UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
April 2, 2011
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number:
00030733
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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41-1978822
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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10700 Bren Road West, Minnetonka, Minnesota
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55343
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(Address of principal executive offices)
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(Zip Code)
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952-930-6000
(Registrants 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
Yes
o
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).
þ
Yes
o
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 filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 April 29, 2011 there were 77,263,452 shares of the registrants $.01 par value Common
Stock outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
American Medical Systems Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three Months Ended
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April 2, 2011
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April 3, 2010
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Net sales
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$
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140,786
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$
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134,926
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Cost of sales
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22,133
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21,027
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Gross profit
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118,653
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113,899
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Operating expenses
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Selling, general and
administrative
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60,286
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60,887
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Research and development
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14,418
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13,509
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Global manufacturing
start-up costs
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197
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Amortization of intangibles
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2,948
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3,047
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Total operating expenses
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77,849
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77,443
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Operating income
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40,804
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36,456
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Other (expense) income
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Royalty income
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82
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308
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Interest expense
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(3,101
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)
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(3,954
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Amortization of financing
costs
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(3,163
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)
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(3,693
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)
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Gain on sale of
non-strategic assets
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7,719
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Other (expense) income
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(827
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(516
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)
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Total other (expense)
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(7,009
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)
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(136
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)
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Income before income taxes
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33,795
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36,320
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Provision for income taxes
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12,234
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15,662
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Net income
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$
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21,561
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$
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20,658
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Net income per share
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Basic net earnings
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$
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0.28
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$
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0.28
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Diluted net earnings
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$
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0.27
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$
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0.27
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Weighted average common shares used in
calculation
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Basic
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76,866
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75,117
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Diluted
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78,691
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76,270
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The accompanying notes are an integral part of the consolidated financial statements.
3
American Medical Systems Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
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April 2, 2011
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January 1, 2011
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(Unaudited)
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Assets
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Current assets
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Cash and cash equivalents
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$
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26,995
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$
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16,481
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Short-term investments
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83,020
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61,334
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Accounts receivable, net
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96,442
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98,518
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Inventories, net
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35,492
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33,789
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Deferred income taxes
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16,372
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15,558
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Other current assets
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7,848
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6,747
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Total current assets
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266,169
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232,427
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Property, plant and equipment, net
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40,820
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41,405
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Goodwill
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684,659
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683,720
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Intangible assets, net
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87,983
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90,781
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Other long-term assets, net
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8,768
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5,101
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Total assets
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$
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1,088,399
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$
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1,053,434
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Liabilities and Stockholders Equity
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Current liabilities
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Accounts payable
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$
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9,500
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$
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8,833
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Income taxes payable
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8,569
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535
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Accrued compensation expenses
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21,476
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30,800
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Accrued warranty expense
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2,704
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2,697
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Other accrued expenses
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26,053
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26,687
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Total current liabilities
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68,302
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69,552
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Long-term debt
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238,062
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235,093
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Deferred income taxes
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59,278
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57,259
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Long-term income taxes payable
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19,494
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19,268
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Long-term employee benefit obligations
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3,784
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3,701
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Total liabilities
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388,920
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384,873
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Stockholders equity
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Common stock, par value $.01 per share; authorized 200,000,000 shares;
issued and outstanding: 77,185,102 shares at April 2, 2011 and
76,777,443 shares at January 1, 2011
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772
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768
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Additional paid-in capital
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445,123
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436,825
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Accumulated other comprehensive income
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6,249
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5,195
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Retained earnings
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247,335
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225,773
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Total stockholders equity
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699,479
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668,561
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Total liabilities and stockholders equity
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$
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1,088,399
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$
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1,053,434
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The accompanying notes are an integral part of the consolidated financial statements.
4
American Medical Systems Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended
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April 2, 2011
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April 3, 2010
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Cash flows from operating activities
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Net income
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$
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21,561
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$
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20,658
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Adjustments to reconcile net income to net cash provided
by operating activities
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Depreciation
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2,441
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2,524
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Amortization of intangibles
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2,948
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3,047
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Amortization of financing costs
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3,163
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3,693
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Excess tax benefit from
stock-based compensation
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(300
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)
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(195
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)
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Net settlement of derivative
contracts
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425
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(783
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)
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Change in net deferred income
taxes
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1,213
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(1,556
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Gain on sale of non-strategic
assets
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(7,719
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)
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Stock-based compensation
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2,190
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1,829
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Changes in operating assets and liabilities:
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Accounts receivable
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3,939
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5,138
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Inventories
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(1,537
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)
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(1,042
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)
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Accounts payable and accrued
expenses
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(2,249
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)
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1,226
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Other assets
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(617
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)
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(212
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)
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Net cash provided by operating activities
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33,177
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26,608
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Cash flows from investing activities
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Purchase of property, plant and equipment
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(1,802
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)
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(1,314
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)
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Net settlement of derivative contracts
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(425
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)
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783
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Sale of non-strategic assets, net
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20,186
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Purchase of intangibles
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(508
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)
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(693
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)
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Purchase of investments
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(34,468
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)
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(25,041
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)
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Sale of investments
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8,571
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7,337
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Net cash (used in) provided by investing activities
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(28,632
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)
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1,258
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Cash flows from financing activities
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Issuance of common stock
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5,998
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9,365
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Excess tax benefit from stock-based compensation
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300
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195
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Payments on senior secured credit facility
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(45,719
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)
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Net cash provided by (used in) financing activities
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6,298
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(36,159
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)
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Effect of currency exchange rates on cash
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(329
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)
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(165
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)
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Net increase (decrease) in cash and cash equivalents
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10,514
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(8,458
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)
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Cash and cash equivalents at beginning of period
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16,481
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30,670
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Cash and cash equivalents at end of period
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$
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26,995
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$
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22,212
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Supplemental disclosure
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Cash paid for interest
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$
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6,092
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$
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7,008
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Cash paid for taxes
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$
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1,929
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$
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4,806
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The accompanying notes are an integral part of the consolidated financial statements.
