##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 00030733
 AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
  Delaware
    
    41-1978822(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)10700 Bren Road West,
Minnetonka, Minnesota
    
    55343(Address of principal executive offices)
    
    (Zip Code)
 952-930-6000  (Registrants telephone number, including area code)
  þ Yes       o No
  þ o o
  o Yes       þ No




---



##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTS (UNAUDITED)Consolidated Statements of Operations for
the three and six month periods ended June
30, 2007 and July 1, 2006
    
    
    3Consolidated Balance Sheets as of
June 30, 2007 and December 30, 2006
    
    
    4Consolidated Statements of Cash Flow for
the six month periods ended June 30, 2007
and July 1, 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    27ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    39ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    39PART II
    
    OTHER INFORMATIONITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    41ITEM 6.
    
    EXHIBITS
    
    
    42SIGNATURES
    
    
    43EXHIBIT INDEX
    
    
    44Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 American Medical Systems Holdings, Inc.
 
 Consolidated Statements of Operations
 Three Months Ended
    
    

Six Months EndedJune 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Net sales
    
    $
    116,453
    
    
    $
    78,782
    
    
    $
    224,838
    
    
    $
    152,406Cost of sales
    
    
    27,129
    
    
    
    11,707
    
    
    
    53,484
    
    
    
    23,437Gross profit
    
    
    89,324
    
    
    
    67,075
    
    
    
    171,354
    
    
    
    128,969Operating expensesMarketing and selling
    
    
    41,694
    
    
    
    29,370
    
    
    
    81,124
    
    
    
    57,184Research and development
    
    
    10,979
    
    
    
    5,772
    
    
    
    22,129
    
    
    
    13,554In-process research and development
    
    
    
    
    
    
    28,075
    
    
    
    
    
    
    
    28,075General and administrative
    
    
    10,587
    
    
    
    7,635
    
    
    
    21,576
    
    
    
    14,129Integration costs
    
    
    92
    
    
    
    
    
    
    
    1,103
    
    
    
    Amortization of intangibles
    
    
    4,749
    
    
    
    1,785
    
    
    
    9,453
    
    
    
    3,626Total operating expenses
    
    
    68,101
    
    
    
    72,637
    
    
    
    135,385
    
    
    
    116,568Operating income (loss)
    
    
    21,223
    
    
    
    (5,562
    )
    
    
    35,969
    
    
    
    12,401Other (expense) incomeRoyalty income
    
    
    503
    
    
    
    408
    
    
    
    1,182
    
    
    
    861Interest income
    
    
    293
    
    
    
    434
    
    
    
    629
    
    
    
    756Interest expense
    
    
    (9,588
    )
    
    
    (257
    )
    
    
    (19,221
    )
    
    
    (353
    )Financing charges
    
    
    (755
    )
    
    
    (6,955
    )
    
    
    (1,537
    )
    
    
    (6,955
    )Other income
    
    
    351
    
    
    
    436
    
    
    
    1,974
    
    
    
    290Total other (expense) income
    
    
    (9,196
    )
    
    
    (5,934
    )
    
    
    (16,973
    )
    
    
    (5,401
    )Income (loss) from continuing operations
before income taxes
    
    
    12,027
    
    
    
    (11,496
    )
    
    
    18,996
    
    
    
    7,000Provision for income taxes
    
    
    4,701
    
    
    
    (3,401
    )
    
    
    7,287
    
    
    
    3,623Net income (loss) from continuing operations
    
    
    7,326
    
    
    
    (8,095
    )
    
    
    11,709
    
    
    
    3,377Loss from discontinued operations, net of
tax benefit of $0.4 million
    
    
    
    
    
    
    
    
    
    
    (691
    )
    
    
    Net income (loss)
    
    $
    7,326
    
    
    $
    (8,095
    )
    
    $
    11,018
    
    
    $
    3,377Net income (loss) per shareBasic net earnings (loss) from
continuing operations
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.16
    
    
    $
    0.05Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Basic net earnings (loss)
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.15
    
    
    $
    0.05Diluted net earnings (loss) from
continuing operations
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.16
    
    
    $
    0.05Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    Diluted net earnings (loss)
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.15
    
    
    $
    0.05Weighted average common shares used in
calculationBasic
    
    
    72,061
    
    
    
    69,838
    
    
    
    71,921
    
    
    
    69,755Diluted
    
    
    73,593
    
    
    
    69,838
    
    
    
    73,536
    
    
    
    72,001
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated Balance Sheets
 June 30, 2007
    
    
    December 30, 2006(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    30,796
    
    
    $
    29,051Short term investments
    
    
    623
    
    
    
    490Accounts receivable, net
    
    
    102,657
    
    
    
    91,938Inventories, net
    
    
    46,213
    
    
    
    37,974Deferred income taxes
    
    
    10,997
    
    
    
    11,065Other current assets
    
    
    10,019
    
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078Total current assets
    
    
    201,305
    
    
    
    238,168Property, plant and equipment, net
    
    
    56,252
    
    
    
    47,035Goodwill
    
    
    700,229
    
    
    
    677,053Developed and core technology, net
    
    
    102,203
    
    
    
    110,634Other intangibles, net
    
    
    49,265
    
    
    
    50,022Investment in technology and other assets
    
    
    594
    
    
    
    1,148Other long-term assets, net
    
    
    2,806
    
    
    
    3,031Total assets
    
    $
    1,112,654
    
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    19,652
    
    
    $
    15,430Accrued compensation expenses
    
    
    16,285
    
    
    
    17,019Accrued warranty expense
    
    
    2,808
    
    
    
    2,715Income taxes payable
    
    
    9,853
    
    
    
    Other accrued expenses
    
    
    28,063
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    76,661
    
    
    
    102,533Long-term debt
    
    
    687,299
    
    
    
    713,456Deferred income taxes
    
    
    22,947
    
    
    
    22,296Long-term income taxes payable
    
    
    6,489
    
    
    
    4,584Long-term employee benefit obligations
    
    
    3,060
    
    
    
    3,060Total liabilities
    
    
    796,456
    
    
    
    845,929Stockholders equityCommon stock, par value $.01 per share; authorized
220,000,000 shares; issued and outstanding: 
72,097,034 shares at June 30, 2007
and 71,059,312 shares at December 30, 2006
    
    
    721
    
    
    
    711Additional paid-in capital
    
    
    276,156
    
    
    
    253,127Accumulated other comprehensive income
    
    
    5,397
    
    
    
    4,155Retained earnings
    
    
    33,924
    
    
    
    23,169Total stockholders equity
    
    
    316,198
    
    
    
    281,162Total liabilities and stockholders equity
    
    $
    1,112,654
    
    
    $
    1,127,091
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### Table of Contents



American Medical Systems Holdings, Inc.
 
 Consolidated
Statements of Cash Flow
 Six Months EndedJune 30, 2007
    
    
    July 1, 2006Cash flows from operating activitiesNet income
    
    $
    11,018
    
    
    $
    3,377Loss from discontinued operations
    
    
    (691
    )
    
    
    Income from continuing operations
    
    
    11,709
    
    
    
    3,377Adjustments to reconcile net income from continuing operations to net cash
provided by operating activitiesDepreciation
    
    
    3,966
    
    
    
    1,763(Gain) loss on asset disposals
    
    
    (15
    )
    
    
    331Amortization of intangibles
    
    
    9,453
    
    
    
    3,626Amortization of deferred financing costs
    
    
    1,537
    
    
    
    4In-process research and development charges
    
    
    
    
    
    
    28,075Financing charges on credit facility
    
    
    
    
    
    
    6,955Excess tax benefit from excercise of stock options
    
    
    (178
    )
    
    
    (389
    )Tax benefit on exercised stock option arrangements
    
    
    715
    
    
    
    846Change in net deferred income taxes
    
    
    462
    
    
    
    (113
    )Stock based compensation
    
    
    5,766
    
    
    
    5,077Changes in operating assets and liabilities:Accounts receivable
    
    
    (6,980
    )
    
    
    (6,226
    )Inventories
    
    
    (14,039
    )
    
    
    1,311Accounts payable and accrued expenses
    
    
    (13,697
    )
    
    
    (4,977
    )Other assets
    
    
    14,872
    
    
    
    (6,661
    )Net cash provided by operating activities
    
    
    13,571
    
    
    
