American Medical Systems (AMMD) 10-Q 2010 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 2010

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number: 00030733

AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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)

     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.

þ Yeso No

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yeso No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerþ Accelerated filero Non-accelerated filero(Do not check if a smaller reporting company) Smaller reporting companyo

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   þ No

     As of May 4, 2010 there were 75,377,192 shares of the registrant’s $.01 par value Common Stock outstanding.

INDEX

	Page
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Operations for the three month periods ended April 3, 2010 and April 4, 2009		3
Consolidated Balance Sheets as of April 3, 2010 and January 2, 2010		4
Consolidated Statements of Cash Flow for the three month periods ended April 3, 2010 and April 4, 2009		5
Notes to Consolidated Financial Statements		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		34
ITEM 4. CONTROLS AND PROCEDURES		35
PART II OTHER INFORMATION
ITEM 1A. RISK FACTORS		36
ITEM 6. EXHIBITS		37
SIGNATURES		39
EXHIBIT INDEX		40
EX-10.10
EX-10.11
EX-10.12
EX-31.1
EX-31.2
EX-32.1

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

American Medical Systems Holdings, Inc.

Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

	Three Months Ended
	April 3, 2010			April 4, 2009
Net sales	$	134,926		$	123,638
Cost of sales		21,027			23,342
Gross profit		113,899			100,296
Operating expenses
Marketing and selling		48,197			43,348
Research and development		13,509			12,811
General and administrative		12,690			10,779
Amortization of intangibles		3,047			3,265
Total operating expenses		77,443			70,203
Operating income		36,456			30,093
Other (expense) income
Royalty income		308			933
Interest expense		(3,954	)		(5,410	)
Amortization of financing costs		(3,693	)		(3,981	)
Gain on extinguishment of debt		—			4,562
Gain on sale of non-strategic assets		7,719			—
Other (expense) income		(516	)		655
Total other (expense)		(136	)		(3,241	)
Income before income taxes		36,320			26,852
Provision for income taxes		15,662			9,772
Net income	$	20,658		$	17,080
Net income per share
Basic net earnings	$	0.28		$	0.23
Diluted net earnings	$	0.27		$	0.23
Weighted average common shares used in calculation
Basic		75,117			73,691
Diluted		76,270			74,018

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

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American Medical Systems Holdings, Inc.

Consolidated Balance Sheets
(In thousands, except share and per share data)

	April 3, 2010		January 2, 2010
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	22,212	$	30,670
Short-term investments		37,653		19,868
Accounts receivable, net		93,390		102,590
Inventories, net		30,903		30,276
Deferred income taxes		14,036		14,870
Other current assets		8,201		6,067
Total current assets		206,395		204,341
Property, plant and equipment, net		42,866		44,120
Goodwill		683,857		690,899
Developed and core technology, net		47,748		51,631
Other intangibles, net		49,974		49,937
Other long-term assets, net		5,858		6,223
Total assets	$	1,036,698	$	1,047,151
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	11,043	$	9,114
Income taxes payable		15,417		4,495
Accrued compensation expenses		21,007		29,603
Accrued warranty expense		2,203		2,293
Other accrued expenses		21,599		25,760
Total current liabilities		71,269		71,265
Long-term debt		304,314		346,229
Deferred income taxes		61,857		62,347
Long-term income taxes payable		18,516		18,206
Long-term employee benefit obligations		3,745		3,745
Total liabilities		459,701		501,792
Stockholders’ equity
Common stock, par value $.01 per share; authorized 200,000,000 shares; issued and outstanding: 75,367,367 shares at April 3, 2010 and 74,715,839 shares at January 2, 2010		754		747
Additional paid-in capital		410,489		399,468
Accumulated other comprehensive income		6,332		6,381
Retained earnings		159,422		138,763
Total stockholders’ equity		576,997		545,359
Total liabilities and stockholders’ equity	$	1,036,698	$	1,047,151

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

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American Medical Systems Holdings, Inc.

Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

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

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
(Unaudited)

1. Basis of Presentation

We have prepared the consolidated financial statements included in this Quarterly Report on Form 10-Q without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to these rules and regulations. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These unaudited consolidated interim financial statements should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for fiscal 2009. All amounts presented in tables are in thousands, except per share data.

These statements reflect, in management’s opinion, all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. The results of operations for any interim period may not be indicative of results for the full year.

We have a 52 or 53 week fiscal year ending on the Saturday nearest December 31. Accordingly, the first fiscal quarters of 2010 and 2009 are represented by the three month periods ended on April 3, 2010 and April 4, 2009, respectively.

2. Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13,Revenue Recognition (Topic 605):Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 will separate multiple-deliverable arrangements in more circumstances than under existing U.S. GAAP and will establish a selling price hierarchy for determining the selling price of a deliverable. In addition, it will replace the term “fair value” in the revenue allocation guidance with “selling price” to clarify the allocation of revenue is based on entity-specific assumptions rather than assumptions of a market place participant, eliminate the use of the residual method for allocation, and expand on-going disclosure requirements. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010 and can be applied prospectively or retrospectively. We plan to adopt this updated accounting guidance for multiple-deliverable revenue arrangements on a prospective basis for our fiscal year beginning on January 2, 2011, and the adoption is not expected to have a material impact on our consolidated financial position or results of operations.

3. Stock-Based Compensation

At April 3, 2010, the 2005 Stock Incentive Plan, as amended and restated (2005 Plan), is our one active stock-based employee compensation plan under which new awards may be granted. Awards under the 2005 Plan include incentive stock options, non-qualified option grants and restricted stock. Amounts recognized in our financial statements related to stock-based compensation were as follows:

	Three Months Ended
(in thousands)	April 3, 2010		April 4, 2009
Cost of sales	$	248	$	241
Marketing and selling		451		455
Research and development		285		287
General and administrative		845		1,233
Total stock-based compensation expense	$	1,829	$	2,216

Options granted under the 2005 Plan generally become exercisable for twenty-five percent of the shares on the first anniversary date of the grant and 6.25 percent at the end of each quarter thereafter. Options are granted with an exercise price equal to the fair market value of the common stock on the date of the grant.

Options granted under our 2005 Plan generally have a stated expiration, if not exercised or earlier terminated, seven years after the date of grant. Options that were granted under our 2000 Equity Incentive Plan (2000 Plan) generally have a stated expiration, if not exercised or earlier terminated, ten years after the date of grant.

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Stock option activity under our 2005 Plan and 2000 Plan for the three months ended April 3, 2010 was as follows:

				Weighted average		Aggregate
	Options			exercise price		Intrinsic
	outstanding			per share		Value
						(in thousands)
Balance at January 2, 2010		7,161,545		$	15.08
Granted		894,150			18.44
Exercised		(575,223	)		14.72
Cancelled or expired		(233,512	)		17.99
Balance at April 3, 2010		7,246,960		$	15.43	$	25,659
Options exercisable at April 3, 2010		3,990,195		$	15.70	$	13,804

The total intrinsic value of options exercised during the three months ended April 3, 2010 was $2.8 million. As of April 3, 2010, we had $17.8 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our 2005 Plan. We expect that cost to be recognized over a weighted average period of 2.9 years.

Restricted stock awards are granted under the 2005 Stock Incentive Plan. Restricted stock awards are subject to forfeiture if employment or service terminates prior to the release of the restrictions. Restricted stock generally vests over a three or four year period. During the vesting period, ownership of the shares cannot be transferred. Restricted stock is considered issued and outstanding at the grant date and has the same dividend and voting rights as other common stock. We recognize compensation expense for the fair value of the restricted stock grants issued based on the closing stock price on the date of grant. The 2005 Plan does not designate the specific number of shares available for restricted stock grants, as these are issued from the full pool of shares available under the plan. The option pool is reduced by two shares for each restricted share granted.

Restricted stock activity under our 2005 Plan for the three months ended April 3, 2010 was as follows:

	Unvested Shares			Weighted average
	outstanding			grant date fair value
Balance at January 2, 2010		233,525		$	16.54
Granted		90,740			15.16
Vested		(19,325	)		16.99
Cancelled		(5,300	)		15.44
Balance at April 3, 2010		299,640			15.79

4. Earnings per Share

The following table presents information necessary to calculate basic and diluted net income per common share and common share equivalents.

	Three Months Ended
(in thousands, except per share data)	April 3, 2010		April 4, 2009
Net income	$	20,658	$	17,080
Weighted-average shares outstanding for basic net income per share		75,117		73,691
Dilutive effect of stock options and restricted shares		1,153		327
Adjusted weighted-average shares outstanding for diluted net income per share		76,270		74,018
Net income per share
Basic net earnings	$	0.28	$	0.23
Diluted net earnings	$	0.27	$	0.23

There were 2,275,535 weighted shares outstanding for the three month period ended April 3, 2010, that were excluded from the diluted earnings per share computation because the impact would have been anti-dilutive. For the three month period ended April 4, 2009, there were 6,443,355 weighted shares outstanding that were excluded from the diluted earnings per share computation because the impact would have been anti-dilutive. In addition, our convertible notes (seeNote 9, Debt)were excluded from the diluted net income per share calculation for all periods presented because the conversion price was greater than the average market price of our stock during the periods.

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5. Inventories

Inventories consist of the following as of April 3, 2010 and January 2, 2010:

(in thousands)	April 3, 2010			January 2, 2010
Raw materials	$	8,218		$	10,117
Work in process		3,940			3,399
Finished goods		22,682			21,791
Obsolescence reserve		(3,937	)		(5,031	)
Net inventories	$	30,903		$	30,276

6. Warranties

Many of our products are sold with warranty coverage for periods ranging from one year up to the patient’s lifetime. The warranty allowance is our estimate of the expected future cost of honoring current warranty obligations. Factors influencing this estimate include historical claim rates, changes in product performance or deviations in product performance against our reliability commitments, the frequency of use of a prosthetic implant by the patient, patients’ performance expectations and changes in the terms of our policies.