5
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 2010. All amounts presented in tables are in thousands, except per share data.
These statements reflect, in managements 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 2011 and 2010 are represented by the three month periods ended on April 2,
2011 and April 3, 2010, 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 allows separate accounting for multiple-deliverable
arrangements for more circumstances than under existing U.S. GAAP and establishes a selling price
hierarchy for determining the selling price of a deliverable. In addition, it replaces 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, eliminates the use of the residual method for allocation, and expands 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 adopted the updated accounting
guidance for multiple-deliverable revenue arrangements on a prospective basis for our fiscal 2011
year beginning on January 2, 2011, and the adoption did not have a material impact on our
consolidated financial position or results of operations.
3. Stock-Based Compensation
At April 2, 2011, 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. The 2005 Plan
replaced our 2000 Equity Inventive Plan (2000 Plan). 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:
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Three Months Ended
|
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(in thousands)
|
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April 2, 2011
|
|
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April 3, 2010
|
|
Cost of sales
|
|
$
|
194
|
|
|
$
|
248
|
|
Selling, general and administrative
|
|
|
1,701
|
|
|
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1,296
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Research and development
|
|
|
295
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|
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|
285
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|
|
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|
|
|
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Total stock-based compensation expense
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$
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2,190
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$
|
1,829
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Options granted under the plans 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.
6
Options granted under our 2000 Plan generally have a stated expiration, if not exercised or earlier
terminated, ten years after the date of 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.
Stock option activity under our 2000 Plan and 2005 Plan for the three months ended April 2, 2011
was as follows:
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Weighted average
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Aggregate
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Options
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exercise price
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Intrinsic
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outstanding
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per share
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Value
|
|
|
|
|
|
|
|
|
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(in thousands)
|
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Balance at January 1, 2011
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|
|
6,470,045
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|
|
$
|
16.52
|
|
|
|
|
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Granted
|
|
|
763,290
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|
|
|
20.36
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|
|
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|
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Exercised
|
|
|
(317,399
|
)
|
|
|
16.16
|
|
|
|
|
|
Forfeit or expired
|
|
|
(124,993
|
)
|
|
|
15.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2011
|
|
|
6,790,943
|
|
|
$
|
16.98
|
|
|
$
|
33,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at April 2, 2011
|
|
|
3,750,268
|
|
|
$
|
16.59
|
|
|
$
|
19,774
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the three months ended April 2, 2011 was
$1.7 million. As of April 2, 2011, we had $14.9 million of unrecognized compensation cost, net of
estimated forfeitures, related to unvested stock options. We expect that cost to be recognized over
a weighted average period of 2.8 years.
Restricted stock awards are granted to employees under the 2005 Plan upon hire or based on
performance criteria established by management. Restricted stock awards are similar to stock
option awards and are subject to forfeiture if employment terminates prior to the release of the
restrictions. We grant restricted stock which generally vests over a 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 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 2005 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 2, 2011 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Unvested Shares
|
|
|
Weighted average
|
|
|
|
outstanding
|
|
|
grant date fair value
|
|
Balance at January 1, 2011
|
|
|
333,264
|
|
|
$
|
17.91
|
|
Granted
|
|
|
105,870
|
|
|
|
20.49
|
|
Vested
|
|
|
(34,781
|
)
|
|
|
17.35
|
|
Cancelled
|
|
|
(7,983
|
)
|
|
|
18.47
|
|
|
|
|
|
|
|
|
Balance at April 2, 2011
|
|
|
396,370
|
|
|
$
|
18.64
|
|
|
|
|
|
|
|
|
As of April 2, 2011, we had $5.4 million of unrecognized compensation cost, net of estimated
forfeitures, related to unvested restricted stock awards. We expect that cost to be recognized
over a weighted average period of 3.1 years.
7
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 2, 2011
|
|
|
April 3, 2010
|
|
Net income
|
|
$
|
21,561
|
|
|
$
|
20,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding for basic net income per share
|
|
|
76,866
|
|
|
|
75,117
|
|
Dilutive effect of stock options, restricted shares and convertible notes
|
|
|
1,825
|
|
|
|
1,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares outstanding for diluted net income per share
|
|
|
78,691
|
|
|
|
76,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
Basic net earnings
|
|
$
|
0.28
|
|
|
$
|
0.28
|
|
Diluted net earnings
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
There were 2,226,616 weighted shares outstanding for the three month period ended April 2,
2011, 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 3, 2010, there were 2,275,535
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 (see
Note 9,
Debt)
were excluded from the diluted net income per share calculation in the first quarter of 2010
because the conversion price was greater than the average market price of our stock during that
period.