    32,999Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (12,456
    )
    
    
    (6,970
    )Purchase of business, net of cash acquired
    
    
    (781
    )
    
    
    (23,986
    )Disposal of business
    
    
    21,676
    
    
    
    Purchase of investments in technology
    
    
    
    
    
    
    (28,075
    )Purchase of other intangibles
    
    
    (263
    )
    
    
    (1,000
    )Purchase of short-term investments
    
    
    (137
    )
    
    
    (110
    )Sale of short-term investments
    
    
    10
    
    
    
    15,190Net cash provided by (used in) investing activities
    
    
    8,049
    
    
    
    (44,951
    )Cash flows from financing activitiesProceeds from issuance of convertible notes, net of issuance costs
    
    
    
    
    
    
    362,538Issuance of common stock
    
    
    8,913
    
    
    
    3,437Excess tax benefit from exercise of stock options
    
    
    178
    
    
    
    389Proceeds from short-term borrowings
    
    
    
    
    
    
    21,000Repayments of short-term borrowings
    
    
    
    
    
    
    (21,000
    )Payments on long-term debt
    
    
    (28,123
    )
    
    
    Financing charges paid on credit facility
    
    
    
    
    
    
    (6,955
    )Net cash (used in) provided by financing activities
    
    
    (19,032
    )
    
    
    359,409Cash provided by continuing operations
    
    
    2,588
    
    
    
    347,457Cash used in discontinued operationsOperating activities
    
    
    (691
    )
    
    
    Cash used in discontinued operations
    
    
    (691
    )
    
    
    Effect of currency exchange rates on cash
    
    
    (152
    )
    
    
    96Net increase in cash and cash equivalents
    
    
    1,745
    
    
    
    347,553Cash and cash equivalents at beginning of period
    
    
    29,051
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    30,796
    
    
    $
    378,438Supplemental disclosureCash paid for interest
    
    $
    13,998
    
    
    $
    166Cash (refunded) paid for taxes
    
    $
    (11,705
    )
    
    $
    16,534Stock issued to settle contingent liabilities under InnovaQuartz purchase agreement
    
    $
    7,371
    
    
    $
    
 The
accompanying notes are an integral part of the consolidated financial statements.
 5




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##### Table of Contents





AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. Basis of Presentation










NOTE 2. Acquisitions


Laserscope








Note 3, Discontinued Operations and Sale of
Aesthetics Business


Financing


Note 12,
Debt.


6



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##### Table of Contents



Purchase Accounting
  (in thousands)
    
    AmountDeveloped and core technology
    
    $
    88,700Trademarks
    
    
    40,800In-process research and development
    
    
    62,100Assets sold, net of tax
    
    
    10,816Tangible assets acquired, net of liabilities assumed
    
    
    10,181Deferred tax liability on assets acquired, net of deferred tax assets
    
    
    (17,976
    )Goodwill
    
    
    528,070Estimated fair value of identifiable tangible and intangible assets and goodwill, net of cash
acquired and liabilites assumed
    
    $
    722,691
   Restructuring Costs
   7




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##### Table of Contents



Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringLiability as of
    
    
    Adjustment to
    
    
    
    
    
    
    Liability as of(in thousands)
    
    December 30, 2006
    
    
    Liability
    
    
    Cash Payments
    
    
    June 30, 2007Severance and benefits
    
    $
    7,204
    
    
    $
    (1,523
    )
    
    $
    (4,771
    )
    
    $
    910Contract terminations and other
    
    
    1,993
    
    
    
    2,607
    
    
    
    (2,156
    )
    
    
    2,444Total restructuring
    
    $
    9,197
    
    
    $
    1,084
    
    
    $
    (6,927
    )
    
    $
    3,354
 Integration Costs
   Three Months Ended
    
    
    Six Months Ended(in thousands except per share data)
    
    July 1, 2006
    
    
    July 1, 2006Revenues from continuing operations
    
    $
    100,934
    
    
    $
    197,222Revenues from discontinued operations
    
    
    8,005
    
    
    
    17,350Total revenues
    
    $
    108,939
    
    
    
    214,572Net loss
    
    $
    (11,159
    )
    
    $
    (4,847
    )Net loss per share:Basic
    
    $
    (0.16
    )
    
    $
    (0.07
    )Diluted
    
    $
    (0.16
    )
    
    $
    (0.07
    )
  Solarant Medical, Inc.
    (in thousands)
    
    AmountIn-process research and development (including $0.8 million in acquisition costs)
    
    $
    2,054Liabilities assumed, net of tangible assets acquired
    
    
    (88
    )Deferred tax asset acquired
    
    
    981Initial purchase price, net of cash acquired through June 30, 2007
    
    $
    2,947
 8




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##### Table of Contents



Goodwill and Other Intangible Assets
  BioControl Medical, Ltd.
  Goodwill and Other Intangible Assets
    Ovion Inc.
  Ovion
 9




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##### Table of Contents



(in thousands)
    
    AmountIn-process research and development (including $0.7 million in acquisition costs)
    
    $
    13,554Intangible royalty agreement (including $0.2 million in acquisition costs)
    
    
    2,970Liabilities assumed, net of tangible assets acquired
    
    
    (732
    )Deferred tax liability on assets acquired
    
    
    (385
    )Initial purchase price, net of cash acquired through June 30, 2007
    
    $
    15,407
 Goodwill and Other Intangible Assets
  NOTE 3. Discontinued Operations and Sale of Aesthetics Business
 Note 2, Acquisitions
  Accounting for
the Impairment or Disposal of Long-Lived Assets
 10




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##### Table of Contents



Period fromDecember 31, 2006(in thousands)
    
    to January 16, 2007Net sales
    
    $
    515Loss from discontinued operations before income taxes
    
    
    (1,075
    )Income tax benefit
    
    
    384Loss from discontinued operations, net of taxes
    
    $
    (691
    )
  Allocation of Interest to
Discontinued Operations
   Applying the Conditions
in Paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations
 NOTE 4. Stock-Based Compensation
 Share-Based
Payment
 11




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Cost of sales
    
    $
    112
    
    
    $
    110
    
    
    $
    776
    
    
    $
    155Marketing and selling
    
    
    937
    
    
    
    878
    
    
    
    2,084
    
    
    
    1,751Research and development
    
    
    615
    
    
    
    534
    
    
    
    1,403
    
    
    
    1,034General and administrative
    
    
    1,066
    
    
    
    959
    
    
    
    1,503
    
    
    
    2,137Total stock-based compensation expense
    
    $
    2,730
    
    
    $
    2,481
    
    
    $
    5,766
    
    
    $
    5,077
     Weighted average
    
    
    AggregateOptions
    
    
    exercise price
    
    
    Intrinsicoutstanding
    
    
    per share
    
    
    Value(in thousands)Balance at December 30, 2006
    
    
    7,255,574
    
    
    $
    14.25Granted
    
    
    875,400
    
    
    
    19.81Exercised
    
    
    (542,955
    )
    
    
    14.32Cancelled or expired
    
    
    (304,664
    )
    
    
    18.66Balance at June 30, 2007
    
    
    7,283,355
    
    
    $
    14.73
    
    
    $
    30,257Options exercisable at June 30, 2007
    
    
    4,491,483
    
    
    $
    12.02
    
    
    $
    29,304
   Three Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Fair value of options granted
    
    $
    6.98
    
    
    $
    6.99
    
    
    $
    7.30
    
    
    $
    6.58Risk free interest rate
    
    
    4.78
    %
    
    
    5.08
    %
    
    
    4.76
    %
    
    
    4.69
    %Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock price volatility
    
    
    33.76
    %
    
    
    37.29
    %
    
    
    33.53
    %
    
    
    34.60
    %Expected life of option
    
    5.0 years
    
    4.6 years
    
    4.8 years
    
    4.7 years
  12




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##### Table of Contents



Restricted Stock
  Employee Stock Purchase Plan
  NOTE 5. Earnings per Share
  Three Months Ended
    
    
    Six Months Ended(in thousands, except per share data)
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Net income (loss) from continuing operations
    
    $
    7,326
    
    
    $
    (8,095
    )
    
    $
    11,709
    
    
    $
    3,377Weighted-average shares
outstanding for basic net income per share
    
    
    72,061
    
    
    
    69,838
    
    
    
    71,921
    
    
    
