29, 2001
(File No. 000-30733).
|10.5     |  | Stock Option Agreement, dated April 23,
1999, between Douglas Kohrs and American
Medical Systems, Inc.                                                                                                           |  | Incorporated by
reference to Exhibit
10.4 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   

E-1



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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                               |  |                                                                                                                                        
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|Item No. |  | Item                                                                                                                                                                                                                                                          |  | Filing Method                                                                                                                          
|         |  |                                                                                                                                                                                                                                                               |  |                                                                                                                                        
|10.6     |  | Separation Agreement, dated September 27,
2001, between Gregory J. Melsen and
American Medical Systems, Inc.                                                                                                                                                  |  | Incorporated by
reference to Exhibit
10.4 of the Companys
Form 10-K for the
Fiscal Year Ended
December 29, 2001
(File No. 000-30733). 
|10.7     |  | Employment Agreement, dated July 30, 2001,
between M. James Call and American Medical
Systems Inc.                                                                                                                                                            |  | Incorporated by
reference to Exhibit
10.8 of the Companys
Form 10-K for the
Fiscal Year Ended
December 29, 2001
(File No. 000-30733). 
|10.8     |  | Employment Agreement, dated January 1,
2003, between Ross Longhini and American
Medical Systems, Inc.                                                                                                                                                         |  | Filed with this
Annual Report on Form
10-K.                                                                                            
|10.9     |  | Consulting Agreement, dated September 1,
1999, between Medical Genesis and American
Medical Systems, Inc.                                                                                                                                                     |  | Incorporated by
reference to Exhibit
10.8 of the Companys
Registration
Statement on Form S-1
(File No. 333-37488).                    
|10.10    |  | 2000 Equity Incentive Plan, as amended.                                                                                                                                                                                                                       |  | Incorporated by
reference to Exhibit
10.10 of the
Companys Form 10-K
for the Fiscal Year
Ended December 29,
2001 (File No.
000-30733).
|10.11    |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                     |  | Incorporated by
reference to Exhibit
10.10 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   
|10.12    |  | Form of Non-Qualified Stock Option Agreement.                                                                                                                                                                                                                 |  | Incorporated by
reference to Exhibit
10.11 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   
|10.13    |  | Employee Stock Purchase Plan.                                                                                                                                                                                                                                 |  | Incorporated by
reference to Exhibit
10.12 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   
|10.14    |  | 2002 Management Incentive Plan.                                                                                                                                                                                                                               |  | Filed with this
Annual Report on Form
10-K.                                                                                            
|10.15    |  | Lease, dated July 22, 2002, between
Manufacturers Life Insurance Company
(U.S.A.) and Cryogen, Inc.                                                                                                                                                           |  | Filed with this
Annual Report on Form
10-K.                                                                                            
|10.16    |  | Credit Agreement, dated March 24, 2000,
among American Medical Systems, Inc.,
American Medical Systems Holdings, Inc.,
Bank of America, N.A., as agent for the
four lenders, and Banc of America
Securities LLC, as sole lead arranger and
sole book manager. |  | Incorporated by
reference to Exhibit
10.22 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                   

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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                  
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |  | Item                                                                                                                                                                                                                                                                              |  | Filing Method                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                   |  |                                                                                                                                                  
|10.17    |  | Security Agreement, dated March 24, 2000,
among American Medical Systems Holdings,
Inc., American Medical Systems, Inc.,
Influence, Inc. and Banc of America, N.A.                                                                                                                |  | Incorporated by
reference to Exhibit
10.23 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.18    |  | Form of Revolving Note issued under Credit
Agreement.                                                                                                                                                                                                                             |  | Incorporated by
reference to Exhibit
10.24 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.19    |  | Form of Tranche A Term Note issued under
Credit Agreement.                                                                                                                                                                                                                        |  | Incorporated by
reference to Exhibit
10.25 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.20    |  | Form of Tranche B Term Note issued under
Credit Agreement.                                                                                                                                                                                                                        |  | Incorporated by
reference to Exhibit
10.26 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.21    |  | Parent Joinder Agreement, dated March 24,
2000, between American Medical Systems
Holdings, Inc. and Bank of America, N.A.                                                                                                                                                         |  | Incorporated by
reference to Exhibit
10.27 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.22    |  | Pledge Agreement, dated March 24, 2000,
among American Medical Systems Holdings,
Inc., American Medical Systems, Inc.,
Influence, Inc. and Banc of America, N.A.                                                                                                                  |  | Incorporated by
reference to Exhibit
10.28 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.23    |  | Guaranty and Investment Agreement, dated
March 24, 2000, among Warburg, Pincus
Equity Partners, L.P., other affiliates of
Warburg Pincus and Bank of America, N.A.                                                                                                                |  | Incorporated by
reference to Exhibit
10.29 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.24    |  | Letter Agreement, dated March 24, 2000,
among Warburg, Pincus Equity Partners,
L.P., other affiliates of Warburg Pincus
and Bank of America, N.A.                                                                                                                                 |  | Incorporated by
reference to Exhibit
10.30 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.25    |  | Mortgage and Security Agreement and
Fixture Financing Statement with
Assignment of Leases and Rents, dated
April 17, 2000, between American Medical
Systems, Inc. and Bank of America, N.A.                                                                                       |  | Incorporated by
reference to Exhibit
10.39 of the
Companys
Registration
Statement on Form S-1
(File No. 333-37488).                             
|10.26    |  | First Amendment to Credit Agreement, dated
January 3, 2001, among American Medical
Systems, Inc., American Medical Systems
Holdings, Inc., Bank of America, N.A., as
agent for the four lenders, and Banc of
America Securities LLC, as sole lead
arranger and sole book manager. |  | Incorporated by
reference to Exhibit
10.36 of the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2000
(File No. 000-30733).

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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Item No. |  | Item                                                                                                                                                                                                                                                                                   |  | Filing Method                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                  
|10.27    |  | Second Amendment and Release Agreement,
dated February 20, 2001, among American
Medical Systems, Inc., American Medical
Systems Holdings, Inc., Bank of America,
N.A., as agent for the four lenders, and
Banc of America Securities LLC, as sole
lead arranger and sole book manager. |  | Incorporated by
reference to Exhibit
10.37 of the
Companys Annual
Report on Form 10-K
for the year ended
December 31, 2000
(File No. 000-30733).
|10.28    |  | Third Amendment to Credit Agreement, dated
December 27, 2002, among American Medical
Systems, Inc., American Medical Systems
Holdings, Inc., Bank of America, N.A., as
agent for the four lenders, and Banc of
America Securities LLC, as sole lead
arranger and sole book manager.    |  | Filed with this
Annual Report on Form
10-K.                                                                                                      
|10.29    |  | 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
Current Report on
Form 8-K filed on
December 17, 2002
(File No. 000-30733).            
|10.30    |  | 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
Current Report on
Form 8-K filed on
January 6, 2003 (File
No. 000-30733).              
|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.                                                                                                      
|99.1     |  | Certification Pursuant to 18 USC Sect. 1350                                                                                                                                                                                                                                            |  | Filed with this
Annual Report on Form
10-K.                                                                                                      

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