5. Inventories
Inventories consist of the following as of April 2, 2011 and January 1, 2011:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
April 2, 2011
|
|
January 1, 2011
|
|
Raw materials
|
|
$
|
10,129
|
|
|
$
|
9,392
|
|
Work in process
|
|
|
4,088
|
|
|
|
3,873
|
|
Finished goods
|
|
|
25,338
|
|
|
|
24,292
|
|
Obsolescence reserve
|
|
|
(4,063
|
)
|
|
|
(3,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inventories
|
|
$
|
35,492
|
|
|
$
|
33,789
|
|
|
|
|
6. Warranties
Many of our products are sold with warranty coverage for periods ranging from one year up to the
patients 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 2, 2011 and April 3, 2010 are
presented below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
|
April 2, 2011
|
|
|
April 3, 2010
|
|
Balance, beginning of period
|
|
$
|
2,697
|
|
|
$
|
2,293
|
|
Provisions for warranty
|
|
|
353
|
|
|
|
334
|
|
Claims processed
|
|
|
(346
|
)
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
2,704
|
|
|
$
|
2,203
|
|
|
|
|
|
|
|
|
7. Comprehensive Income
Comprehensive income is the sum of net income as reported and other comprehensive income. Other
comprehensive income (loss) resulted from foreign currency translation adjustments, gains (losses)
on derivative instruments
8
qualifying as hedges, post-retirement plan liability adjustments, and
gains (losses) on available-for-sale investments. For more information on derivative instruments,
see
Note 11, Derivative Instruments and Hedging Activities
.
Comprehensive income for the three months ended April 2, 2011 and April 3, 2010 was:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
|
April 2, 2011
|
|
|
April 3, 2010
|
|
Net income
|
|
$
|
21,561
|
|
|
$
|
20,658
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss), net of taxes
of ($21) and $15, respectively
|
|
|
2,389
|
|
|
|
(1,431
|
)
|
Fair value adjustment on derivatives designated as cash flow hedges,
net of taxes of $912 and ($610), respectively
|
|
|
(1,532
|
)
|
|
|
1,008
|
|
Reclassification adjustments for cash flow hedges settled and included
in net income, net of tax of ($246) and ($136), respectively
|
|
|
414
|
|
|
|
225
|
|
Unrealized gain on available-for-sale securities
net of tax of ($90)
|
|
|
|
|
|
|
149
|
|
Recognition of previously unrealized gains on available-for-sale securities,
net of tax of $131
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
22,615
|
|
|
$
|
20,609
|
|
|
|
|
|
|
|
|
The after-tax components of accumulated other comprehensive income as of April 2, 2011 and
January 1, 2011, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
Instruments
|
|
Post-retirement
|
|
Foreign Currency
|
|
(Loss) Gain on
|
|
Total Accumulated
|
|
|
Qualifying as
|
|
Plan Liability
|
|
Translation
|
|
Available-for-sale
|
|
Other Comprehensive
|
(in thousands)
|
|
Hedges
|
|
Adjustment
|
|
Adjustment
|
|
Investments
|
|
Income
|
Balance at January 1, 2011
|
|
$
|
(1,129
|
)
|
|
$
|
152
|
|
|
$
|
5,955
|
|
|
$
|
217
|
|
|
$
|
5,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 2, 2011
|
|
$
|
(2,247
|
)
|
|
$
|
152
|
|
|
$
|
8,344
|
|
|
$
|
|
|
|
$
|
6,249
|
|
|
|
|
8. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the three month period ending April 2, 2011 and
January 1, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
(in thousands)
|
|
April 2, 2011
|
|
|
April 3, 2010
|
|
Goodwill, beginning of the period
|
|
$
|
683,720
|
|
|
$
|
690,899
|
|
Allocation of goodwill to sale of non-strategic assets
|
|
|
|
|
|
|
(6,400
|
)
|
Effect of currency translation
|
|
|
939
|
|
|
|
(642
|
)
|
|
|
|
|
|
|
|
Goodwill, end of the period
|
|
$
|
684,659
|
|
|
$
|
683,857
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, we sold our
Her Option
®
global endometrial
cryoablation product line for $20.5 million and used the proceeds to pay down our debt. The final
sale price after adjustment based on working capital balances at the time of sale was $19.5
million. We allocated a portion of our goodwill to the sale based on the relative fair value of
the
Her 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
the
Her 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 of
Her
Option
®
.