Changes in the warranty balance during the three months ended April 3, 2010 and April 4, 2009 are presented below:

	Three Months Ended
(in thousands)	April 3, 2010			April 4, 2009
Balance, beginning of period	$	2,293		$	3,287
Provisions for warranty		334			808
Claims processed		(424	)		(1,230	)
Balance, end of period	$	2,203		$	2,865

7. Comprehensive Income

Comprehensive income is the sum of net income as reported and other comprehensive income (loss). Other comprehensive income (loss) resulted from foreign currency translation adjustments, gains on derivative instruments qualifying as hedges, and gains on available-for-sale investments. For more information on derivatives, seeNote 11, Derivative Instruments and Hedging Activities. Comprehensive income for the three months ended April 3, 2010 and April 4, 2009 was:

	Three Months Ended
(in thousands)	April 3, 2010			April 4, 2009
Net income	$	20,658		$	17,080
Foreign currency translation loss, net of taxes of $15 and $60, respectively		(1,431	)		(1,374	)
Fair value adjustment on derivatives designated as cash flow hedges, net of taxes of ($610) and ($164), respectively		1,008			271
Reclassification adjustments on cash flow hedges settled and included in net income, net of tax of ($136) and ($119), respectively		225			197
Unrealized gain on available-for-sale securities, net of taxes of ($90) and ($12), respectively		149			20
Comprehensive income	$	20,609		$	16,194

8

The after-tax components of accumulated other comprehensive income (loss) as of April 3, 2010 and January 2, 2010, were as follows:

	Net Unrealized
	(Loss) on
	Derivative								Net Unrealized Gain
	Instruments			Post-retirement			Foreign Currency		on		Total Accumulated
	Qualifying as			Plan Liability			Translation		Available-for-sale		Other Comprehensive
(in thousands)	Hedges			Adjustment			Adjustment		Investments		Income
Balance at January 2, 2010	$	(1,289	)	$	(24	)	$	7,500	$	194	$	6,381
Balance at April 3, 2010	$	(56	)	$	(24	)	$	6,069	$	343	$	6,332

8. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three month period ending April 3, 2010 were:

	Three Months Ended
(in thousands)	April 3, 2010
Goodwill, beginning of the period	$	690,899
Allocation of goodwill to sale of non-strategic assets	$	(6,400	)
Effect of currency translation		(642	)
Goodwill, end of the period	$	683,857

During the first quarter of 2010, we sold theHer Option^®Global Endometrial Ablation product line for $20.5 million and used the proceeds to pay down our debt. The final sale price is subject to adjustment based on working capital balances at the time of sale. We allocated a portion of our goodwill to the sale based on the relative fair value of theHer Option^®product line and our remaining business. The consideration, less goodwill, the carrying value of tangible and intangible assets and related disposal costs resulted in a pre-tax gain of $7.7 million, which is included in “gain on sale of non-strategic assets” in the Consolidated Statements of Operations. As the majority of the goodwill that was allocated to theHer Option^®product line had no tax basis, we recorded a $5.1 million tax provision against the gain resulting in an effective tax rate of 65.7 percent of the gain on sale ofHer Option^®.

The following table provides additional information concerning intangible assets:

	April 3, 2010							January 2, 2010
	Gross carrying		Accumulated			Net book		Gross carrying		Accumulated			Net book
(in thousands)	amount		amortization			value		amount		amortization			value
Developed and core technology	$	132,953	$	(85,205	)	$	47,748	$	137,553	$	(85,922	)	$	51,631
Other intangibles
Amortized
Patents		11,051		(9,448	)		1,603		11,510		(9,693	)		1,817
Licenses		16,537		(9,296	)		7,241		15,913		(9,034	)		6,879
Trademarks		2,233		(1,903	)		330		2,208		(1,767	)		441
Total amortized other intangible assets		29,821		(20,647	)		9,174		29,631		(20,494	)		9,137
Unamortized
Trademarks		40,800		—			40,800		40,800		—			40,800
Total other intangibles		70,621		(20,647	)		49,974		70,431		(20,494	)		49,937
Total intangible assets	$	203,574	$	(105,852	)	$	97,722	$	207,984	$	(106,416	)	$	101,568

The estimated amortization expense for currently-owned intangibles, as presented above, for the years 2010 through 2014 is $11.9 million, $11.2 million, $9.0 million, $9.0 million and $6.8 million, respectively.

During the second quarter of 2009, we purchased a license for the exclusive rights to certain patents through the year 2018 for $9.0 million, of which $6.6 million has been paid as of April 3, 2010, and the remaining $2.4 million is structured to be paid out within approximately two years, in quarterly intervals. All payments related to the patents are included in licenses and will be amortized over 8.0 years, which is the remaining useful life of the patents.

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9. Debt

Senior Secured Credit Facility

On July 20, 2006, in conjunction with the Laserscope acquisition, our wholly-owned subsidiary, American Medical Systems, Inc. (AMS), entered into a credit and guarantee agreement (the Credit Facility) with CIT Healthcare LLC, as agent, and certain lenders from time to time party thereto (the Lenders). AMS and each majority-owned domestic subsidiary of AMS are parties to the Credit Facility as guarantors of all of the obligations of AMS arising under the Credit Facility. Each of the subsidiary guarantors is 100 percent owned by us and the guarantees are joint and several. The obligations of AMS and each of the guarantors arising under the Credit Facility are secured by a first priority security interest granted to the agent on substantially all of their respective assets, including a mortgage on the AMS facility in Minnetonka, Minnesota.

The six-year senior secured Credit Facility consists of (i) term loan debt and (ii) a revolving credit facility of up to $65.0 million which is available to fund ongoing working capital needs, including future capital expenditures and permitted acquisitions. As of April 3, 2010 and January 2, 2010, there were $79.6 million and $125.3 million, respectively, of term loans outstanding under the Credit Facility.

At our option, term loans under the Credit Facility (other than swing line loans) bear interest at a variable rate based on LIBOR or an alternative variable rate based on the greater of the prime rate or the federal funds effective rate plus 0.5 of 1.0 percent (Federal Funds Rate) plus an applicable margin. The applicable margin for term loans based on LIBOR is 2.25 percent per annum, while the applicable margin for term loans based on the prime rate or the Federal Funds Rate is 1.25 percent per annum. As of April 3, 2010, all debt under the Credit Facility had a variable interest rate based on the LIBOR index. The applicable margin for loans under the revolving credit facility is determined by reference to our total leverage ratio, as defined in the Credit Facility. In addition to initial Credit Facility fees and reimbursement of agent expenses, we are obligated to pay commitment fees on the revolving credit facility.

The term loans amortize 1.0 percent of the current principal balance quarterly from December 2006 through September 2011 and the remaining 95 percent will amortize December 2011 through July 2012. In addition, mandatory prepayments are due under the Credit Facility equal to (i) 50 percent of Excess Cash Flow (defined generally as net income, plus depreciation and amortization and other non-cash charges including in-process research and development (IPR&D), plus decreases or minus increases in working capital, minus capital expenditures (to the extent not financed) and amortization payments with respect to the term loan, and any other indebtedness permitted under the loan documents), (ii) 100 percent of the net proceeds of any asset sale (subject to a limited reinvestment option and a $2.5 million exception), (iii) 100 percent of the net proceeds of any debt (including convertible securities) or preferred stock issuance, and (iv) 50 percent of the net proceeds of any other equity issuance. Amounts due under the Credit Facility may also be voluntarily prepaid without premium or penalty.

During the first quarter of 2010, we sold theHer Option^®product line for $20.5 million and used the proceeds to pay down our debt. Total amortization and other prepayments of $45.7 million and $8.6 million were made during the three months ended April 3, 2010 and April 4, 2009, respectively.

The Credit Facility contains affirmative and negative covenants and other limitations (subject to various carve-outs and baskets). The covenants limit: (a) the making of investments, the amount of capital expenditures, the payment of dividends and other payments with respect to capital, the disposition of material assets other than in the ordinary course of business, and mergers and acquisitions under certain conditions, (b) transactions with affiliates unless such transactions are completed in the ordinary course of business and upon fair and reasonable terms, (c) the incurrence of liens and indebtedness, and (d) substantial changes in the nature of the companies’ business. The Credit Facility also contains financial covenants which require us to maintain predetermined ratio levels related to leverage, interest coverage, fixed charges, and a limit on capital expenditures. In addition, the Credit Facility contains customary events of default, including payment and covenant defaults and material inaccuracy of representations. The Credit Facility further permits the taking of customary remedial action upon the occurrence and continuation of an event of default, including the acceleration of obligations then outstanding under the Credit Facility.

10

Fees of $10.5 million are classified as debt discount and are being accreted to amortization of financing costs using the effective interest method over a six year period. Additional debt issuance costs of approximately $2.4 million are recorded as other long term assets and are being amortized over six years using the straight-line method. Upon payment of the prepayments described above, a pro rata portion of the related fees and debt issuance costs of $0.7 million and $0.2 million was immediately charged to amortization of financing costs in three months ended April 3, 2010 and April 4, 2009, respectively.

Amendment of Credit Facility

On August 12, 2009, we entered into a Consent and Second Amendment to our Credit Facility, which allowed us to exchange a portion of our existing convertible senior subordinated notes for new convertible senior subordinated notes as discussed below. On October 29, 2007, we entered into a First Amendment of our Credit Facility to modify certain financial covenant ratios as defined in the Credit Facility (the First Amendment). Pursuant to the terms of the First Amendment, certain of the financial tests and covenants provided in Section 6.8 of the Credit Facility were amended and restated, including the interest coverage ratio, the total leverage ratio, the fixed charge coverage ratio, and the prior year maximum consolidated capital expenditures.