    69,755Dilutive effect of stock options
and restricted shares
    
    
    1,532
    
    
    
    
    
    
    
    1,615
    
    
    
    2,246Adjusted weighted-average shares outstanding for
diluted net income per share
    
    
    73,593
    
    
    
    69,838
    
    
    
    73,536
    
    
    
    72,001Net income (loss) per shareBasic net
earnings (loss) from continuing operations
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.16
    
    
    $
    0.05Diluted net
earnings (loss) from continuing operations
    
    $
    0.10
    
    
    $
    (0.12
    )
    
    $
    0.16
    
    
    $
    0.05
  NOTE 6. Inventories
  (in thousands)
    
    June 30, 2007
    
    December 30, 2006Raw materials
    
    $
    13,854
    
    
    $
    13,321Work in process
    
    
    7,773
    
    
    
    10,878Finished goods
    
    
    27,605
    
    
    
    16,279Obsolescence reserve
    
    
    (3,019
    )
    
    
    (2,504
    )Net inventories
    
    $
    46,213
    
    
    $
    37,974
 13




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##### Table of Contents



NOTE 7. Warranties
   Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Balance, beginning of period
    
    $
    2,899
    
    
    $
    1,697
    
    
    $
    2,715
    
    
    $
    1,618Provisions for warranty
    
    
    1,641
    
    
    
    146
    
    
    
    2,514
    
    
    
    307Claims processed
    
    
    (1,732
    )
    
    
    (69
    )
    
    
    (2,421
    )
    
    
    (151
    )Balance, end of period
    
    $
    2,808
    
    
    $
    1,774
    
    
    $
    2,808
    
    
    $
    1,774
 NOTE 8. Comprehensive Income (Loss)
  Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    June 30, 2007
    
    July 1, 2006Net income (loss)
    
    $
    7,326
    
    
    $
    (8,095
    )
    
    $
    11,018
    
    
    $
    3,377Foreign currency translation gain (loss), net of taxes
    
    
    614
    
    
    
    (794
    )
    
    
    1,242
    
    
    
    (1,073
    )Comprehensive income (loss)
    
    $
    7,940
    
    
    $
    (8,889
    )
    
    $
    12,260
    
    
    $
    2,304
 NOTE 9. Industry Segment Information and Foreign Operations
 Note 3,
Discontinued Operations and Sale of Aesthetics Business)
   Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    June 30, 2007
    
    July 1, 2006United StatesNet sales
    
    $
    85,136
    
    
    $
    60,024
    
    
    $
    164,076
    
    
    $
    117,023Long-lived assets
    
    
    894,430
    
    
    
    220,724
    
    
    
    894,430
    
    
    
    220,724InternationalNet sales
    
    
    31,317
    
    
    
    18,758
    
    
    
    60,762
    
    
    
    35,383Long-lived assets
    
    
    16,919
    
    
    
    15,020
    
    
    
    16,919
    
    
    
    15,020
 14




---



##### Table of Contents



NOTE 10. Goodwill and Intangible Assets
  Six Months Ended(in thousands)
    
    June 30, 2007Goodwill, beginning of the period
    
    $
    677,053Additions and adjustments
    
    
    22,676Effect of currency translation
    
    
    500Goodwill, end of the period
    
    $
    700,229
   June 30, 2007
    
    December 30, 2006Gross carrying
    
    Accumulated
    
    Net book
    
    Gross carrying
    
    Accumulated
    
    Net book(in thousands)
    
    amount
    
    amortization
    
    value
    
    amount
    
    amortization
    
    valueDeveloped and core technology
    
    $
    137,630
    
    
    $
    (35,427
    )
    
    $
    102,203
    
    
    $
    137,553
    
    
    $
    (26,919
    )
    
    $
    110,634Other intangiblesAmortizedPatents
    
    
    10,313
    
    
    
    (8,858
    )
    
    
    1,455
    
    
    
    10,127
    
    
    
    (8,761
    )
    
    
    1,366Licenses
    
    
    8,962
    
    
    
    (5,888
    )
    
    
    3,074
    
    
    
    8,962
    
    
    
    (5,453
    )
    
    
    3,509Royalty agreement
    
    
    2,970
    
    
    
    (576
    )
    
    
    2,394
    
    
    
    2,970
    
    
    
    (385
    )
    
    
    2,585Trademarks
    
    
    2,208
    
    
    
    (666
    )
    
    
    1,542
    
    
    
    
    
    
    
    
    
    
    
    Total amortized other
intangible assets
    
    
    24,453
    
    
    
    (15,988
    )
    
    
    8,465
    
    
    
    22,059
    
    
    
    (14,599
    )
    
    
    7,460Unamortized
Trademarks
    
    
    40,800
    
    
    
    
    
    
    
    40,800
    
    
    
    42,562
    
    
    
    
    
    
    
    42,562Total other intangibles
    
    
    65,253
    
    
    
    (15,988
    )
    
    
    49,265
    
    
    
    64,621
    
    
    
    (14,599
    )
    
    
    50,022Total intangible assets
    
    $
    202,883
    
    
    $
    (51,415
    )
    
    $
    151,468
    
    
    $
    202,174
    
    
    $
    (41,518
    )
    
    $
    160,656
 Three Months Ended
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    June 30, 2007
    
    July 1, 2006Amortization expense
    
    $
    4,749
    
    
    $
    1,785
    
    
    $
    9,453
    
    
    $
    3,626
  NOTE 11. Credit Agreements
 Credit Agreement
 Note 12, Debt
 Note 12, Debt
 15




---



##### Table of Contents



Bridge Loan Commitment Fee
  NOTE 12. Debt
 Senior Secured Credit Facility
       16




---



##### Table of Contents



Convertible Senior Subordinated Notes; Supplemental Guarantor Information
      17




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended June 30, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    105,513
    
    
    $
    23,472
    
    
    $
    (12,532
    )
    
    $
    116,453Cost of sales
    
    
    
    
    
    
    26,589
    
    
    
    13,393
    
    
    
    (12,853
    )
    
    
    27,129Gross profit
    
    
    
    
    
    
    78,924
    
    
    
    10,079
    
    
    
    321
    
    
    
    89,324Operating expensesMarketing and selling
    
    
    
    
    
    
    33,137
    
    
    
    8,557
    
    
    
    
    
    
    
    41,694Research and development
    
    
    
    
    
    
    10,891
    
    
    
    88
    
    
    
    
    
    
    
    10,979General and administrative
    
    
    
    
    
    
    10,565
    
    
    
    22
    
    
    
    
    
    
    
    10,587Integration costs
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92Amortization of intangibles
    
    
    
    
    
    
    3,878
    
    
    
    871
    
    
    
    
    
    
    
    4,749Total operating expenses
    
    
    
    
    
    
    58,563
    
    
    
    9,538
    
    
    
    
    
    
    
    68,101Operating income
    
    
    
    
    
    
    20,361
    
    
    
    541
    
    
    
    321
    
    
    
    21,223Other (expense) incomeRoyalty income
    
    
    
    
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    503Interest income
    
    
    
    
    
    
    278
    
    
    
    15
    
    
    
    
    
    
    
    293Interest expense
    
    
    (2,893
    )
    
    
    (6,536
    )
    
    
    (159
    )
    
    
    
    
    
    
    (9,588
    )Financing charge
    
    
    (212
    )
    
    
    (543
    )
    
    
    
    
    
    
    
    
    
    
    (755
    )Other income (expense)
    
    
    
    
    
    
    512
    
    
    
    (164
    )
    
    
    3
    
    
    
    351Total other (expense) income
    
    
    (3,105
    )
    
    
    (5,786
    )
    
    
    (308
    )
    
    
    3
    
    
    
    (9,196
    )(Loss) income before income taxes
    
    
    (3,105
    )
    
    
    14,575
    
    
    
    233
    
    
    
    324
    
    
    
    12,027Provision for income taxes
    
    
    (1,214
    )
    
    
    5,697
    
    
    
    91
    
    
    
    127
    
    
    
    4,701Equity in earnings of subsidiary
    
    
    9,020
    
    
    
    142
    
    
    
    
    
    
    
    (9,162
    )
    
    
    Net income
    
    $
    7,129
    
    
    $
    9,020
    
    
    $
    142
    
    
    $
    (8,965
    )
    
    $
    7,326
 18




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended June 30, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    204,789
    