9
The following table provides additional information concerning intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011
|
|
January 1, 2011
|
|
|
Gross carrying
|
|
Accumulated
|
|
Net book
|
|
Gross carrying
|
|
Accumulated
|
|
Net book
|
(in thousands)
|
|
amount
|
|
amortization
|
|
value
|
|
amount
|
|
amortization
|
|
value
|
Developed and core technology
|
|
$
|
132,953
|
|
|
$
|
(95,139
|
)
|
|
$
|
37,814
|
|
|
$
|
132,953
|
|
|
$
|
(92,675
|
)
|
|
$
|
40,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
|
11,275
|
|
|
|
(9,837
|
)
|
|
|
1,438
|
|
|
|
11,275
|
|
|
|
(9,737
|
)
|
|
|
1,538
|
|
Licenses
|
|
|
18,644
|
|
|
|
(10,713
|
)
|
|
|
7,931
|
|
|
|
18,494
|
|
|
|
(10,329
|
)
|
|
|
8,165
|
|
Trademarks
|
|
|
2,233
|
|
|
|
(2,233
|
)
|
|
|
|
|
|
|
2,233
|
|
|
|
(2,233
|
)
|
|
|
|
|
|
|
|
|
|
Total amortized other
intangible assets
|
|
|
32,152
|
|
|
|
(22,783
|
)
|
|
|
9,369
|
|
|
|
32,002
|
|
|
|
(22,299
|
)
|
|
|
9,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
40,800
|
|
|
|
|
|
|
|
40,800
|
|
|
|
40,800
|
|
|
|
|
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangibles
|
|
|
72,952
|
|
|
|
(22,783
|
)
|
|
|
50,169
|
|
|
|
72,802
|
|
|
|
(22,299
|
)
|
|
|
50,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
205,905
|
|
|
$
|
(117,922
|
)
|
|
$
|
87,983
|
|
|
$
|
205,755
|
|
|
$
|
(114,974
|
)
|
|
$
|
90,781
|
|
|
|
|
|
|
The estimated amortization expense for currently-owned intangibles, as presented above, for
the years 2011 through 2015 is $11.5 million, $9.3 million, $9.3 million, $7.1 million and $7.1
million, respectively.
9. Debt
Senior Secured Credit Facility
On July 20, 2006, in conjunction with the Laserscope acquisition, American Medical Systems, Inc.
(AMS), our wholly-owned subsidiary, 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 six-year senior secured Credit Facility consisted of (i) term loan debt and (ii) a revolving
credit facility of up to $65.0 million for working capital needs, including capital expenditures
and permitted acquisitions. In 2010, we repaid the remaining outstanding term loan balance of
$125.3 million with cash provided by operations and the Credit Facility was terminated effective
April 12, 2011. There were no outstanding borrowings under the Credit Facility at the time of
termination and no early termination penalties were incurred.
2011 Senior Secured Revolving Credit Facility
On April 15, 2011, we and AMS, our wholly-owned subsidiary, entered into a credit facility
(Revolving Credit Facility) with the lenders party thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent (Administrative Agent), PNC Bank, National Association, as Syndication Agent
and U.S. Bank National Association, as Documentation Agent. The Revolving Credit Facility provides
a $250 million five-year senior secured line of credit maturing on April 15, 2016 (Maturity Date).
Principal amounts outstanding under the Revolving Credit Facility are due and payable on the
Maturity Date or may voluntarily be prepaid without premium or penalty. Accrued interest is payable
no later than quarterly. There are no borrowings outstanding under the Revolving Credit Facility.
By our execution and delivery of the Revolving Credit Facility and each of AMS Research
Corporation, AMS Sales Corporation, and Laserscope (collectively, the Subsidiary Guarantors),
pursuant to a guaranty dated April 15, 2011 (Subsidiary Guaranty), in favor of the Administrative
Agent, have guaranteed all of the obligations of AMS arising under the Revolving Credit Facility.
The obligations of AMS and each of the Subsidiary Guarantors arising under the Revolving Credit
Facility and the Subsidiary Guaranty respectively, are secured by a first priority security
interest on substantially all of their respective assets (other than intellectual property) granted
in favor of the
Administrative Agent, on its behalf and on behalf of the lenders, pursuant to a pledge and security
agreement and a mortgage on our facility in Minnetonka, Minnesota, each dated as of April 15, 2011.
We incurred costs and fees associated with the issuance of the Revolving Credit Facility that were
capitalized and will be amortized over its five-year term. In addition, we are obligated to pay
(i) a commitment fee based upon total debt leverage ratio and (ii) a fee based on the amount issued
as a letter of credit, each of which is payable quarterly in arrears to the Administrative Agent
for the ratable benefit of each lender. At the option of AMS, any borrowings under the Revolving
Credit Facility (other than swing line loans) bear interest at a variable rate based on LIBOR or an
10
alternative variable rate based on the greater of (a) the Prime Rate in effect on such day, (b) the
Federal Funds Effective Rate in effect on such day plus half of one percent and (c) the Adjusted
LIBOR for a one month Interest Period on such day (or if such day is not a Business Day, the
immediately preceding Business Day) plus one percent. The applicable margin for borrowings under
the Revolving Credit Facility is determined by reference to our total leverage ratio, as defined by
the Revolving Credit Facility. Interest is payable the last day of the respective interest period
for borrowings based on LIBOR quarterly in arrears for borrowings based on the alternative variable
rate.
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 Revolving 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.
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 2, 2011 and January 1, 2011, and is recorded in additional paid-in capital. As
of April 2, 2011, the principal amount of the liability component, its unamortized discount, and
its net carrying amount were $62.0 million, $7.8 million and $54.2 million, respectively. The
unamortized discount will be amortized over a remaining period of 2.2 years and the amortization
expense is included in amortization of financing costs on the Consolidated Statements of
Operations. As of January 1, 2011, the principal amount of the liability component, its
unamortized discount, and its net carrying amount were $62.0 million, $8.5 million and $53.5
million, respectively. The effective interest rate on the liability component was 9.5% for the
three months ended April 2, 2011 and April 3, 2010. During the three months ended April 2, 2011,
we recognized $0.5 million of interest expense representing the contractual interest coupon on our
2036 Notes, and $0.8 million of amortization expense related to the discount on the liability
component. 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.