Convertible Senior Subordinated Notes Due 2036

On June 27, 2006, we issued convertible senior subordinated notes with a stated maturity of July 1, 2036 (the 2036 Notes). The 2036 Notes bear a fixed interest rate of 3.25 percent per year, payable semiannually. The 2036 Notes are our direct, unsecured, senior subordinated obligations, rank junior to the senior secured Credit Facility and will rank junior in right of payment to all of our future senior secured debt as provided in the indenture for the 2036 Notes. The 2036 Notes have the same rank as our convertible notes that are due in 2041, which are discussed below.

In March 2009, we repurchased 2036 Notes with a principal amount of $27.3 million in exchange for a cash payment of $21.1 million. In connection with this transaction, we recorded a pre-tax gain on extinguishment of debt of $4.6 million in the three months ended April 4, 2009.

On September 21, 2009, we exchanged $250.0 million in principal of the 2036 Notes for $250.0 million in principal of new convertible senior subordinated notes with a stated maturity of September 15, 2041 (the 2041 Notes). Further information on the 2041 Notes is provided following this section.

We separately account for the liability and equity components of our 2036 Notes in a manner that reflects our nonconvertible borrowing rate. The equity component of our 2036 Notes was $45.4 million as of April 3, 2010 and January 2, 2010, and is recorded in additional paid-in capital. As of April 3, 2010, the principal amount of the liability component, its unamortized discount, and its net carrying amount were $62.0 million, $10.8 million and $51.2 million, respectively. The unamortized discount will be amortized over a remaining period of 3.2 years and the amortization expense is included in “amortization of financing costs” on the Consolidated Statements of Operations. As of January 2, 2010, the principal amount of the liability component, its unamortized discount, and its net carrying amount were $62.0 million, $11.5 million and $50.5 million, respectively. The effective interest rate on the liability component was 9.5% for each of the three months ended April 3, 2010 and April 4, 2009. During the three months ended April 3, 2010, we recognized $0.5 million of interest expense representing the contractual interest coupon on our 2036 Notes, and $0.7 million of amortization expense related to the discount on the liability component. During the three months ended April 4, 2009, we recognized $2.7 million of interest expense representing the contractual interest coupon on our 2036 Notes, and $3.4 million of amortization expense related to the discount on the liability component.

In addition to regular interest on the 2036 Notes, we will also pay contingent interest beginning July 1, 2011 at 0.25% of the average trading price of the 2036 Notes, if the average trading price for the five consecutive trading days immediately before the last trading day preceding the relevant six-month period equals or exceeds 120 percent of the principal amount of the 2036 Notes.

Our 2036 Notes are convertible under the following circumstances for cash and shares of our common stock, if any, at a conversion rate of 51.5318 shares of our common stock per $1,000 principal amount of 2036 Notes (which is equal to an initial conversion price of approximately $19.406 per share), subject to adjustment: (1) when, during any fiscal quarter, the last reported sale price of our common stock is greater than 130% of the conversion price for at least 20 trading days in the 30 trading-day period ending on the last trading day of the preceding fiscal quarter; (2) during the five trading days immediately after any five consecutive trading-day period in which the trading price of a 2036 Note for each day of that period was less than 98% of the product of the closing price of our common stock and the applicable conversion rate; (3) if specified distributions to holders of our common stock occur; (4) if we call

11

the 2036 Notes for redemption; (5) if an event or change occurs that results in conversion according to the Indenture; or (6) during the 60 days prior to, but excluding, any scheduled repurchase date or maturity date. Upon conversion, we would be required to satisfy up to 100 percent of the principal amount of the 2036 Notes solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock. If a holder elects to convert its 2036 Notes in connection with a designated event or change that occurs prior to July 1, 2013, we will pay, to the extent described in the Indenture, a make whole premium by increasing the conversion rate applicable to such 2036 Notes. Conversion of our 2036 Notes into common stock could result in dilution to our shareholders. From time to time, our 2036 Notes hold a fair value below their conversion rate. Any redemption due to the trading price discount, described in (2) above, would be subject to the restrictions imposed by the Credit Facility and would occur at the lower of market or conversion value, which would likely be substantially below the par value of the debt. All of the above conversion rights will be subject to certain limitations imposed by our Credit Facility.

We have the right to redeem for cash all or a portion of the 2036 Notes on or after July 6, 2011 at specified redemption prices as provided in the Indenture plus accrued and unpaid interest and contingent interest. Holders of the 2036 Notes may require us to purchase all or a portion of their 2036 Notes for cash on July 1, 2013; July 1, 2016; July 1, 2021; July 1, 2026; and July 1, 2031 or in the event of a designated event or change, at a purchase price equal to 100 percent of the principal amount of the 2036 Notes to be repurchased plus accrued and unpaid interest and contingent interest.

Convertible Senior Subordinated Notes Due 2041

On September 21, 2009, we exchanged $250.0 million in principal amount of our 2036 Notes for newly issued 2041 Notes. The 2041 Notes bear a fixed interest rate of 4.0 percent per year, payable semiannually. The 2041 Notes are our direct, unsecured, senior subordinated obligations, rank junior to the senior secured Credit Facility and will rank junior in right of payment to all of our future senior debt as provided in the indenture for the 2041 Notes. The 2041 Notes have the same rank as our 2036 Notes.

Similar to our 2036 Notes, we separately account for the liability and equity components of our 2036 Notes in a manner that reflects our nonconvertible borrowing rate. The excess of the principal amount of the liability component over its carrying amount is treated as debt discount and amortized using the interest method. In addition, debt issuance costs of approximately $7.7 million were allocated to the liability and equity components of the 2041 Notes. Approximately $5.3 million of the debt issuance costs were allocated to the liability component, recorded in other long-term assets, and are being amortized using the straight line method over seven years (representing the time period until the first put date under the 2041 Notes). Approximately $2.4 million of the debt issuance costs were allocated to the equity component and are treated as equity issuance costs and are not amortized.

The equity component of our 2041 Notes was $76.4 million as of April 3, 2010 and January 2, 2010, and is recorded in additional paid-in capital. As of April 3, 2010, the principal amount of the liability component, its unamortized discount, and its net carrying amount were $250.0 million, $74.7 million and $175.3 million, respectively. The unamortized discount will be amortized over a remaining period of 6.5 years and the amortization expense is included in “amortization of financing costs” on the Consolidated Statements of Operations. As of January 2, 2010, the principal amount of the liability component, its unamortized discount, and its net carrying amount were $250.0 million, $76.7 million and $173.3 million, respectively. The effective interest rate on the liability component was 10.2% for the three months ended April 3, 2010. During the three months ended April 3, 2010, we recognized $2.5 million of interest expense representing the contractual interest coupon on our 2041 Notes, and $2.0 million of amortization expense related to the discount on the liability component.

In addition to regular interest on the 2041 Notes, we will also pay contingent interest beginning September 15, 2016 at 0.75% of the average trading price of the 2041 Notes, if the average trading price for the five trading days immediately before the first trading day preceding the relevant six-month period equals or exceeds 130 percent of the principal amount of the 2041 Notes.

Our 2041 Notes are convertible under the following circumstances for cash and shares of our common stock, if any, at a conversion rate of 51.5318 shares of our common stock per $1,000 principal amount of 2041 Notes (which is equal to an initial conversion price of approximately $19.406 per share), subject to adjustment: (1) when, during any fiscal quarter commencing after January 2, 2010 (and only during such fiscal quarter), the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to 130% of the applicable conversion price on the applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2041 Notes for each day of

12

that period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate; (3) if we call the 2041 Notes for redemption; (4) if specified distributions to holders of our common stock occur; (5) if an event or change occurs that results in conversion according to the Indenture; or (6) during the 60 days prior to, but excluding, any scheduled repurchase date or maturity date. Upon conversion, we would be required to satisfy up to 100 percent of the principal amount of the 2041 Notes solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock. If a holder elects to convert its 2041 Notes in connection with a designated event or change, we will pay, to the extent described in the Indenture, a make whole premium by increasing the conversion rate applicable to such 2041 Notes. Conversion of our 2041 Notes into common stock could result in dilution to our shareholders. Similar to our 2036 Notes, from time to time, our 2041 Notes may hold a fair value below their conversion rate. Any redemption due to the trading price discount, described in (2) above, would be subject to the restrictions imposed by the Credit Facility and would occur at the lower of market or conversion value, which would likely be substantially below the par value of the debt. All of the above conversion rights will be subject to certain limitations imposed by our Credit Facility.

If certain conditions are met, we will have the right to redeem for cash all or a portion of the 2041 Notes on or after September 15, 2016 at specified redemption prices as provided in the Indenture plus accrued and unpaid interest and contingent interest. Holders of the 2041 Notes may require us to purchase all or a portion of their 2041 Notes for cash on September 15, 2016 or in the event of a designated event or change, at a purchase price equal to 100 percent of the principal amount of the 2041 Notes to be repurchased plus accrued and unpaid interest and contingent interest.

Supplemental Guarantor Information

The 2036 Notes and the 2041 Notes (Convertible Notes) are fully and unconditionally guaranteed on an unsecured senior subordinated basis by four of our significant domestic subsidiaries: American Medical Systems, Inc., AMS Sales Corporation, AMS Research Corporation and Laserscope (the Guarantor Subsidiaries). Each of the subsidiary guarantors is 100 percent owned by us. The guarantees are joint and several, and are subordinated in right of payment to the guaranteed obligations of our significant domestic subsidiaries under our senior Credit Facility.