    
    $
    46,084
    
    
    $
    (26,035
    )
    
    $
    224,838Cost of sales
    
    
    
    
    
    
    51,791
    
    
    
    27,423
    
    
    
    (25,730
    )
    
    
    53,484Gross profit
    
    
    
    
    
    
    152,998
    
    
    
    18,661
    
    
    
    (305
    )
    
    
    171,354Operating expensesMarketing and selling
    
    
    
    
    
    
    64,584
    
    
    
    16,540
    
    
    
    
    
    
    
    81,124Research and development
    
    
    
    
    
    
    22,041
    
    
    
    88
    
    
    
    
    
    
    
    22,129General and administrative
    
    
    
    
    
    
    21,515
    
    
    
    61
    
    
    
    
    
    
    
    21,576Integration costs
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    
    
    
    
    1,103Amortization of intangibles
    
    
    
    
    
    
    7,712
    
    
    
    1,741
    
    
    
    
    
    
    
    9,453Total operating expenses
    
    
    
    
    
    
    116,955
    
    
    
    18,430
    
    
    
    
    
    
    
    135,385Operating income
    
    
    
    
    
    
    36,043
    
    
    
    231
    
    
    
    (305
    )
    
    
    35,969Other (expense) incomeRoyalty income
    
    
    
    
    
    
    1,182
    
    
    
    
    
    
    
    
    
    
    
    1,182Interest income
    
    
    
    
    
    
    604
    
    
    
    25
    
    
    
    
    
    
    
    629Interest expense
    
    
    (5,915
    )
    
    
    (13,000
    )
    
    
    (306
    )
    
    
    
    
    
    
    (19,221
    )Financing charge
    
    
    (315
    )
    
    
    (1,222
    )
    
    
    
    
    
    
    
    
    
    
    (1,537
    )Other income (expense)
    
    
    
    
    
    
    2,226
    
    
    
    (247
    )
    
    
    (5
    )
    
    
    1,974Total other (expense) income
    
    
    (6,230
    )
    
    
    (10,210
    )
    
    
    (528
    )
    
    
    (5
    )
    
    
    (16,973
    )(Loss) income from continuing operations
before income taxes
    
    
    (6,230
    )
    
    
    25,833
    
    
    
    (297
    )
    
    
    (310
    )
    
    
    18,996Provision for income taxes
    
    
    (2,373
    )
    
    
    9,874
    
    
    
    (106
    )
    
    
    (108
    )
    
    
    7,287Net (loss) income from continuing operations
    
    
    (3,857
    )
    
    
    15,959
    
    
    
    (191
    )
    
    
    (202
    )
    
    
    11,709Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Equity in earnings (loss) of subsidiary
    
    
    15,077
    
    
    
    (191
    )
    
    
    
    
    
    
    (14,886
    )
    
    
    Net income (loss)
    
    $
    11,220
    
    
    $
    15,077
    
    
    $
    (191
    )
    
    $
    (15,088
    )
    
    $
    11,018
 19




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Three Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    73,833
    
    
    $
    15,999
    
    
    $
    (11,050
    )
    
    $
    78,782Cost of sales
    
    
    
    
    
    
    11,716
    
    
    
    10,629
    
    
    
    (10,638
    )
    
    
    11,707Gross profit
    
    
    
    
    
    
    62,117
    
    
    
    5,370
    
    
    
    (412
    )
    
    
    67,075Operating expensesMarketing and selling
    
    
    
    
    
    
    23,857
    
    
    
    5,513
    
    
    
    
    
    
    
    29,370Research and development
    
    
    
    
    
    
    5,772
    
    
    
    
    
    
    
    
    
    
    
    5,772In-process research and
development
    
    
    
    
    
    
    25,613
    
    
    
    2,462
    
    
    
    
    
    
    
    28,075General and administrative
    
    
    
    
    
    
    7,597
    
    
    
    38
    
    
    
    
    
    
    
    7,635Amortization of intangibles
    
    
    
    
    
    
    820
    
    
    
    965
    
    
    
    
    
    
    
    1,785Total operating expenses
    
    
    
    
    
    
    63,659
    
    
    
    8,978
    
    
    
    
    
    
    
    72,637Operating loss
    
    
    
    
    
    
    (1,542
    )
    
    
    (3,608
    )
    
    
    (412
    )
    
    
    (5,562
    )Other (expense) incomeRoyalty income
    
    
    
    
    
    
    408
    
    
    
    
    
    
    
    
    
    
    
    408Interest income
    
    
    
    
    
    
    590
    
    
    
    (297
    )
    
    
    141
    
    
    
    434Interest expense
    
    
    (3
    )
    
    
    (282
    )
    
    
    169
    
    
    
    (141
    )
    
    
    (257
    )Financing charges
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Other income (expense)
    
    
    
    
    
    
    461
    
    
    
    (80
    )
    
    
    55
    
    
    
    436Total other (expense) income
    
    
    (6,958
    )
    
    
    1,177
    
    
    
    (208
    )
    
    
    55
    
    
    
    (5,934
    )Loss before income taxes
    
    
    (6,958
    )
    
    
    (365
    )
    
    
    (3,816
    )
    
    
    (357
    )
    
    
    (11,496
    )Provision for income taxes
    
    
    (2,658
    )
    
    
    1,835
    
    
    
    (2,440
    )
    
    
    (138
    )
    
    
    (3,401
    )Equity in (loss) earnings of subsidiary
    
    
    (3,576
    )
    
    
    (1,376
    )
    
    
    
    
    
    
    4,952
    
    
    
    Net (loss) income
    
    $
    (7,876
    )
    
    $
    (3,576
    )
    
    $
    (1,376
    )
    
    $
    4,733
    
    
    $
    (8,095
    )
 20




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Operations
 Six Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    
    
    
    $
    142,584
    
    
    $
    30,476
    
    
    $
    (20,654
    )
    
    $
    152,406Cost of sales
    
    
    
    
    
    
    23,694
    
    
    
    19,548
    
    
    
    (19,805
    )
    
    
    23,437Gross profit
    
    
    
    
    
    
    118,890
    
    
    
    10,928
    
    
    
    (849
    )
    
    
    128,969Operating expensesMarketing and selling
    
    
    
    
    
    
    46,331
    
    
    
    10,853
    
    
    
    
    
    
    
    57,184Research and development
    
    
    
    
    
    
    13,554
    
    
    
    
    
    
    
    
    
    
    
    13,554In-process research and development
    
    
    
    
    
    
    25,613
    
    
    
    2,462
    
    
    
    
    
    
    
    28,075General and administrative
    
    
    
    
    
    
    14,090
    
    
    
    39
    
    
    
    
    
    
    
    14,129Amortization of intangibles
    
    
    
    
    
    
    1,696
    
    
    
    1,930
    
    
    
    
    
    
    
    3,626Total operating expenses
    
    
    
    
    
    
    101,284
    
    
    
    15,284
    
    
    
    
    
    
    
    116,568Operating income (loss)
    
    
    
    
    
    
    17,606
    
    
    
    (4,356
    )
    
    
    (849
    )
    
    
    12,401Other (expense) incomeRoyalty income
    
    
    
    
    
    
    861
    
    
    
    
    
    
    
    
    
    
    
    861Interest income
    
    
    
    
    
    
    1,043
    
    
    
    (287
    )
    
    
    
    
    
    
    756Interest expense
    
    
    (3
    )
    
    
    (378
    )
    
    
    28
    
    
    
    
    
    
    
    (353
    )Financing charges
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Other income (expense)
    
    
    
    
    
    
    395
    
    
    
    (114
    )
    
    
    9
    
    
    
    290Total other (expense) income
    
    
    (6,958
    )
    
    
    1,921
    
    
    
    (373
    )
    
    
    9
    
    
    
    (5,401
    )(Loss) income before income taxes
    
    
    (6,958
    )
    
    
    19,527
    
    
    
    (4,729
    )
    
    
    (840
    )
    
    
    7,000Provision for income taxes
    
    
    (2,658
    )
    
    
    9,389
    
    
    
    (2,787
    )
    
    
    (321
    )
    
    
    3,623Equity in earnings (loss) of subsidiary
    
    
    8,196
    
    
    
    (1,942
    )
    
    
    
    
    
    
    (6,254
    )
    
    
    Net income (loss)
    