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 the 2036 Notes for redemption;
(5) if a designated event or change, such as a change in control, 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
Revolving 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 Revolving Credit Facility.
11
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
2041 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 effective 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 2, 2011 and January 1, 2011,
and is recorded in additional paid-in capital. As of April 2, 2011, the principal amount of the
liability component, its unamortized discount, and its net carrying amount were $250.0 million,
$66.1 million and $183.9 million, respectively. The unamortized discount will be amortized over a
remaining period of 5.5 years and the amortization expense is included in amortization of
financing costs on the Consolidated Statements of Operations. As of January 1, 2011, the
principal amount of the liability component, its unamortized discount, and its net carrying amount
were $250.0 million, $68.3 million and $181.7 million, respectively. The effective interest rate on
the liability component was 10.2% for each of the three months ended April 2, 2011 and April 3,
2010. During the three months ended April 2, 2011, we recognized $2.5 million of interest expense
representing the contractual interest coupon on our 2041 Notes, and $2.2 million of amortization
expense related to the discount on the liability component. 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
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 fundamental change, such as
a change in control, 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
Revolving Credit Facility and
12
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 Revolving Credit Facility.
We 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 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 2, 2011 and April 3, 2010, the balance
sheets as of April 2, 2011 and January 1, 2011, and the statements of cash flows for each of the
three month periods ended April 2, 2011 and April 3, 2010 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 2, 2011
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Systems
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Holdings, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net sales
|
|
$
|
|
|
|
$
|
164,868
|
|
|
$
|
32,775
|
|
|
$
|
(56,857
|
)
|
|
$
|
140,786
|
|
Cost of sales
|
|
|
|
|
|
|
58,815
|
|
|
|
19,890
|
|
|
|
(56,572
|
)
|
|
|
22,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
106,053
|
|
|
|
12,885
|
|
|
|
(285
|
)
|
|
|
118,653
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
47,666
|
|
|
|
12,620
|
|
|
|
|
|
|
|
60,286
|
|
Research and development
|
|
|
|
|
|
|
14,218
|
|
|
|
200
|
|
|
|
|
|
|
|
14,418
|
|
Global Manufacturing start-up costs
|
|
|
|
|
|
|
133
|
|
|
|
64
|
|
|
|
|
|
|
|
197
|
|
Amortization of intangibles
|
|
|
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
64,965
|
|
|
|
12,884
|
|
|
|
|
|
|
|
77,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
41,088
|
|
|
|
1
|
|
|
|
(285
|
)
|
|
|
40,804
|
|
Other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty income
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Interest expense
|
|
|
(3,012
|
)
|
|
|
(83
|
)
|
|
|
(57
|
)
|
|
|
51
|
|
|
|
(3,101
|
)
|
Amortization of financing costs
|
|
|
(3,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,163
|
)
|
Other income (expense)
|
|
|
|
|
|
|
(782
|
)
|
|
|
52
|
|
|
|
(97
|
)
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
(6,175
|
)
|
|
|
(783
|
)
|
|
|
(5
|
)
|
|
|
(46
|
)
|
|
|
(7,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(6,175
|
)
|
|
|
40,305
|
|
|
|
(4
|
)
|
|
|
(331
|
)
|
|
|
33,795
|
|
(Benefit) provision for income taxes
|
|
|
(2,316
|
)
|
|
|
14,675
|
|
|
|
(1
|
)
|
|
|
(124
|
)
|
|
|
12,234
|
|
Equity in earnings of subsidiary
|
|
|
25,627
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(25,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
21,768
|
|
|
$
|
25,627
|
|
|
$
|
(3
|
)
|
|
$
|
(25,831
|
)
|
|
$
|
21,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
50,350
|
|
|
|
10,537
|
|
|
|
|
|
|
|
60,887
|
|
Research and development
|
|
|
|
|
|