The following supplemental condensed consolidating financial information presents the statements of operations for each of the three month periods ended April 3, 2010 and April 4, 2009, the balance sheets as of April 3, 2010 and January 2, 2010, and the statements of cash flows for each of the three month periods ended April 3, 2010 and April 4, 2009, for the Guarantor Subsidiaries as a group, and separately for our non-Guarantor Subsidiaries as a group. In the condensed consolidating financial statements, we and the Guarantor Subsidiaries account for investment in wholly-owned subsidiaries using the equity method.

13

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Statement of Operations
(In thousands)

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

14

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Statement of Operations
(In thousands)

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

15

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Balance Sheet
(In thousands)

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

16

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Balance Sheet
(In thousands)

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

17

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Statement of Cash Flows
(In thousands)

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

18

American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Statement of Cash Flows
(In thousands)

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

19

10. Fair Value Measurements

Generally accepted accounting principles define and establish a framework for measuring fair value and providing disclosure about fair value measurements. Furthermore, U.S. GAAP specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect our own assumptions of market participant valuation (unobservable inputs). We have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes our financial assets measured at fair value on a recurring basis as of April 3, 2010 (in thousands):

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
Description	Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets
Money market funds	$	36,516	$	—	$	—
Available-for-sale securities		907		—		—
Other short-term investments		—		230		—
Derivatives		—		1,041		—
Total	$	37,423	$	1,271	$	—
Liabilities
Derivatives	$	—	$	1,253	$	—

Money market funds: Our money market funds are highly liquid investments with a maturity of three months or less. These assets are classified within Level 1 of the fair value hierarchy because the money market funds are valued using quoted market prices in active markets.

Available-for-sale securities: As of April 3, 2010, our available-for-sale securities included unregistered common stock of Iridex Corporation. These securities are valued using quoted market prices multiplied by the number of shares owned.

Other short-term investments: Other short-term investments consist of short-term bonds. Investments for which quoted market prices are available are categorized as Level 1 in the fair value hierarchy. For the remaining investments, which have maturities of three months or less, the carrying amount is a reasonable estimate of fair value and these have been classified as Level 2.

Derivatives: The total fair value of various interest rate swap contracts as of April 3, 2010 is a liability of $0.1 million, reported in other accrued expenses. The fair value of various foreign exchange forward contracts as of April 3, 2010 includes assets of $1.0 million, reported in other current assets, and liabilities of $1.2 million, reported in other accrued expenses. We measure our derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. Refer toNote 11, Derivative Instruments and Hedging Activities, for more information regarding our derivatives.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Fair value measurements of nonfinancial assets and liabilities are primarily used in the impairment analysis of goodwill and other intangible assets. We review goodwill and other intangible assets for impairment annually, during the fourth quarter of each fiscal year, or as circumstances indicate the possibility of impairment. During the three months ended April 3, 2010, we had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

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Fair Value of Debt

The fair value of the Convertible Notes (seeNote 9, Debt)was estimated using quoted market prices. The fair value of the Credit Facility was estimated using a discounted cash flow analysis based on our current estimated incremental borrowing rate for a similar borrowing arrangement.

The following table summarizes the principal outstanding and estimated fair values of our long-term debt, including current maturities (in thousands):

	April 3, 2010				January 2, 2010
	Principal /				Principal /
	Carrying Value		Fair Value		Carrying Value		Fair Value
2036 Notes (principal)	$	61,985	$	68,061	$	61,985	$	70,270
2041 Notes (principal)		250,000		294,953		250,000		304,983
Credit Facility (carrying value)		79,588		78,378		125,307		123,230
	$	391,573	$	441,392	$	437,292	$	498,483

11. Derivative Instruments and Hedging Activities

We are exposed to certain risks relating to our ongoing business operations. We use derivatives to mitigate a portion of our exposure to volatility in interest and foreign currency exchange rates. Interest rate swaps are used to manage interest rate risk associated with our floating rate debt. Foreign exchange forward contracts are used to manage the currency risk associated with forecasted sales to and receivables from certain subsidiaries, denominated in their local currencies. We hedge only exposures in the ordinary course of business.

We account for our derivative instruments at fair value provided we meet certain documentary and analytical requirements to qualify for hedge accounting treatment. Hedge accounting creates the potential for a Consolidated Statement of Operations match between the changes in fair values of derivatives and the changes in cost of the associated underlying transactions, in this case interest expense and translation gain or loss. Derivatives held by us are designated as hedges of specific exposures at inception, with an expectation that changes in the fair value will essentially offset the change in the underlying exposure. Discontinuance of hedge accounting is required whenever it is subsequently determined that an underlying transaction is not going to occur, with any gains or losses recognized in the Consolidated Statement of Operations at such time, with any subsequent changes in fair value recognized currently in earnings. Fair values of derivatives are determined based on quoted prices for similar contracts.

The interest rate swap contracts outstanding at April 3, 2010 are designated as cash flow hedges of the floating rate interest payments for a portion of our borrowings under the Credit Facility. The portion of borrowings subject to these swap contracts declines over time, ranging from $60.0 million to $30.0 million. These contracts have remaining terms between one and five months. In addition, we have foreign currency exchange forward contract derivatives outstanding at April 3, 2010 which are designated as cash flow hedges of currency fluctuations for a portion of our forecasted sales to certain subsidiaries, denominated in Euros, British pounds, Canadian dollars and Australian dollars. These contracts have remaining terms between one and twenty months. The notional amount of the foreign exchange forward contracts designated as cash flow hedges was $52.6 million and $48.4 million at April 3, 2010 and January 2, 2010, respectively. We have also entered into foreign exchange forward contracts to manage a portion of our exposure to foreign exchange rate fluctuations on certain inter-company receivables denominated in Euros, Canadian dollars and Australian dollars. These contracts are not designated as an accounting hedge, and the notional amount of these contracts at April 3, 2010 and January 2, 2010 was $22.1 million and $10.9 million, respectively. The associated underlying transactions are expected to occur within the next month.

The effective portion of the change in fair value of the interest rate swaps and foreign currency exchange contracts is reported in accumulated other comprehensive income, a component of stockholders’ equity, and is being recognized as an adjustment to interest expense or other (expense) income, respectively, over the same period the related expenses are recognized in earnings. Ineffectiveness would occur when changes in the market value of the hedged transactions are not completely offset by changes in the market value of the derivatives. Gains and losses on derivatives representing hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized currently in earnings when incurred. No ineffectiveness was recognized during the three months ended April 3, 2010 or April 4, 2009. Amounts due from counterparties (unrealized hedge gains) or owed to counterparties (unrealized hedge losses) are included in accounts receivable, net or other accrued expenses,

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respectively. Cash receipts or payments related to our derivatives are generally classified in the Consolidated Statements of Cash Flows as cash flows from operating activities, consistent with the related items being hedged, unless the derivative is not designated as a hedge or if hedge accounting is discontinued, in which case the receipts or payments are classified as cash flows from investing activities.

Information on the location and amounts of derivative fair values in the Consolidated Balance Sheets is presented in the table below.

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

At April 3, 2010, approximately $0.1 million of the existing loss on the interest rate swap contracts designated as a cash flow hedge, approximately $1.0 million of the existing gain on the foreign exchange forward contracts designated as a cash flow hedge that are in an asset position, and approximately $1.0 million of the existing loss on the foreign exchange forward contracts designated as a cash flow hedge that are in a liability position, all of which are included in accumulated other comprehensive income, are expected to be reclassified into earnings within the next twelve months.

We are exposed to credit losses in the event of non-performance by counterparties on these financial instruments, and although no assurances can be given, we do not expect any of the counterparties to fail to meet its obligations. The credit exposure related to these financial instruments is represented by the fair value of contracts with a positive fair value at the reporting date. To manage credit risks, we enter into derivative instruments with high quality financial institutions, which we monitor regularly and take action where possible to mitigate risk.

Information on the location and amounts of derivative gains and losses recorded in other comprehensive income (OCI) and recorded in the Consolidated Statements of Operations is presented in the table below.

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The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Three Months Ended April 3, 2010 and April 4, 2009
(in thousands)

					Location of Gain
Derivatives in	Amount of Gain (Loss)				(Loss) Reclassified	Amount of Gain (Loss) Reclassified
Cash Flow	Recognized in OCI on Derivatives				from Accumulated	from Accumulated OCI into Income
Hedging	(Effective Portion)				OCI into Income	(Effective Portion)
Relationships	April 3, 2010		April 4, 2009		(Effective Portion)	April 3, 2010			April 4, 2009
Interest rate swap contracts	$	197	$	628	Interest expense	$	(219	)	$	(1,033	)
Foreign exchange contracts		1,782		124	Other (expense) income		(142	)		717
Total	$	1,979	$	752		$	(361	)	$	(316	)

Derivatives not	Location of Gain (Loss)	Amount of Gain (Loss) Recognized
Designated as	Recognized in Income	in Income on Derivatives
Hedging Instruments	on Derivatives	April 3, 2010		April 4, 2009
Foreign exchange contracts	Other (expense) income	$	282	$	353

12. Industry Segment Information and Foreign Operations

Since our inception, we have operated in the single industry segment of developing, manufacturing, selling and marketing medical devices.

We distribute products through our direct sales force and independent sales representatives in the United States, Canada, Australia, Brazil and Western Europe. Additionally, we distribute products through foreign independent distributors, primarily in Europe, Asia and South America, who then sell the products to medical institutions. No customer or distributor accounted for ten percent or more of net sales during the three month periods ended April 3, 2010 or April 4, 2009. Foreign subsidiary sales are predominantly to customers in Western Europe, Canada, Australia and Brazil and our foreign subsidiary assets are located in the same countries.