    $
    3,896
    
    
    $
    8,196
    
    
    $
    (1,942
    )
    
    $
    (6,773
    )
    
    $
    3,377
 21




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of June 30, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    86
    
    
    $
    20,588
    
    
    $
    10,122
    
    
    $
    
    
    
    $
    30,796Short term investments
    
    
    
    
    
    
    303
    
    
    
    320
    
    
    
    
    
    
    
    623Accounts receivable, net
    
    
    624,729
    
    
    
    70,715
    
    
    
    31,678
    
    
    
    (624,465
    )
    
    
    102,657Inventories, net
    
    
    
    
    
    
    44,628
    
    
    
    5,573
    
    
    
    (3,988
    )
    
    
    46,213Deferred income taxes
    
    
    
    
    
    
    10,539
    
    
    
    458
    
    
    
    
    
    
    
    10,997Other current assets
    
    
    7,338
    
    
    
    (952
    )
    
    
    3,441
    
    
    
    192
    
    
    
    10,019Total current assets
    
    
    632,153
    
    
    
    145,821
    
    
    
    51,592
    
    
    
    (628,261
    )
    
    
    201,305Property, plant and equipment, net
    
    
    
    
    
    
    54,975
    
    
    
    1,277
    
    
    
    
    
    
    
    56,252Goodwill
    
    
    
    
    
    
    639,035
    
    
    
    85,215
    
    
    
    (24,021
    )
    
    
    700,229Developed and core technology, net
    
    
    
    
    
    
    80,374
    
    
    
    21,829
    
    
    
    
    
    
    
    102,203Other intangibles, net
    
    
    
    
    
    
    46,871
    
    
    
    2,394
    
    
    
    
    
    
    
    49,265Investment in subsidiaries
    
    
    74,195
    
    
    
    15,851
    
    
    
    
    
    
    
    (90,046
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    445
    
    
    
    149
    
    
    
    
    
    
    
    594Other long-term assets, net
    
    
    1,369
    
    
    
    1,437
    
    
    
    
    
    
    
    
    
    
    
    2,806Total assets
    
    $
    707,717
    
    
    $
    984,809
    
    
    $
    162,456
    
    
    $
    (742,328
    )
    
    $
    1,112,654Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    22,529
    
    
    $
    523,387
    
    
    $
    106,015
    
    
    $
    (632,279
    )
    
    $
    19,652Accrued compensation expenses
    
    
    
    
    
    
    14,041
    
    
    
    2,244
    
    
    
    
    
    
    
    16,285Accrued warranty expense
    
    
    
    
    
    
    2,868
    
    
    
    (60
    )
    
    
    
    
    
    
    2,808Income taxes payable
    
    
    
    
    
    
    10,052
    
    
    
    (199
    )
    
    
    
    
    
    
    9,853Other accrued expenses
    
    
    6,074
    
    
    
    21,674
    
    
    
    7,219
    
    
    
    (6,904
    )
    
    
    28,063Total current liabilities
    
    
    28,603
    
    
    
    572,022
    
    
    
    115,219
    
    
    
    (639,183
    )
    
    
    76,661Non-current liabilitiesLong-term debt
    
    
    362,916
    
    
    
    324,383
    
    
    
    
    
    
    
    
    
    
    
    687,299Intercompany loans payable
    
    
    
    
    
    
    (10,271
    )
    
    
    23,370
    
    
    
    (13,099
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,931
    
    
    
    8,016
    
    
    
    
    
    
    
    22,947Long-term income taxes payable
    
    
    
    
    
    
    6,489
    
    
    
    
    
    
    
    
    
    
    
    6,489Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,916
    
    
    
    338,592
    
    
    
    31,386
    
    
    
    (13,099
    )
    
    
    719,795Total liabilities
    
    
    391,519
    
    
    
    910,614
    
    
    
    146,605
    
    
    
    (652,282
    )
    
    
    796,456Stockholders equityCommon stock
    
    
    721
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    721Additional paid-in capital
    
    
    276,156
    
    
    
    3,424
    
    
    
    67,349
    
    
    
    (70,773
    )
    
    
    276,156Accumulated other comprehensive income
    
    
    5,397
    
    
    
    462
    
    
    
    5,522
    
    
    
    (5,984
    )
    
    
    5,397Retained earnings (deficit)
    
    
    33,924
    
    
    
    70,309
    
    
    
    (57,029
    )
    
    
    (13,280
    )
    
    
    33,924Total stockholders equity
    
    
    316,198
    
    
    
    74,195
    
    
    
    15,851
    
    
    
    (90,046
    )
    
    
    316,198Total liabilities and stockholders equity
    
    $
    707,717
    
    
    $
    984,809
    
    
    $
    162,456
    
    
    $
    (742,328
    )
    
    $
    1,112,654
 22




---



##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Balance Sheet
 As of December 30, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalAssetsCurrent assetsCash and cash equivalents
    
    $
    1,138
    
    
    $
    22,905
    
    
    $
    5,008
    
    
    $
    
    
    
    $
    29,051Short term investments
    
    
    
    
    
    
    274
    
    
    
    216
    
    
    
    
    
    
    
    490Accounts receivable, net
    
    
    606,821
    
    
    
    71,346
    
    
    
    20,520
    
    
    
    (606,749
    )
    
    
    91,938Inventories, net
    
    
    
    
    
    
    36,472
    
    
    
    5,592
    
    
    
    (4,090
    )
    
    
    37,974Deferred income taxes
    
    
    
    
    
    
    10,608
    
    
    
    457
    
    
    
    
    
    
    
    11,065Other current assets
    
    
    4,965
    
    
    
    14,544
    
    
    
    2,220
    
    
    
    (157
    )
    
    
    21,572Assets of discontinued operations
    
    
    
    
    
    
    46,078
    
    
    
    
    
    
    
    
    
    
    
    46,078Total current assets
    
    
    612,924
    
    
    
    202,227
    
    
    
    34,013
    
    
    
    (610,996
    )
    
    
    238,168Property, plant and equipment, net
    
    
    
    
    
    
    46,454
    
    
    
    581
    
    
    
    
    
    
    
    47,035Goodwill
    
    
    
    
    
    
    593,641
    
    
    
    83,933
    
    
    
    (521
    )
    
    
    677,053Developed and core technology, net
    
    
    
    
    
    
    86,601
    
    
    
    24,033
    
    
    
    
    
    
    
    110,634Other intangibles, net
    
    
    
    
    
    
    71,591
    
    
    
    1,931
    
    
    
    (23,500
    )
    
    
    50,022Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,804
    
    
    
    (1,804
    )
    
    
    Investment in subsidiaries
    
    
    59,073
    
    
    
    14,449
    
    
    
    
    
    
    
    (73,522
    )
    
    
    Investment in technology and other assets
    
    
    
    
    
    
    987
    
    
    
    161
    
    
    
    
    
    
    
    1,148Other long-term assets, net
    
    
    1,329
    
    
    
    1,702
    
    
    
    
    
    
    
    
    
    
    
    3,031Total assets
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    23,259
    
    
    $
    508,468
    
    
    $
    96,553
    
    
    $
    (612,850
    )
    
    $
    15,430Accrued compensation expenses
    
    
    
    
    
    
    15,433
    
    
    
    1,586
    
    
    
    
    
    
    
    17,019Accrued warranty expense
    
    
    
    
    
    
    2,715
    
    
    
    
    
    
    
    
    
    
    
    2,715Income taxes payable
    
    
    
    
    
    
    
    
    
    
    240
    
    
    
    (240
    )
    
    
    Other accrued expenses
    
    
    6,175
    
    
    
    39,835
    
    
    
    1,881
    
    
    
    
    
    
    
    47,891Liabilities of discontinued operations
    
    
    
    
    
    
    19,478
    
    
    
    
    
    
    
    
    
    
    
    19,478Total current liabilities
    
    
    29,434
    
    
    
    585,929
    
    
    
    100,260
    
    
    
    (613,090
    )
    
    
    102,533Non-current liabilitiesLong term debt
    
    
    362,730
    
    
    
    350,726
    
    
    
    
    
    
    
    
    
    
    
    713,456Intercompany loans payable
    
    
    
    
    
    
    
    
    
    
    21,927
    
    
    
    (21,927
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    14,280
    
    
    
    9,820
    
    
    
    (1,804
    )
    