|
13,515
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
13,509
|
|
Global manufacturing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income (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
|
|
(Benefit) provision for income taxes
|
|
|
(2,220
|
)
|
|
|
17,601
|
|
|
|
554
|
|
|
|
(273
|
)
|
|
|
15,662
|
|
Equity in earnings of subsidiary
|
|
|
24,778
|
|
|
|
994
|
|
|
|
|
|
|
|
(25,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
21,109
|
|
|
$
|
24,778
|
|
|
$
|
994
|
|
|
$
|
(26,223
|
)
|
|
$
|
20,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 2, 2011
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Systems
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Holdings, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
5,472
|
|
|
$
|
21,523
|
|
|
$
|
|
|
|
$
|
26,995
|
|
Short-term investments
|
|
|
27,733
|
|
|
|
54,240
|
|
|
|
1,047
|
|
|
|
|
|
|
|
83,020
|
|
Accounts receivable, net
|
|
|
636,444
|
|
|
|
49,647
|
|
|
|
32,801
|
|
|
|
(622,450
|
)
|
|
|
96,442
|
|
Inventories, net
|
|
|
|
|
|
|
33,229
|
|
|
|
9,172
|
|
|
|
(6,909
|
)
|
|
|
35,492
|
|
Deferred income taxes
|
|
|
|
|
|
|
15,299
|
|
|
|
1,073
|
|
|
|
|
|
|
|
16,372
|
|
Other current assets
|
|
|
|
|
|
|
5,047
|
|
|
|
2,801
|
|
|
|
|
|
|
|
7,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
664,177
|
|
|
|
162,934
|
|
|
|
68,417
|
|
|
|
(629,359
|
)
|
|
|
266,169
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
39,676
|
|
|
|
1,144
|
|
|
|
|
|
|
|
40,820
|
|
Goodwill
|
|
|
|
|
|
|
621,793
|
|
|
|
86,887
|
|
|
|
(24,021
|
)
|
|
|
684,659
|
|
Intangible assets, net
|
|
|
|
|
|
|
87,983
|
|
|
|
|
|
|
|
|
|
|
|
87,983
|
|
Investment in subsidiaries
|
|
|
313,066
|
|
|
|
62,038
|
|
|
|
|
|
|
|
(375,104
|
)
|
|
|
|
|
Other long-term assets, net
|
|
|
4,170
|
|
|
|
3,896
|
|
|
|
702
|
|
|
|
|
|
|
|
8,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
981,413
|
|
|
$
|
978,320
|
|
|
$
|
157,150
|
|
|
$
|
(1,028,484
|
)
|
|
$
|
1,088,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
(10,093
|
)
|
|
$
|
589,772
|
|
|
$
|
81,985
|
|
|
$
|
(652,164
|
)
|
|
|
9,500
|
|
Income taxes payable
|
|
|
(4,597
|
)
|
|
|
13,590
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
8,569
|
|
Accrued compensation expenses
|
|
|
|
|
|
|
16,530
|
|
|
|
4,946
|
|
|
|
|
|
|
|
21,476
|
|
Accrued warranty expense
|
|
|
|
|
|
|
2,725
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
2,704
|
|
Other accrued expenses
|
|
|
1,023
|
|
|
|
19,018
|
|
|
|
6,012
|
|
|
|
|
|
|
|
26,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(13,667
|
)
|
|
|
641,635
|
|
|
|
92,498
|
|
|
|
(652,164
|
)
|
|
|
68,302
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
238,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,062
|
|
Intercompany loans payable
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
|
(1,215
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
57,538
|
|
|
|
341
|
|
|
|
1,399
|
|
|
|
|
|
|
|
59,278
|
|
Long-term income taxes payable
|
|
|
|
|
|
|
19,494
|
|
|
|
|
|
|
|
|
|
|
|
19,494
|
|
Long-term employee benefit obligations
|
|
|
|
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
|
|
3,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
295,600
|
|
|
|
23,619
|
|
|
|
2,614
|
|
|
|
(1,215
|
)
|
|
|
320,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
281,933
|
|
|
|
665,254
|
|
|
|
95,112
|
|
|
|
(653,379
|
)
|
|
|
388,920
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
772
|
|
|
|
|
|
|
|
5,130
|
|
|
|
(5,130
|
)
|
|
|
772
|
|
Additional paid-in capital
|
|
|
445,123
|
|
|
|
3,424
|
|
|
|
57,028
|
|
|
|
(60,452
|
)
|
|
|
445,123
|
|
Accumulated other comprehensive income
|
|
|
6,249
|
|
|
|
(1,177
|
)
|
|
|
8,719
|
|
|
|
(7,542
|
)
|
|
|
6,249
|
|
Retained earnings (deficit)
|
|
|
247,336
|
|
|
|
310,819
|
|
|
|
(8,839
|
)
|
|
|
(301,981
|
)
|
|
|
247,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
699,480
|
|
|
|
313,066
|
|
|
|
62,038
|
|
|
|
(375,105
|
)
|
|
|
699,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
981,413
|
|
|
$
|
978,320
|
|
|
$
|
157,150
|
|
|
$
|
(1,028,484
|
)
|
|
$
|
1,088,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2011
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Systems
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Holdings, Inc.