The following table presents net sales and long-lived assets (excluding deferred taxes) by geographical territory. No individual foreign country’s net sales or long-lived assets accounted for more than ten percent of consolidated net sales or consolidated long-lived assets.

	Three Months Ended
(in thousands)	April 3, 2010		April 4, 2009
United States
Net sales	$	98,310	$	89,670
Long-lived assets		813,153		828,389
International
Net sales		36,616		33,968
Long-lived assets		17,150		16,204

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. Any statements not of historical fact may be considered forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially from those expressed in such forward-looking statements as a result of many factors, including, but not limited to, those discussed under the heading “Forward-Looking Statements” at the end of this item of the report.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments 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, valuation of share-based payments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The critical accounting policies that are most important in fully understanding and evaluating the financial condition and results of operations are discussed in our Form 10-K for the year ended January 2, 2010.

Overview

We are a world leader in developing and delivering innovative medical technology solutions to physicians treating men’s and women’s pelvic health conditions, thereby recognized as a technology leader in the markets we serve. Our growth is fueled by a robust pipeline of innovative products for significant, under-penetrated markets. We have a diverse product portfolio, which treats men’s incontinence, erectile dysfunction, and benign prostatic hyperplasia (BPH), and treats women’s incontinence and pelvic floor prolapse. We estimate there are as many as 1.6 billion incidences of these conditions in the global markets we serve, with many people suffering from multiple conditions. Treatment options for these conditions vary considerably depending on the severity of the condition. Approximately 350 million of these men and women have conditions sufficiently severe so as to profoundly diminish their quality of life and significantly impact their relationships. Our addressable market is contained within this group of patients. Our product development and acquisition strategies have focused on expanding our product offering for surgical solutions, including less-invasive solutions for surgeons and their patients. Our primary physician customers include urologists, gynecologists, urogynecologists and colorectal surgeons.

Our net sales grew from $123.6 million in the first quarter of 2009 to $134.9 million in the first quarter of 2010. In the first quarter of 2010, men’s health contributed $64.5 million, or 48 percent of total net sales, BPH therapy contributed $25.9 million, or 19 percent of total net sales, and women’s health contributed $42.7 million, or 32 percent of total net sales, with the remaining one percent of revenue generated in the first quarter from the uterine health product line.

We are making additional investments to continue to grow our business and expand the market globally. In the first quarter of 2010, we selectively increased our sales organization in support of geographic expansion and long-term growth. We plan to make investments to strengthen our marketing, physician training, and regulatory functions outside the U.S., and moved forward in establishing the management and market development structure to prepare for the launch of our business in Japan, with the hiring of a Japan country manager in the first quarter of 2010.

Our continued focus on managing our working capital, cost controls, and driving operating leverage throughout our business continues to provide positive results. We generated net income of $20.7 million in the first quarter of 2010, compared to $17.1 million in the first quarter of 2009. Cash provided by operating activities totaled $26.6 million and $28.2 million in the first quarter of 2010 and the first quarter of 2009, respectively. We also retired $45.7 million and $35.9 million of debt in the first quarter of 2010 and the first quarter of 2009, respectively.

Based on our areas of competitive strength, our strategy is to expand the reach of our products and address unmet needs in both established and new pelvic health markets. We determined our female sterilization assets and technology (Ovion technology) and ourHer Option^® global endometrial cryoablation product line did not fit our long-term strategy. During the third quarter of 2009, we sold our Ovion technology for $23.6 million (see ourAnnual Report on Form 10-K for fiscal 2009,Notes to Consolidated Financial Statements — No. 5, Goodwill and

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Intangible Assets). In February of 2010, we sold theHer Option^® product line for $20.5 million (seeNotes to Consolidated Financial Statements — No. 8, Goodwill and Intangible Assets). We used the net proceeds from these sales to pay down our debt. The sale of these non-strategic assets will allow us to concentrate our efforts and resources on improving and expanding the global reach of our products to restore quality of life to men and women through our innovative, life-changing solutions.

We maintain a website atwww.AmericanMedicalSystems.com.We are not including the information contained on our website as a part of, nor incorporating it by reference into, this Quarterly Report on Form 10-Q. We make available free of charge on our website our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, 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.

Results of Operations

The following table provides product category and geography details of our net sales for the three month period ended April 3, 2010 compared to the three month period ended April 4, 2009.

	Three Months Ended
(in thousands)	April 3, 2010			April 4, 2009			$ Increase			% Increase
Net Sales
Men’s health	$	64,480		$	59,459		$	5,021			8.4	%
BPH therapy		25,911			25,389			522			2.1	%
Women’s health		42,748			36,300			6,448			17.8	%
Uterine health (a)		1,787			2,490			(703	)		-28.2	%
Total	$	134,926		$	123,638		$	11,288			9.1	%
Geography
United States	$	96,523		$	87,180		$	9,343			10.7	%
United States — Uterine health (a)		1,787			2,490			(703	)		-28.2	%
International		36,616			33,968			2,648			7.8	%
Total	$	134,926		$	123,638		$	11,288			9.1	%
	Three Months Ended
	April 3, 2010			April 4, 2009
Percent of net sales
Men’s health		47.8	%		48.1	%
BPH therapy		19.2	%		20.5	%
Women’s health		31.7	%		29.4	%
Uterine health (a)		1.3	%		2.0	%
Total		100.0	%		100.0	%
Geography
United States		72.9	%		72.5	%
International		27.1	%		27.5	%
Total		100.0	%		100.0	%

(a) The uterine health product line,Her Option^®was sold in February, 2010. Net sales in the first quarter of 2010 consist of end-customer net sales earned prior to the date of sale, in addition to net sales earned as part of the product supply agreement, which is part of the divestiture agreement with CooperSurgical, Inc.

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The following table compares revenue, expense, and other income (expense) for the three months ended April 3, 2010 and April 4, 2009:

	Three Months Ended						$ Increase			% Increase
(in thousands)	April 3, 2010			April 4, 2009			(Decrease)			(Decrease)
Net sales	$	134,926		$	123,638		$	11,288			9.1	%
Cost of sales		21,027			23,342			(2,315	)		-9.9	%
Gross profit		113,899			100,296			13,603			13.6	%
Operating expenses
Marketing and selling		48,197			43,348			4,849			11.2	%
Research and development		13,509			12,811			698			5.4	%
General and administrative		12,690			10,779			1,911			17.7	%
Amortization of intangibles		3,047			3,265			(218	)		-6.7	%
Total operating expenses		77,443			70,203			7,240			10.3	%
Operating income		36,456			30,093			6,363			21.1	%
Royalty income		308			933			(625	)		-67.0	%
Interest expense		(3,954	)		(5,410	)		(1,456	)		-26.9	%
Amortization of financing costs		(3,693	)		(3,981	)		(288	)		-7.2	%
Gain on extinguishment of debt		—			4,562			(4,562	)		n/a
Gain on sale of non-strategic assets		7,719			—			7,719			n/a
Other (expense) income		(516	)		655			(1,171	)		n/a
Income before taxes		36,320			26,852			9,468			35.3	%
Provision for income taxes		15,662			9,772			5,890			60.3	%
Net income	$	20,658		$	17,080		$	3,578			20.9	%

	Percent of Sales
	For the Three Months Ended
	April 3, 2010			April 4, 2009
Net sales		100.0	%		100.0	%
Cost of sales		15.6	%		18.9	%
Gross profit		84.4	%		81.1	%
Operating expenses
Marketing and selling		35.7	%		35.1	%
Research and development		10.0	%		10.4	%
General and administrative		9.4	%		8.7	%
Amortization of intangibles		2.3	%		2.6	%
Total operating expenses		57.4	%		56.8	%
Operating income		27.0	%		24.3	%
Royalty income		0.2	%		0.8	%
Interest expense		-2.9	%		-4.4	%
Amortization of financing costs		-2.7	%		-3.2	%
Gain on extinguishment of debt		0.0	%		3.7	%
Gain on sale of non-strategic assets		5.7	%		0.0	%
Other (expense) income		-0.4	%		0.5	%
Income before taxes		26.9	%		21.7	%
Provision for income taxes		11.6	%		7.9	%
Net income		15.3	%		13.8	%

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Comparison of the Three Months Ended April 3, 2010 to the Three Months Ended April 4, 2009

Net sales.Net sales of $134.9 million in the first quarter of 2010 represented an increase of 9.1 percent compared to $123.6 million in the first quarter of 2009. The weakening of the U.S. dollar in first quarter of 2010, as compared to the first quarter of 2009, increased revenue approximately $2.6 million, or 2.0 percentage points. Growth in our business continues to be driven by the success of innovative products, particularly our Men’s health erectile restoration products, and ourElevate^® anterior pelvic floor repair product.

Men’s health products.Net sales of men’s health products increased 8.4 percent to $64.5 million in the first quarter of 2010 compared to $59.5 million in the first quarter of 2009. This includes the positive impact of foreign currency exchange rates of approximately $1.3 million, or 2.2 percentage points. The largest portion of this increase was due to our erectile restoration products, in particular theAMS 700^® MS^™, experiencing significant growth compared to the first quarter of 2009. Our male continence product line experienced minimal growth in the first quarter of 2010 compared to the first quarter of 2009.

BPH therapy products.Net sales from BPH therapy products increased 2.1 percent to $25.9 million in the first quarter of 2010 compared to $25.4 million in the same period in 2009. This includes the positive impact of foreign currency exchange rates of approximately $0.5 million, or 2.1 percentage points. We experienced an increase inGreenLight^™ fiber sales in the first quarter of 2010 compared to the first quarter of 2009. The increase in fiber sales was offset by a decline in laser console sales, mainly in our international markets, as this area of our business is more directly impacted by economic pressures on hospital capital purchases.