    
    22,296Long-term income taxes payable
    
    
    
    
    
    
    4,584
    
    
    
    
    
    
    
    
    
    
    
    4,584Long-term employee benefit obligations
    
    
    
    
    
    
    3,060
    
    
    
    
    
    
    
    
    
    
    
    3,060Total non-current liabilities
    
    
    362,730
    
    
    
    372,650
    
    
    
    31,747
    
    
    
    (23,731
    )
    
    
    743,396Total liabilities
    
    
    392,164
    
    
    
    958,579
    
    
    
    132,007
    
    
    
    (636,821
    )
    
    
    845,929Stockholders equityCommon stock
    
    
    711
    
    
    
    
    
    
    
    9
    
    
    
    (9
    )
    
    
    711Additional paid-in capital
    
    
    253,127
    
    
    
    3,431
    
    
    
    67,332
    
    
    
    (70,763
    )
    
    
    253,127Accumulated other comprehensive income
    
    
    4,155
    
    
    
    146
    
    
    
    4,287
    
    
    
    (4,433
    )
    
    
    4,155Retained earnings (deficit)
    
    
    23,169
    
    
    
    55,496
    
    
    
    (57,179
    )
    
    
    1,683
    
    
    
    23,169Total stockholders equity
    
    
    281,162
    
    
    
    59,073
    
    
    
    14,449
    
    
    
    (73,522
    )
    
    
    281,162Total liabilities and stockholders equity
    
    $
    673,326
    
    
    $
    1,017,652
    
    
    $
    146,456
    
    
    $
    (710,343
    )
    
    $
    1,127,091
 23




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended June 30, 2007AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash (used in) provided by operating activities
    
    $
    (10,143
    )
    
    $
    16,688
    
    
    $
    7,026
    
    
    $
    
    
    
    $
    13,571Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (11,576
    )
    
    
    (880
    )
    
    
    
    
    
    
    (12,456
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    (781
    )Disposal of business
    
    
    
    
    
    
    21,676
    
    
    
    
    
    
    
    
    
    
    
    21,676Purchase of other intangibles
    
    
    
    
    
    
    (263
    )
    
    
    
    
    
    
    
    
    
    
    (263
    )Purchase of short-term investments
    
    
    
    
    
    
    (28
    )
    
    
    (109
    )
    
    
    
    
    
    
    (137
    )Sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Net cash provided by (used in) investing activities
    
    
    
    
    
    
    9,809
    
    
    
    (1,760
    )
    
    
    
    
    
    
    8,049Cash flows from financing activitiesIssuance of common stock
    
    
    8,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,913Excess tax benefit from exercise of stock options
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Payments on long-term debt
    
    
    
    
    
    
    (28,123
    )
    
    
    
    
    
    
    
    
    
    
    (28,123
    )Net cash provided by (used in) financing activities
    
    
    9,091
    
    
    
    (28,123
    )
    
    
    
    
    
    
    
    
    
    
    (19,032
    )Cash used in discontinued operationsOperating activities
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    
    
    
    
    (691
    )Effect of exchange rates on cash
    
    
    

    
    
    
    

    
    
    
    (152
    )
    
    
    
    

    
    
    (152
    )Net (decrease) increase in cash and cash equivalents
    
    
    (1,052
    )
    
    
    (2,317
    )
    
    
    5,114
    
    
    
    
    
    
    
    1,745Cash and cash equivalents at beginning of period
    
    
    1,138
    
    
    
    22,905
    
    
    
    5,008
    
    
    
    
    
    
    
    29,051Cash and cash equivalents at end of period
    
    $
    86
    
    
    $
    20,588
    
    
    $
    10,122
    
    
    $
    
    
    
    $
    30,796
 24




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##### Table of Contents



American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)
Condensed Consolidating Statement of Cash Flows
 Six Months Ended July 1, 2006AmericanMedical
    
    
    
    
    
    
    Non-Systems
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    ConsolidatedHoldings, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows from operating activitiesNet cash provided by operating activities
    
    $
    1,671
    
    
    $
    28,129
    
    
    $
    3,199
    
    
    $
    
    
    
    $
    32,999Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (6,870
    )
    
    
    (100
    )
    
    
    
    
    
    
    (6,970
    )Purchase of business, net of cash acquired
    
    
    
    
    
    
    (23,986
    )
    
    
    
    
    
    
    
    
    
    
    (23,986
    )Purchase of investments in technology
    
    
    
    
    
    
    (25,613
    )
    
    
    (2,462
    )
    
    
    
    
    
    
    (28,075
    )Purchase of other intangibles
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Purchase of short-term investments
    
    
    
    
    
    
    (100
    )
    
    
    (10
    )
    
    
    
    
    
    
    (110
    )Sale of short-term investments
    
    
    
    
    
    
    15,176
    
    
    
    14
    
    
    
    
    
    
    
    15,190Net cash used in investing activities
    
    
    
    
    
    
    (42,393
    )
    
    
    (2,558
    )
    
    
    
    
    
    
    (44,951
    )Cash flows from financing activitiesProceeds from issuance of convertible notes,
net of issuance costs
    
    
    362,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,538Issuance of common stock
    
    
    3,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,437Intercompany notes
    
    
    
    
    
    
    874
    
    
    
    (874
    )
    
    
    
    
    
    
    Excess tax benefit from exercise of stock options
    
    
    389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389Proceeds from short-term borrowings
    
    
    21,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,000Repayments of short-term borrowings
    
    
    (21,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,000
    )Financing charges paid on credit facility
    
    
    (6,955
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,955
    )Net cash provided by (used in) financing activities
    
    
    359,409
    
    
    
    874
    
    
    
    (874
    )
    
    
    
    
    
    
    359,409Effect of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Net increase (decrease) in cash and cash equivalents
    
    
    361,080
    
    
    
    (13,390
    )
    
    
    (137
    )
    
    
    
    
    
    
    347,553Cash and cash equivalents at beginning of period
    
    
    1,567
    
    
    
    21,751
    
    
    
    7,567
    
    
    
    
    
    
    
    30,885Cash and cash equivalents at end of period
    
    $
    362,647
    
    
    $
    8,361
    
    
    $
    7,430
    
    
    $
    
    
    
    $
    378,438
 25




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##### Table of Contents



NOTE 13. Income Taxes
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 Accounting for Income Taxes
      NOTE 14. Other Contingencies
 Her Option® Her Option
 26




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements 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 as a result of many factors, including, but not
limited to, those included on our Form 10-K , Part I, Item 1A for the year ended December 30, 2006,
as updated by Item 1A of our Form 10-Q for the quarter ended March 31, 2007. We undertake no
obligation to correct or update any forward-looking statements, whether as a result of new
information, future events, or otherwise. You are advised, however, to consult any future
disclosures we make on related subjects in future filings with the SEC.
 Critical Accounting Policies and Estimates
  Overview
  www.AmericanMedicalSystems.com.
 Laserscope Acquisition
    27




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##### Table of Contents



Notes to Consolidated Financial
Statements  No. 2, Acquisitions.
 Results of Operations
  Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months Ended(in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    $ Increase
    
    % Increase
    
    June 30, 2007
    
    July 1, 2006
    
    $ Increase
    
    % IncreaseSalesMens health
    
    $
    78,267
    
    
    $
    45,912
    
    
    $
    32,355
    
    
    
    70.5
    %
    
    $
    151,938
    
    
    $
    90,570
    
    
    $
    61,368
    
    
    
    67.8
    %Womens health
    
    
    38,186
    
    
    
    32,870
    
    
    
    5,316
    
    
    
    16.2
    %
    
    
    72,900
    
    
    
    61,836
    
    
    
    11,064
    
    
    
    17.9
    %Total
    
    $
    116,453
    
    
    $
    78,782
    
    
    $
    37,671
    
    
    
    47.8
    %
    
    $
    224,838
    
    
    $
    152,406
    
    
    $
    72,432
    
    
    
    47.5
    %GeographyUnited States
    
    $
    85,136
    
    
    $
    60,024
    
    
    $
    25,112
    
    
    
    41.8
    %
    
    $
    164,076
    
    
    $
    117,023
    
    
    $
    47,053
    
    
    
    40.2
    %International
    
    
    31,317
    
    
    
    18,758
    
    
    
    12,559
    
    
    
    67.0
    %
    
    
    60,762
    
    
    