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
4,175
|
|
|
$
|
12,306
|
|
|
$
|
|
|
|
$
|
16,481
|
|
Short-term investments
|
|
|
16,105
|
|
|
|
44,812
|
|
|
|
417
|
|
|
|
|
|
|
|
61,334
|
|
Accounts receivable, net
|
|
|
641,595
|
|
|
|
53,432
|
|
|
|
31,666
|
|
|
|
(628,175
|
)
|
|
|
98,518
|
|
Inventories, net
|
|
|
|
|
|
|
31,659
|
|
|
|
8,638
|
|
|
|
(6,508
|
)
|
|
|
33,789
|
|
Deferred income taxes
|
|
|
|
|
|
|
14,491
|
|
|
|
1,067
|
|
|
|
|
|
|
|
15,558
|
|
Other current assets
|
|
|
|
|
|
|
5,272
|
|
|
|
1,475
|
|
|
|
|
|
|
|
6,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
657,700
|
|
|
|
153,841
|
|
|
|
55,569
|
|
|
|
(634,683
|
)
|
|
|
232,427
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
40,227
|
|
|
|
1,178
|
|
|
|
|
|
|
|
41,405
|
|
Goodwill
|
|
|
|
|
|
|
621,793
|
|
|
|
85,948
|
|
|
|
(24,021
|
)
|
|
|
683,720
|
|
Intangible assets, net
|
|
|
|
|
|
|
90,781
|
|
|
|
|
|
|
|
|
|
|
|
90,781
|
|
Investment in subsidiaries
|
|
|
288,776
|
|
|
|
54,422
|
|
|
|
|
|
|
|
(343,198
|
)
|
|
|
|
|
Other long-term assets, net
|
|
|
4,364
|
|
|
|
42
|
|
|
|
695
|
|
|
|
|
|
|
|
5,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
950,840
|
|
|
$
|
961,106
|
|
|
$
|
143,390
|
|
|
$
|
(1,001,902
|
)
|
|
$
|
1,053,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
(7,908
|
)
|
|
$
|
598,715
|
|
|
$
|
75,616
|
|
|
$
|
(657,590
|
)
|
|
$
|
8,833
|
|
Income taxes payable
|
|
|
(4,181
|
)
|
|
|
4,211
|
|
|
|
505
|
|
|
|
|
|
|
|
535
|
|
Accrued compensation expenses
|
|
|
|
|
|
|
25,509
|
|
|
|
5,291
|
|
|
|
|
|
|
|
30,800
|
|
Accrued warranty expense
|
|
|
|
|
|
|
2,717
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
2,697
|
|
Other accrued expenses
|
|
|
4,018
|
|
|
|
17,516
|
|
|
|
5,153
|
|
|
|
|
|
|
|
26,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
(8,071
|
)
|
|
|
648,668
|
|
|
|
86,545
|
|
|
|
(657,590
|
)
|
|
|
69,552
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
235,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235,093
|
|
Intercompany loans payable
|
|
|
|
|
|
|
|
|
|
|
1,114
|
|
|
|
(1,114
|
)
|
|
|
|
|
Deferred income taxes
|
|
|
55,257
|
|
|
|
693
|
|
|
|
1,309
|
|
|
|
|
|
|
|
57,259
|
|
Long-term income taxes payable
|
|
|
|
|
|
|
19,268
|
|
|
|
|
|
|
|
|
|
|
|
19,268
|
|
Long-term employee benefit obligations
|
|
|
|
|
|
|
3,701
|
|
|
|
|
|
|
|
|
|
|
|
3,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
290,350
|
|
|
|
23,662
|
|
|
|
2,423
|
|
|
|
(1,114
|
)
|
|
|
315,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
282,279
|
|
|
|
672,330
|
|
|
|
88,968
|
|
|
|
(658,704
|
)
|
|
|
384,873
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
768
|
|
|
|
|
|
|
|
119
|
|
|
|
(119
|
)
|
|
|
768
|
|
Additional paid-in capital
|
|
|
436,825
|
|
|
|
3,424
|
|
|
|
56,928
|
|
|
|
(60,352
|
)
|
|
|
436,825
|
|
Accumulated other comprehensive income
|
|
|
5,195
|
|
|
|
161
|
|
|
|
6,211
|
|
|
|
(6,372
|
)
|
|
|
5,195
|
|
Retained earnings (deficit)
|
|
|
225,773
|
|
|
|
285,191
|
|
|
|
(8,836
|
)
|
|
|
(276,355
|
)
|
|
|
225,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
668,561
|
|
|
|
288,776
|
|
|
|
54,422
|
|
|
|
(343,198
|
)
|
|
|
668,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
950,840
|
|
|
$
|
961,106
|
|
|
$
|
143,390
|
|
|
$
|
(1,001,902
|
)
|
|
$
|
1,053,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
American Medical Systems Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statement of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 2, 2011
|
|
|
|
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
|
|
$
|
(6,298
|
)
|
|
$
|
29,253
|
|
|
$
|
10,222
|
|
|
$
|
|
|
|
$
|
33,177
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
(1,733
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
(1,802
|
)
|
Purchase of intangibles
|
|
|
|
|
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
|
(508
|
)
|
Purchase of investments
|
|
|
|
|
|
|
(33,861
|
)
|
|
|
(607
|
)
|
|
|
|
|
|
|
(34,468
|
)
|
Sale of investments
|
|
|
|
|
|
|
8,571
|
|
|
|
|
|
|
|
|
|
|
|
8,571
|
|
Net settlement of derivative contracts
|
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(27,956
|
)
|
|
|
(676
|
)
|
|
|
|
|
|
|
(28,632
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
5,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,998
|
|
Excess tax benefit from stock-based compensation
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,298
|
|
Effect of currency exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
1,297
|
|
|
|
9,217
|
|
|
|
|
|
|
|
10,514
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
4,175
|
|
|
|
12,306
|
|
|
|
|
|
|
|
16,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
5,472
|
|
|
$
|
21,523
|
|
|
$
|
|
|
|
$
|
26,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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
|
)
|
Sale of non-stragic assets, net
|
|
|
|
|
|
|
20,186
|
|
|
|
|
|
|
|
|
|
|
|
20,186
|
|
Purchase of intangibles
|
|
|
|
|
|
|
(693
|
)
|
|
|
|
|
|
|
|
|
|
|
(693
|
)
|
Purchase of investments
|
|
|
|
|
|
|
(25,012
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(25,041
|
)
|
Sale of investments
|
|
|
|
|
|
|
7,000
|
|
|
|
337
|
|
|
|
|
|
|
|
7,337
|
|
Net settlement of derivative contracts
|
|
|
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 stock-based
compensation
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Basi
s
The following table summarizes our financial assets measured at fair value on a recurring basis as
of April 2, 2011 (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
|
|
$
|
54,943
|
|
|
$
|
|
|
|
$
|
|
|
Other short-term investments
|
|
|
|
|
|
|
1,047
|
|
|
|
|
|
Commercial Paper
|
|
|
|
|
|
|
27,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
54,943
|
|
|
$
|
28,077
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
3,377
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds: Our money market funds are highly liquid investments that invest in
securities 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.