Women’s health products.Net sales of our women’s health products increased 17.8 percent to $42.7 million in the first quarter of 2010 compared to $36.3 million in the first quarter of 2009. This includes the positive impact of foreign currency exchange rates of approximately $0.7 million, or 2.0 percentage points. We experienced strong growth in our pelvic floor repair product line driven by the newElevate^® anterior pelvic floor repair product that was launched in mid-2009. The female continence product line contributed modest sales growth in dollars and units over the same period in 2009, driven by theMiniArc^® Single-Incision Sling.

Uterine health products.We sold theHer Option^®Global Endometrial Ablation product line on February 16, 2010 (seeNotes to Consolidated Financial Statements — No. 8, Goodwill and Intangible Assets), and thus the first quarter of 2010 includes approximately six weeks of end-customer net sales from that product in addition to revenue of approximately $0.6 million from the product supply agreement that is part of the divestiture agreement. We estimate the product supply agreement will result in approximately $1.5 to $3.0 million in sales during fiscal year 2010.

Net sales by geography and foreign exchange effects.Net sales in the United States increased 9.6 percent to $98.3 million in the first quarter of 2010 compared to $89.7 million in the first quarter of 2009. This growth was led by our men’s health erectile restoration products and our women’s health pelvic floor repair products. International net sales increased 7.8 percent to $36.6 million in the first quarter of 2010 compared to $34.0 million in the first quarter of 2009, almost entirely as a result of the positive impact of 7.5 percentage points due to foreign currency exchange rate changes, with the weakening of the U.S. dollar. International sales represented 27.1 percent and 27.5 percent of our total net sales in the first quarter of 2010 and the first quarter of 2009, respectively.

Gross profit.Gross profit improved to 84.4 percent of sales in the first quarter of 2010, from 81.1 percent in the first quarter of 2009. We realized higher margins through a combination of factors, primarily the impact of ongoing quality and cost reduction programs as well as the positive impact from product and geographic mix compared to the first quarter of 2009. Margins also increased due to improved reliability on our laser therapy products, which resulted in lower warranty and service costs. Future gross profit will continue to depend upon product and geographic mix, production levels, labor costs, raw material costs and our ability to manage overhead costs.

Marketing and selling.Marketing and selling expenses increased to 35.7 percent of revenue in the first quarter of 2010 from 35.1 percent in the first quarter of 2009. This is mainly due to our increase in selling expenses, the result of additional headcount and product evaluation expenses and marketing investments to support geographic expansion.

Research and development.Research and development includes costs to develop and improve current and potential future products plus the costs for regulatory and clinical activities for these products. Research and development expenses as a percentage of revenue was 10.0 percent in the first quarter of 2010, which is consistent with 10.4

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percent in the same period of 2009. These ratios are in line with our long-term goal of spending approximately ten percent of sales on research and development.

General and administrative.General and administrative expenses as a percentage of sales increased to 9.4 percent in the first quarter of 2010 compared to 8.7 percent in the same period of 2009. This increase is primarily the result of patent litigation costs incremental to the quarter, in addition to incentive compensation related to the strong financial performance in the first quarter of 2010 and certain employee benefit costs not expected to reoccur. Our objective remains to leverage general and administrative expense as a percentage of sales.

Amortization of intangibles.Amortization of intangibles includes amortization expense on our definite-lived intangible assets, consisting of patents, licenses and developed technology. The first quarter of 2010 reflects a slight decrease in amortization expense over the same period of 2009 primarily due to the sale of our Ovion technology in the third quarter of 2009 and the sale of theHer Option^® product line in the first quarter of 2010, as intangible assets were disposed of in these transactions, thereby reducing on-going amortization expense.

Royalty income.Our royalty income is from licensing our intellectual property. Royalty income in the first quarter of 2010 decreased $0.6 million compared to the same period last year due to the sale of our Ovion technology in the third quarter of 2009. As a result of the sale of our Ovion technology, and the expiration of other royalty contracts, we would expect our royalty income to decrease to an immaterial level beginning in the third quarter of 2010.

Interest expense.Interest expense decreased by $1.5 million in the first quarter of 2010 from the comparable period in 2009 mainly due to the impact of debt reductions made over the past year. Interest expense includes interest incurred on our 2036 Notes, which carry a fixed interest rate of 3.25 percent, the interest incurred on our 2041 Notes, which carry a fixed interest rate of 4.00 percent, and the interest incurred on our Credit Facility, which generally carries a floating interest rate of LIBOR plus 2.25 percent. We have entered into interest rate swaps, which were designated as cash flow hedging instruments and which have remaining terms of one to five months as of April 3, 2010. The notional amount of the hedges at April 3, 2010 represents a significant portion of our floating rate debt. The notional amount of the swap contracts amortizes over the terms of the contracts, and the amount of floating rate debt hedged in the future will depend on prepayments and additional contracts. Including the impact of interest rate swaps, our weighted average interest rate on the credit facility was 3.3 percent and 4.6 percent for the three months ended April 3, 2010 and April 4, 2009, respectively. Average borrowings during the first quarter of 2010 on the Credit Facility were $101.2 million, compared to $228.8 million in the first quarter of 2009. Average borrowings on our 2036 Notes were $62.0 million and $332.1 million for the three months ended April 3, 2010 and April 4, 2009, respectively. Average borrowings on our 2041 Notes, which we issued in September of 2009 in exchange for 2036 Notes, were $250.0 million for the three months ended April 3, 2010.

Amortization of financing costs.Amortization of financing costs in the first quarter of 2010 and in the first quarter of 2009 was $3.7 million and $4.0 million, respectively, and was comprised of the incremental non-cash interest cost of our 2036 Notes and 2041 Notes, and amortization of the costs associated with the issuance of the Credit Facility, the 2036 Notes and the 2041 Notes. The lower amortization in the first quarter of 2010 is due to the impact of debt prepayments made over the past year, as we recognize a pro-rata portion of the related debt discount and debt issuance costs when we retire debt.

Gain on sale of non-strategic assets. During the first quarter of 2010, we sold theHer Option^® Global Endometrial Ablation product line for $20.5 million. We allocated a portion of our goodwill to the sale based on the relative fair value of theHer Option^®product line and our remaining business. The consideration, less goodwill, the carrying value of tangible and intangible assets and related disposal costs resulted in a pre-tax gain of $7.7 million.

Other (expense) income. Other (expense) totaled ($0.5) million in the first quarter of 2010, compared to other income of $0.7 million in the first quarter of 2009. The primary cause of the change in other (expense) income relates to the impact of our foreign currency hedge transactions and fluctuations in foreign currencies against the U.S. dollar on foreign denominated inter-company receivables and payables.

Provision for income taxes.Our effective income tax rate was 43.1 percent and 36.4 percent for the first quarter of 2010 and first quarter of 2009, respectively. The increase in the current quarter effective tax rate is primarily due to the sale of theHer Option^®product line, which had an effective tax rate of 65.7 percent on the pre-tax gain, as the majority of the goodwill allocated to the sale had no tax basis. In addition, the effective tax rate increased in the current quarter due to the expiration of the federal research and development tax credit as of December 31, 2009, partially offset by an increase in our domestic manufacturing tax incentives.

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Liquidity and Capital Resources

Cash and cash equivalents were $22.2 million as of April 3, 2010, compared to $30.7 million as of January 2, 2010. In addition, short-term investments were $37.7 million as of April 3, 2010, compared to $19.9 million as of January 2, 2010. Short-term investments consist mostly of highly liquid money market funds that have not experienced any negative impact on liquidity or a decline in principal value. Overall, cash, cash equivalents and short-term investments increased $9.3 million in the first quarter of 2010 compared to January 2, 2010.

Cash flows from operating activities.Net cash provided by operating activities was $26.6 million in the first quarter of 2010, versus $28.2 million provided during the comparable period of 2009, which is a decrease of $1.6 million. This decrease in net cash provided by operating activities is the result of an increase in cash used for inventory, offset by an increase in cash provided by accounts receivable collections, along with other changes in our operating assets and liabilities, that result in the overall net decrease of $1.6 million compared to the first quarter of 2009.

Cash flows from investing activities.Cash provided by investing activities was $1.3 million during the first quarter of 2010, compared to $2.9 million provided in the first quarter of 2009, which equates to a decrease of $1.6 million. Net cash provided by the sale of theHer Option^® product line was $20.2 million. This was offset by cash used for purchases of short-term investments of $25.0 million, along with other investing activities, that net to the overall decrease of $1.6 million.

Cash flows from financing activities.Cash used for financing activities was $36.2 million during the first quarter of 2010, versus $28.8 million used in the same period of 2009. The majority of cash was used for repayment of long-term debt in both periods. Cash used for repayment of long-term debt under our Credit Facility was $45.7 million and $8.6 million for the first quarter of 2010 and 2009, respectively. In addition, we repurchased 2036 Notes with a principal amount of $27.3 million for a cash payment of $21.1 million during the first quarter of 2009. Cash received from the issuance of common stock was $9.4 million and $0.9 million during the first quarter of 2010 and 2009, respectively, which was the result of our employees exercising stock options and purchasing common stock through our employee stock purchase plan.