    35,383
    
    
    
    25,379
    
    
    
    71.7
    %Total
    
    $
    116,453
    
    
    $
    78,782
    
    
    $
    37,671
    
    
    
    47.8
    %
    
    $
    224,838
    
    
    $
    152,406
    
    
    $
    72,432
    
    
    
    47.5
    %
 Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    July 1, 2006
    
    June 30, 2007
    
    July 1, 2006Percent of total salesMens health
    
    
    67.2
    %
    
    
    58.3
    %
    
    
    67.6
    %
    
    
    59.4
    %Womens health
    
    
    32.8
    %
    
    
    41.7
    %
    
    
    32.4
    %
    
    
    40.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %GeographyUnited States
    
    
    73.1
    %
    
    
    76.2
    %
    
    
    73.0
    %
    
    
    76.8
    %International
    
    
    26.9
    %
    
    
    23.8
    %
    
    
    27.0
    %
    
    
    23.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 28




---



##### Table of Contents



Three Months Ended
    
    $ Increase
    
    % Increase
    
    Six Months Ended
    
    $ Increase
    
    % Increase(in thousands)
    
    June 30, 2007
    
    July 1, 2006
    
    (Decrease)
    
    (Decrease)
    
    June 30, 2007
    
    July 1, 2006
    
    (Decrease)
    
    (Decrease)Net sales
    
    $
    116,453
    
    
    $
    78,782
    
    
    $
    37,671
    
    
    
    47.8
    %
    
    $
    224,838
    
    
    $
    152,406
    
    
    $
    72,432
    
    
    
    47.5
    %Cost of sales
    
    
    27,129
    
    
    
    11,707
    
    
    
    15,422
    
    
    
    131.7
    %
    
    
    53,484
    
    
    
    23,437
    
    
    
    30,047
    
    
    
    128.2
    %Gross profit
    
    
    89,324
    
    
    
    67,075
    
    
    
    22,249
    
    
    
    33.2
    %
    
    
    171,354
    
    
    
    128,969
    
    
    
    42,385
    
    
    
    32.9
    %Operating expensesMarketing and selling
    
    
    41,694
    
    
    
    29,370
    
    
    
    12,324
    
    
    
    42.0
    %
    
    
    81,124
    
    
    
    57,184
    
    
    
    23,940
    
    
    
    41.9
    %Research and development
    
    
    10,979
    
    
    
    5,772
    
    
    
    5,207
    
    
    
    90.2
    %
    
    
    22,129
    
    
    
    13,554
    
    
    
    8,575
    
    
    
    63.3
    %In-process research and development
    
    
    
    
    
    
    28,075
    
    
    
    (28,075
    )
    
    
    -100.0
    %
    
    
    
    
    
    
    28,075
    
    
    
    (28,075
    )
    
    
    -100.0
    %General and administrative
    
    
    10,587
    
    
    
    7,635
    
    
    
    2,952
    
    
    
    38.7
    %
    
    
    21,576
    
    
    
    14,129
    
    
    
    7,447
    
    
    
    52.7
    %Integration costs
    
    
    92
    
    
    
    
    
    
    
    92
    
    
    
    0.0
    %
    
    
    1,103
    
    
    
    
    
    
    
    1,103
    
    
    
    0.0
    %Amortization of intangibles
    
    
    4,749
    
    
    
    1,785
    
    
    
    2,964
    
    
    
    166.1
    %
    
    
    9,453
    
    
    
    3,626
    
    
    
    5,827
    
    
    
    160.7
    %Total operating expenses
    
    
    68,101
    
    
    
    72,637
    
    
    
    (4,536
    )
    
    
    -6.2
    %
    
    
    135,385
    
    
    
    116,568
    
    
    
    18,817
    
    
    
    16.1
    %Operating income (loss)
    
    
    21,223
    
    
    
    (5,562
    )
    
    
    26,785
    
    
    
    -481.6
    %
    
    
    35,969
    
    
    
    12,401
    
    
    
    23,568
    
    
    
    190.0
    %Royalty income
    
    
    503
    
    
    
    408
    
    
    
    95
    
    
    
    23.3
    %
    
    
    1,182
    
    
    
    861
    
    
    
    321
    
    
    
    37.3
    %Interest income
    
    
    293
    
    
    
    434
    
    
    
    (141
    )
    
    
    -32.5
    %
    
    
    629
    
    
    
    756
    
    
    
    (127
    )
    
    
    -16.8
    %Interest expense
    
    
    (9,588
    )
    
    
    (257
    )
    
    
    (9,331
    )
    
    
    3630.7
    %
    
    
    (19,221
    )
    
    
    (353
    )
    
    
    (18,868
    )
    
    
    5345.0
    %Financing charges
    
    
    (755
    )
    
    
    (6,955
    )
    
    
    6,200
    
    
    
    -89.1
    %
    
    
    (1,537
    )
    
    
    (6,955
    )
    
    
    5,418
    
    
    
    -77.9
    %Other income
    
    
    351
    
    
    
    436
    
    
    
    (85
    )
    
    
    -19.5
    %
    
    
    1,974
    
    
    
    290
    
    
    
    1,684
    
    
    
    580.7
    %Income
(loss) from continuing operations before income taxes
    
    
    12,027
    
    
    
    (11,496
    )
    
    
    23,523
    
    
    
    -204.6
    %
    
    
    18,996
    
    
    
    7,000
    
    
    
    11,996
    
    
    
    171.4
    %Provision for income taxes
    
    
    4,701
    
    
    
    (3,401
    )
    
    
    8,102
    
    
    
    -238.2
    %
    
    
    7,287
    
    
    
    3,623
    
    
    
    3,664
    
    
    
    101.1
    %Income (loss) from continuing operations
    
    
    7,326
    
    
    
    (8,095
    )
    
    
    15,421
    
    
    
    -190.5
    %
    
    
    11,709
    
    
    
    3,377
    
    
    
    8,332
    
    
    
    246.7
    %Loss from discontinued operations,
net of tax of $0.4 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (691
    )
    
    
    
    
    
    
    (691
    )
    
    
    0.0
    %Net income (loss)
    
    $
    7,326
    
    
    $
    (8,095
    )
    
    $
    15,421
    
    
    
    -190.5
    %
    
    $
    11,018
    
    
    $
    3,377
    
    
    $
    7,641
    
    
    
    226.3
    %
 Percent of Sales
    
    Percent of SalesFor the Three Months Ended
    
    For the Six Months EndedJune 30, 2007
    
    July 1, 2006
    
    June 30, 2007
    
    July 1, 2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    23.3
    %
    
    
    14.9
    %
    
    
    23.8
    %
    
    
    15.4
    %Gross profit
    
    
    76.7
    %
    
    
    85.1
    %
    
    
    76.2
    %
    
    
    84.6
    %Operating expensesMarketing and selling
    
    
    35.8
    %
    
    
    37.3
    %
    
    
    36.1
    %
    
    
    37.5
    %Research and development
    
    
    9.4
    %
    
    
    7.3
    %
    
    
    9.8
    %
    
    
    8.9
    %In-process research and development
    
    
    
    
    
    
    35.6
    %
    
    
    0.0
    %
    
    
    18.4
    %General and administrative
    
    
    9.1
    %
    
    
    9.7
    %
    
    
    9.6
    %
    
    
    9.3
    %Integration costs
    
    
    0.1
    %
    
    
    
    
    
    
    0.5
    %
    
    
    Amortization of intangibles
    
    
    4.1
    %
    
    
    2.3
    %
    
    
    4.2
    %
    
    
    2.4
    %Total operating expenses
    
    
    58.5
    %
    
    
    92.2
    %
    
    
    60.2
    %
    
    
    76.5
    %Operating income (loss)
    
    
    18.2
    %
    
    
    -7.1
    %
    
    
    16.0
    %
    
    
    8.1
    %Royalty income
    
    
    0.4
    %
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.6
    %Interest income
    