2036 Notes.We issued our 2036 Notes with a stated maturity of July 1, 2036 pursuant to an Indenture dated as of June 27, 2006 as supplemented by the first supplemental indenture dated September 6, 2006 (the 2036 Notes Indenture) between us, certain of our significant domestic subsidiaries, as guarantors of the 2036 Notes, and U.S. Bank National Association, as trustee for the benefit of the holders of the 2036 Notes, which specifies the terms of the 2036 Notes. The 2036 Notes bear interest at the rate of 3.25 percent per year, payable semiannually. The 2036 Notes are our direct, unsecured, senior subordinated obligations, rank junior to our Credit Facility and will rank junior in right of payment to all of our future senior secured debt as provided in the 2036 Notes Indenture. The 2036 Notes have the same rank as our 2041 Notes.

In addition to regular interest on the 2036 Notes, we will also pay contingent interest beginning July 1, 2011 at 0.25% of the average trading price of the 2036 Notes, if the average trading price for the five consecutive trading days immediately before the last trading day preceding the relevant six-month period equals or exceeds 120 percent of the principal amount of the 2036 Notes. The 2036 Notes are convertible under certain circumstances for cash and shares of our common stock, if any, at a conversion rate of 51.5318 shares of our common stock per $1,000 principal amount of 2036 Notes (which is equal to an initial conversion price of approximately $19.406 per share), subject to adjustment. Upon conversion, we would be required to satisfy up to 100 percent of the principal amount of the 2036 Notes solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock.

If a holder elects to convert its 2036 Note in connection with a designated event or change that occurs prior to July 1, 2013, we will pay, to the extent described in the 2036 Notes Indenture, a make whole premium by increasing the conversion rate applicable to such 2036 Notes. All of the above conversion rights will be subject to certain limitations imposed by our Credit Facility.

We may also redeem the 2036 Notes on or after July 6, 2011 at specified redemption prices as provided in the 2036 Notes Indenture plus accrued and unpaid interest and contingent interest. Holders of the 2036 Notes may require us to purchase all or a portion of their 2036 Notes for cash on July 1, 2013, July 1, 2016, July 1, 2021, July 1, 2026, and July 1, 2031 or in the event of a designated event or change, at a purchase price equal to 100 percent of the principal amount of the 2036 Notes to be repurchased plus accrued and unpaid interest and contingent interest.

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2041 Notes.We issued our 2041 Notes with a stated maturity of September 15, 2041 pursuant to an Indenture dated as of September 21, 2009 (the 2041 Notes Indenture) between us, certain of our significant domestic subsidiaries, as guarantors of the 2041 Notes, and U.S. Bank National Association, as trustee for the benefit of the holders of the 2041 Notes, which specifies the terms of the 2041 Notes. The 2041 Notes bear interest at the rate of 4.00 percent per year, payable semiannually. The 2041 Notes are our direct, unsecured, senior subordinated obligations, rank junior to our Credit Facility and will rank junior in right of payment to all of our future senior debt as provided in the 2041 Notes Indenture. The 2041 Notes have the same rank as our 2036 Notes.

In addition to regular interest on the 2041 Notes, we will also pay contingent interest beginning September 15, 2016 at 0.75% of the average trading price of the 2041 Notes, if the average trading price for the five consecutive trading days immediately before the first day of such semiannual period equals or exceeds 130 percent of the principal amount of the 2041 Notes. The 2041 Notes are convertible under certain circumstances for cash and shares of our common stock, if any, at a conversion rate of 51.5318 shares of our common stock per $1,000 principal amount of 2041 Notes (which is equal to an initial conversion price of approximately $19.406 per share), subject to adjustment. Upon conversion, we would be required to satisfy up to 100 percent of the principal amount of the 2041 Notes solely in cash, with any amounts above the principal amount to be satisfied in shares of our common stock.

If a holder elects to convert its 2041 Note in connection with a designated event or change, we will pay, to the extent described in the 2041 Notes Indenture, a make whole premium by increasing the conversion rate applicable to such 2041 Notes. All of the above conversion rights will be subject to certain limitations imposed by our Credit Facility.

We may also redeem the 2041 Notes on or after September 15, 2016 at specified redemption prices as provided in the 2041 Notes Indenture plus accrued and unpaid interest and contingent interest. Holders of the 2041 Notes may require us to purchase all or a portion of their 2041 Notes for cash on September 15, 2016 or in the event of a designated event or change, at a purchase price equal to 100 percent of the principal amount of the 2041 Notes to be repurchased plus accrued and unpaid interest and contingent interest.

2036 Notes and 2041 Notes — Potential Dilution. Prior to conversion, our 2036 Notes and 2041 Notes (Convertible Notes) represent potentially dilutive common share equivalents that must be considered in our calculation of diluted earnings per share (EPS). When there is a net loss, common share equivalents are excluded from the computation because they have an anti-dilutive effect. In addition, when the conversion price of our 2036 Notes and 2041 Notes is greater than the average market price of our stock during any period, the effect would be anti-dilutive and we would exclude the 2036 Notes and 2041 Notes from the EPS computation. However, when the average market price of our stock during any period is greater than the conversion price of the 2036 Notes and 2041 Notes, the impact is dilutive and the 2036 Notes and 2041 Notes will affect the number of common share equivalents used in the diluted EPS calculation. The degree to which the 2036 Notes and 2041 Notes are dilutive increases as the market price of our stock increases.

The following table illustrates the number of common share equivalents that would potentially be included in weighted average common shares for the calculation of diluted EPS, assuming various market prices of our stock:

If the average	The number of common share equivalents potentially included in the computation of
market price	of diluted EPS would be (1):			Percent Dilution (2)
of our stock is:	2036 Notes	2041 Notes	Total	2036 Notes			2041 Notes			Total
$19.00	— (anti-dilutive)	— (anti-dilutive)	— (anti-dilutive)		0.0	%		0.0	%		0.0	%
$20.00	0.1 million	0.4 million	0.5 million		0.1	%		0.5	%		0.6	%
$22.50	0.4 million	1.8 million	2.2 million		0.6	%		2.3	%		2.9	%
$25.00	0.7 million	2.9 million	3.6 million		0.9	%		3.7	%		4.6	%
$27.50	0.9 million	3.8 million	4.7 million		1.2	%		4.8	%		6.0	%
$30.00	1.1 million	4.5 million	5.6 million		1.5	%		5.7	%		7.2	%

(1) Common share equivalents are calculated using the treasury stock method. The formula to calculate the potentially dilutive shares related to our Convertible Notes is as follows:

(	Principal Amount	X	Market price	—	Principal	)	=	Potentially dilutive shares
	$19.406 conversion price		of stock		Amount			included in EPS
Market price of stock

(2) The percent dilution is based on 75,367,367 outstanding shares as of April 3, 2010.

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For the three months ended April 3, 2010 and April 4, 2009, our Convertible Notes were excluded from the diluted net income per share calculation because the conversion price was greater than the average market price of our stock.

Credit Facility.On July 20, 2006, our wholly-owned subsidiary, American Medical Systems, Inc. (AMS), entered into a senior secured Credit Facility. AMS and each majority-owned domestic subsidiary of AMS are parties to the Credit Facility as guarantors of all of the obligations of AMS arising under the Credit Facility. The obligations of AMS and each of the guarantors arising under the Credit Facility are secured by a first priority security interest on substantially all of their respective assets, including a mortgage on the AMS facility in Minnetonka, Minnesota.

The six-year senior secured Credit Facility consists of (i) term loan debt and (ii) a revolving credit facility of up to $65.0 million which is available to fund ongoing working capital needs, including future capital expenditures and permitted acquisitions.

Our Credit Facility contains affirmative and negative covenants and other limitations (subject to various carve-outs and baskets) regarding us, AMS, and in some cases, the subsidiaries of AMS. The covenants limit: (a) investments, capital expenditures, dividend payments, the disposition of material assets other than in the ordinary course of business, and mergers and acquisitions under certain conditions, (b) transactions with affiliates, unless such transactions are completed in the ordinary course of business and upon fair and reasonable terms, (c) liens and indebtedness, and (d) substantial changes in the nature of our business. Our Credit Facility contains customary financial covenants for secured credit facilities, consisting of maximum total and senior debt leverage ratios and minimum interest coverage and fixed charge coverage ratios. These financial covenants adjust from time to time during the term of the Credit Facility. The covenants and restrictions contained in the Credit Facility could limit our ability to fund our business, make capital expenditures, and make acquisitions or other investments in the future.

On August 12, 2009, we entered into a Consent and Second Amendment to our Credit Facility, which allowed us to exchange a portion of our existing convertible senior subordinated notes for new convertible senior subordinated notes. On October 29, 2007, we entered into a First Amendment of our Credit Facility to modify certain financial covenant ratios as defined in the Credit Facility (the First Amendment). Pursuant to the terms of the First Amendment, certain of the financial tests and covenants provided in Section 6.8 of the Credit Facility were amended and restated, including the interest coverage ratio, the total leverage ratio, the fixed charge coverage ratio, and the maximum consolidated capital expenditures.

As of April 3, 2010, we were in compliance with all financial covenants as defined in our Credit Facility which are summarized as follows:

Financial Covenant	Required Covenant	Actual Result
Total Leverage Ratio (1)	3.25:1.00 (maximum)		2.17
Senior Leverage Ratio (2)	2.00:1.00 (maximum)		0.44
Interest Coverage Ratio (3)	4.00:1.00 (minimum)		9.92
Fixed Charge Coverage Ratio (4)	1.50:1.00 (minimum)		2.54
Maximum Capital Expenditures (5)	$20.0 million	$1.3		million

(1)	Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.
(2)	Total outstanding senior secured debt to Consolidated Adjusted EBITDA for the trailing four quarters.
(3)	Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to cash interest expense for such period.
(4)	Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to fixed charges (cash interest expense, scheduled principal payments on debt, capital expenditures, income taxes paid, earn-out and milestone payments) for such period.
(5)	Limit of capital expenditures for the full year.

The ratios are based on EBITDA, on a rolling four quarters, calculated with certain adjustments (Consolidated Adjusted EBITDA). Consolidated Adjusted EBITDA is a non-GAAP financial measure that is defined in our Credit Facility as earnings before interest, income taxes, depreciation, amortization, and other non-cash items reducing net income including IPR&D and stock compensation charges, less other non-cash items increasing net income. Consolidated Adjusted EBITDA should not be considered an alternative measure of our net income, operating performance, cash flow or liquidity. It is provided as additional information relative to compliance with our debt covenants.

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Any failure to comply with any of these financial and other affirmative and negative covenants would constitute an event of default under the Credit Facility, entitling a majority of the bank lenders to, among other things, terminate future credit availability under the Credit Facility, increase the interest rate on outstanding debt, and accelerate the maturity of outstanding obligations under the Credit Facility.

Additional Information

We are currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended. As a result, we are required to file periodic reports and other information with the SEC, such as annual, quarterly, and current reports, and proxy and information statements. You are advised to read this Form 10-Q in conjunction with the other reports, proxy statements, and other documents we file from time to time with the SEC. If you would like more information regarding our Company, you may read and copy the reports, proxy and information statements and other documents we file with the SEC, at prescribed rates, at the SEC’s public reference room at 100 F. Street, NE, Room 1580, Washington, DC 20549. You may obtain information regarding the operation of the SEC’s public reference rooms by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public free of charge at the SEC’s website. The address of this website ishttp://www.sec.gov.

We also make all of our SEC filings, such as our annual, quarterly and current reports and proxy statements, available to the public free from charge on our websitewww.AmericanMedicalSystems.com. Our website is not intended to be, and is not, a part of this quarterly report on Form 10-Q. We place our SEC filings on our website on the same day as we file such material with the SEC. In addition, we will provide electronic or paper copies of our SEC filings (excluding exhibits) to any of our stockholders free of charge upon receipt of a written request for any such filing. All requests for our SEC filings should be sent to the attention of Investor Relations at American Medical Systems Holdings, Inc., 10700 Bren Road West, Minnetonka, Minnesota 55343.

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on our Internet web site or otherwise. All statements other than statements of historical facts included in this report or expressed by us orally from time to time that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies, the outcome of contingencies such as legal proceedings, and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements in this report with words like “believe,” “may,” “could,” “would,” “might,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” or “continue” or the negative of these words or other words and terms of similar meaning. These forward-looking statements may be contained in the notes to our consolidated financial statements and elsewhere in this report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on management’s beliefs, certain assumptions and current expectations and factors that affect all businesses operating in a global market as well as matters specific to us. These uncertainties and factors are difficult to predict and many of them are beyond our control.

The following are some of the uncertainties and factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements: successfully competing against competitors; physician acceptance, endorsement, and use of our products; potential product recalls or technological obsolescence; health care reform legislation in the U.S.; successfully managing increased debt leverage and related credit facility financial covenants; the impact of worldwide economic conditions on our operations; the disruption in global financial markets potential impact on the ability of our counterparties to perform their obligations and our ability to obtain future financing; factors impacting the stock market and share price and its impact on the dilution of convertible securities; ability of our manufacturing facilities to meet customer demand; reliance on single or sole-sourced suppliers; loss or impairment of a principal manufacturing facility; clinical and regulatory matters; timing and success of new product introductions; patient acceptance of our products and therapies; changes in and adoption of reimbursement rates; adequate protection of our intellectual property rights; product liability claims; and currency and other economic risks inherent in selling our products internationally.

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For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition or operating results, see our annual report on Form 10-K for the fiscal year ended January 2, 2010 under the heading “Part I — Item 1A. Risk Factors” and “Part II — Item 1A. Risk Factors” contained in this quarterly report on Form 10-Q and in our subsequent quarterly reports on Form 10-Q.

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. We wish to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that we may consider immaterial or do not anticipate at this time. The risks and uncertainties described above are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K we file with or furnish to the SEC.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use derivatives to mitigate our exposure to volatility in interest and foreign currency exchange rates. We hedge only exposures in the ordinary course of business.

Interest Rates

We have interest rate risk as a result of the floating LIBOR index that is used to determine the interest rates on our Credit Facility. Accordingly, we have entered into various fixed interest rate swap contracts. As of April 3, 2010, the notional amount of the outstanding swap contracts, which mature over the next one to five months, represented a significant majority of our floating rate debt. Based on a sensitivity analysis, as of April 3, 2010, an instantaneous and sustained 100-basis-point increase in interest rates affecting our floating rate debt obligations, and assuming that we take no counteractive measures, would result in a decrease in income before income taxes of approximately $0.6 million over the next 12 months. The estimated impact to income takes into account the mitigating effect of the interest rate swap agreements. The fair market value of the outstanding swap contracts is a derivative liability of $0.1 million at April 3, 2010. The notional amount of the contracts amortizes over their terms, and the amount of floating rate debt hedged in the future will depend on prepayments and additional contracts.

Currency

Our operations outside of the United States are maintained in their local currency, with the significant currencies consisting of Euros, British pounds, Canadian dollars and Australian dollars. All assets and liabilities of our international subsidiaries are translated to U.S. dollars at period-end exchange rates. 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 and short-term inter-company receivables from foreign subsidiaries are included in other (expense) income.

During the three month period ended April 3, 2010, revenues from sales to customers outside the United States were 27.1 percent of total consolidated revenues. International accounts receivable was 43.8 percent, inventory was 7.9 percent, cash and short-term investments were 19.7 percent, and accounts payable was 28.6 percent of total consolidated accounts for each of these items as of April 3, 2010. The reported results of our foreign operations will be influenced by their translation into U.S. dollars by currency movements against the U.S. dollar. The result of a uniform 10 percent strengthening in the value of the U.S. dollar relative to each of the currencies in which our revenues and expenses are denominated would have resulted in a decrease in net income of approximately $0.4 million in the first quarter of 2010.

We have entered into various foreign exchange forward contracts to manage a portion of our exposure to foreign exchange rate fluctuations on our forecasted sales to and receivables from certain subsidiaries. At April 3, 2010, our net investment in foreign subsidiaries translated into dollars using the period end exchange rate was $34.2 million and the potential loss in fair value resulting from a hypothetical 10 percent strengthening in the value of the U.S. dollar currency exchange rate amounts to $3.4 million. Actual amounts may differ.

Credit Risk

Credit risk on financial instruments arises from the potential for counterparties to default on their obligations to us. Recent economic events, including failures of financial service companies and the related liquidity crisis, have considerably disrupted the capital and credit markets. Our credit risk consists of trade receivables, cash and cash equivalents, short-term investments, derivative instruments, lending commitments and insurance relationships in the ordinary course of business.

The carrying value of accounts receivable approximates fair value due to the relatively short periods to maturity on these instruments. Accounts receivable are primarily due from hospitals and clinics located mainly in the United States and Western Europe. Although we do not require collateral from our customers, concentrations of credit risk in the United States are mitigated by a large number of geographically dispersed customers. We do not presently anticipate losses in excess of allowances provided associated with trade receivables, although collection could be impacted by the underlying economies of the countries.

We place cash, cash equivalents, short-term investments and derivative instruments with high quality financial institutions, which we monitor regularly and take action where possible to mitigate risk. We do not hold investments in auction rate securities, mortgage backed securities, collateralized debt obligations, individual corporate bonds, special investment vehicles or any other investments which have been directly impacted by the recent financial

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crisis. To date, all previous lending commitments remain available to us, and we have not incurred any charges specific to the increased volatility in credit markets and credit risk. Insurance programs are with carriers that remain highly rated and we have no significant pending claims. Further, we do not expect our current or future credit risk exposures to have a significant impact on our operations. However, there can be no assurance that our business will not have any adverse impact from credit risk in the future.

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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act of 1934). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of April 3, 2010.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the above-referenced evaluation by management of the effectiveness of our internal control over financial reporting that occurred during our first quarter ended April 3, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM IA. RISK FACTORS

There have been no material changes from the risk factors disclosed in Part I — Item 1A. of our Annual Report on Form 10-K for the year ended January 2, 2010 (Form 10-K), except for the following risk factor related to health care reform in the U.S. that replaces the risk factor in the Form 10-K “The impact of health care reform in the U.S. on us is uncertain and may adversely affect our business.”

The new health care legislation in the U.S. will impose additional taxes on us.

On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Bill) was signed into law by President Obama. The Reconciliation Bill amended the Patient Protection and Affordable Care Act (PPACA), which was signed into law on March 23, 2010. The PPACA, as amended, includes funding provisions to raise nearly $400 billion over 10 years through tax increases, including an excise tax on manufacturers of certain medical devices equal to 2.3 percent of the sale price of specified medical devices sold by the manufacturer. The excise tax applies to sales of certain products in our U.S. market after December 31, 2012. The excise tax will result in an increase in our tax burden, which will have a negative impact on our results of operations and cash flows beginning after December 31, 2012. We cannot predict the exact effect newly enacted laws or future legislation or regulations will have on reimbursement rates, demand for our products or any other effects on our business from this or other health care legislation that could be enacted at either the federal or state level.

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ITEM 6. EXHIBITS

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

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

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SIGNATURES

Pursuant to the requirements 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.

	AMERICAN MEDICAL SYSTEMS HOLDINGS, INC
May 11, 2010	By	/s/ Anthony P. Bihl, III
Date		Anthony P. Bihl, III
		President and Chief Executive Officer
		(Principal Executive Officer)
May 11, 2010	By	/s/ Mark A. Heggestad
Date		Mark A. Heggestad
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended April 3, 2010

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

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

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