    
    0.3
    %
    
    
    0.6
    %
    
    
    0.3
    %
    
    
    0.5
    %Interest expense
    
    
    -8.2
    %
    
    
    -0.3
    %
    
    
    -8.5
    %
    
    
    -0.2
    %Financing charges
    
    
    -0.6
    %
    
    
    -8.8
    %
    
    
    -0.7
    %
    
    
    -4.6
    %Other income
    
    
    0.3
    %
    
    
    0.6
    %
    
    
    0.9
    %
    
    
    0.2
    %Income (loss) from continuing operations
before income taxes
    
    
    10.3
    %
    
    
    -14.6
    %
    
    
    8.4
    %
    
    
    4.6
    %Provision for income taxes
    
    
    4.0
    %
    
    
    -4.3
    %
    
    
    3.2
    %
    
    
    2.4
    %Income (loss) from continuing operations
    
    
    6.3
    %
    
    
    -10.3
    %
    
    
    5.2
    %
    
    
    2.2
    %Loss from discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    -0.3
    %
    
    
    Net income (loss)
    
    
    6.3
    %
    
    
    -10.3
    %
    
    
    4.9
    %
    
    
    2.2
    %
 29




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##### Table of Contents



Comparison of the Three Months Ended June 30, 2007 to the Three Months Ended July 1, 2006
 Net sales. AdVance Male Sling AMS 700 MS Her Option
 Net sales mens health products. TherMatrx AMS 700 AdVance Male Sling
 Net sales womens health products. Apogee® Perigee® Her Option Monarc
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development. Greenlight HPS
 In-process research and development. Notes to Consolidated Financial Statements  No. 2, Acquisitions
 30




---



##### Table of Contents



General and administrative.
 Integration costs
 Amortization of intangibles. Notes
to Consolidated Financial Statements  No. 2, Acquisitions.)
 Royalty income. Prolieve
 Interest income.
 Interest expense.
 Financing charges.
 Other income
 Provision for income taxes.
 Comparison of the Six Months Ended June 30, 2007 to the Six Months Ended July 1, 2006
 Net sales. AdVance Male Sling AMS 700 MS Her Option
 Net sales mens health products. TherMatrx
 31




---



##### Table of Contents



AMS 700 AdVance Male Sling, AdVance Male Sling
 Net sales womens health products. Apogee® Perigee® Her Option Monarc® .
 Net sales by geography and foreign exchange effects.
 Cost of sales
 Marketing and selling.
 Research and development. GreenLight HPS
 In-process research and development. ) Notes to Consolidated Financial Statements  No. 2, Acquisitions
 General and administrative.
 Integration costs
 Amortization of intangibles. Notes
to Consolidated Financial Statements  No. 2, Acquisitions.)
 32




---



##### Table of Contents



Royalty income. Prolieve
 Interest income.
 Interest expense.
 Financing charges.
 Other income
 Provision for income taxes.
 Liquidity and Capital Resources
  Cash flows from operating activities.
 Cash flows from investing activities.
 Cash flows from financing activities.
 33




---



##### Table of Contents



If the market price of
    
    The number of shares issued uponour stock is:
    
    full conversion would be (1):$25.00
    
    4.3 million$30.00
    
    6.8 million$35.00
    
    8.6 million
 
 (1)
    
    The formula to calculate the shares issued upon full conversion of our Convertible Notes is as follows: (
    
    $373.8 million principal
    
    x
    
    Market price of stock at time of conversion
    
    
    
    $373.8 million
principal
    
    )
    
    =
    
    Shares issued
upon full
conversion$19.406 conversion priceMarket price of stock at time of conversion
    34




---



##### Table of Contents



The number of common share equivalentsIf the average market
    
    potentially included in the computation of
    
    Percentprice of our stock is:
    
    diluted EPS would be (1):
    
    Dilution (2)$     
19.00
    
    
    
    
    (anti-dilutive)
    
    
    0.0
    %$     
25.00
    
    
    4.3
    
    million
    
    
    5.6
    %$     
30.00
    
    
    6.8
    
    million
    
    
    8.6
    %$     
35.00
    
    
    8.6
    
    million
    
    
    10.6
    %
 
 (1)
    
    Common share equivalents are calculated using the treasury stock method, in accordance with
EITF 90-19, Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.(2)
    
    The percent dilution is based on 72,097,034 outstanding shares as of June 30, 2007.     35




---



##### Table of Contents



For The FiscalPeriods Ending
    
    RequiredFinancial Covenants
    
    Closest to
    
    RatioTotal Leverage Ratio
    
    6/30/07
    
    6.00:1.00 (maximum)9/30/07
    
    5.50:1.0012/31/07
    
    5.00:1.003/31/08
    
    4.75:1.00Reductions continuing until 6/30/10
    
    3.00:1.00Senior Leverage Ratio
    
    6/30/07
    
    3.00:1.00 (maximum)9/30/07
    
    2.75:1.0012/31/07
    
    2.50:1.003/31/08
    
    2.50:1.00Reductions continuing until 3/31/09
    
    2.00:1.00Interest Coverage Ratio
    
    6/30/07
    
    3.00:1.00 (minimum)9/30/07
    
    3.25:1.0012/31/07
    
    3.50:1.003/31/08
    
    3.50:1.00Increases continuing until 9/30/09
    
    4.00:1.00Fixed Charge Coverage Ratio
    
    6/30/07
    
    1.15:1.00 (minimum)9/30/07
    
    1.15:1.0012/31/07
    
    1.25:1.003/31/08
    
    1.25:1.00Increases continuing until 9/30/08
    
    1.50:1.00Maximum Capital Expenditures
    
    12/31/07
    
    $15 million12/31/08
    
    $15 million
  Financial Covenant
    
    Required Covenant
    
    Actual ResultTotal Leverage Ratio (1)
    
    6.00:1.00 (maximum)
    
    5.73Senior Leverage Ratio (2)
    
    3.00:1.00 (maximum)
    
    2.69Interest Coverage Ratio (3)
    
    3.00:1.00 (minimum)
    
    3.15Fixed Charge Coverage Ratio (4)
    
    1.15:1.00 (minimum)
    
    2.07Maximum Capital Expenditures (5)
    
    $15 million
    
    $12.456 million
 
 (1)
    
    Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.(2)
    
    Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four
quarters.(3)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to interest expense for such period.(4)
    
    Ratio of Consolidated EBITDA for the trailing four quarters to fixed charges (cash interest
expense, scheduled principal payments on debt, capital expenditures, income taxes paid,
earn-out and milestone payments) for such period.(5)
    
    Includes expenditures of $6.1 million for the planned expansion of our corporate headquarters
building and $3.2 million for the implementation of a new enterprise resource planning system.
These projects were completed in the second quarter of 2007.  36




---



##### Table of Contents



Notes to Consolidated Financial Statements 
No. 12, Debt.
 Cash commitments.
  Ovion
    37




---



##### Table of Contents



Additional Information on AMS
 http://www.sec.gov.
 www.AmericanMedicalSystems.com
 38




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rates
   Currency
    Inflation
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  39




---



##### Table of Contents



40




---



##### Table of Contents



PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
 Her Option® Her Option
 
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    For
    
    
    Withheld1. Election of DirectorsTerm expiring in 2010:Martin J. Emerson
    
    
    61,055,472
    
    
    
    4,984,640Albert Jay Graf
    
    
    61,015,988
    
    
    
    5,024,124Robert McLellan, M.D.
    
    
    61,062,268
    
    
    
    4,977,844
 BrokerFor
    
    
    Against
    
    
    Abstain
    
    
    Non-Votes2. Ratification of Ernst & Young LLP as
independent
auditor for fiscal year 2007
    
    
    65,784,948
    
    
    
    246,976
    
    
    
    8,188
    
    
    
    
 41




---



##### Table of Contents



ITEM 6.
    
    EXHIBITS
 Item No.
    
    Item
    
    Method of Filing31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 42




---



##### Table of Contents



SIGNATURES
  AMERICAN MEDICAL SYSTEMSHOLDINGS, INCAugust 9, 2007
    
    By
    
    /s/ Martin J. EmersonDate
    
    
    
    Martin J. EmersonPresident and Chief Executive OfficerAugust 9, 2007
    
    By
    
    /s/ Mark A. HeggestadDate
    
    
    
    Mark A. HeggestadExecutive Vice President and Chief Financial
Officer
 43




---



##### Table of Contents



AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
 
 EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
 For the Fiscal Quarter Ended June 30, 2007
 Item No.
    
    Item
    
    Method of Filing31.1
    
    Certification by Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.31.2
    
    Certification by Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.32.1
    
    Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.
    
    Filed with this Quarterly
Report on Form 10-Q.
 44