Other short-term investments: Other short-term investments consist of mutual fund shares and
short-term bonds, which have maturities of three months or less. The carrying amount is a
reasonable estimate of fair value and the short-term investments have been classified as Level 2.
Commercial paper: We hold commercial paper that has a maturity of eight months or less with a
highly rated financial institution. Our commercial paper is classified as Level 2 in the fair value
hierarchy because it is carried at amortized cost, which is a reasonable approximation of fair
value.
Derivatives: The total fair value of various foreign exchange forward contracts as of April 2,
2011 includes liabilities of $3.4 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 to
Note 11, Derivative Instruments and Hedging
Activities
, for more information regarding our derivatives.
Cost-method investment: During the first quarter of 2011, we made an investment in preferred stock
of a privately-held company. The $4.2 million investment is being accounted for using the
cost-method and will be evaluated for impairment on an annual basis, or as circumstances indicate
the possibility of impairment. The fair value of this cost-method investment is not estimated if
there are no identified events or changes in circumstances that may have a significant adverse
effect on the fair value of the investment as we have determined that it is not practicable to
estimate the fair value of the investment because it relates to a development stage privately-held
company and the shares are not actively traded.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value measurements of non-financial 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
20
months ended April 2, 2011,
we had no significant measurements of assets or liabilities at fair value on a nonrecurring basis
subsequent to their initial recognition.
Fair Value of Debt
The fair value of the 2036 Notes and the 2041 Notes (see
Note 9, Debt)
was estimated using quoted
market prices.
The following table summarizes the principal outstanding and estimated fair values of our 2036
Notes and the 2041 Notes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2, 2011
|
|
|
January 1, 2011
|
|
|
|
Principal
|
|
|
Fair Value
|
|
|
Principal
|
|
|
Fair Value
|
|
2036 Notes
|
|
$
|
61,985
|
|
|
$
|
70,198
|
|
|
$
|
61,985
|
|
|
$
|
67,839
|
|
2041 Notes
|
|
|
250,000
|
|
|
|
327,500
|
|
|
|
250,000
|
|
|
|
307,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
311,985
|
|
|
$
|
397,698
|
|
|
$
|
311,985
|
|
|
$
|
375,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 foreign currency exchange rates. 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
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.
We have foreign currency exchange forward contract derivatives outstanding at April 2, 2011 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, Australian
dollars, and Swedish krona. These contracts have remaining terms between one and twelve months. The
notional amount of the foreign exchange forward contracts designated as cash flow hedges was $45.4
million and $46.4 million at April 2, 2011 and January 1, 2011, 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, British pounds,
Canadian dollars, and Australian dollars. These contracts are not designated as an accounting
hedge, and the notional amount of these contracts at April 2, 2011 and January 1, 2011 was $8.3
million and $11.9 million, respectively. The associated underlying transactions are expected to
occur within the next month.
The effective portion of the change in fair value of foreign currency exchange contracts is
reported in accumulated other comprehensive income, a component of stockholders equity, and is
being recognized as an adjustment to other (expense) income, 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 2, 2011 or April 3, 2010.
Amounts due from counterparties
(unrealized hedge gains) or owed to counterparties (unrealized hedge losses) are included in
accounts receivable, net or other accrued expenses, 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.
21
Information on the location and amounts of derivative fair values in the Consolidated Balance Sheets is
presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
(in thousands)
|
|
Location
|
|
|
April 2, 2011
|
|
|
January 1, 2011
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other accrued expenses
|
|
$
|
3,340
|
|
|
$
|
1,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other accrued expenses
|
|
|
37
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
3,377
|
|
|
$
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
At April 2, 2011, approximately $3.4 million of the existing loss on the foreign exchange
forward contracts designated as a cash flow hedge, which is included in accumulated other
comprehensive income, is 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.
The Effect of Derivative Instruments on the Consolidated Statement of Operations
for the Three Months Ended April 2, 2011 and April 3, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
|
(Loss) Reclassified
|
|
|
Amount of Gain (Loss) Reclassified
|
|
|
|
Recognized in OCI on Derivatives
|
|
|
from Accumulated
|
|
|
from Accumulated OCI into Income
|
|
Derivatives in Cash Flow
|
|
(Effective Portion)
|
|
|
OCI into Income
|
|
|
(Effective Portion)
|
|
Hedging Relationships
|
|
April 2, 2011
|
|
|
April 3, 2010
|
|
|
(Effective Portion)
|
|
|
April 2, 2011
|
|
|
April 3, 2010
|
|
Interest rate swap
contracts
|
|
$
|
|
|
|
$
|
197
|
|
|
Interest expense
|
|
$
|
|
|
|
$
|
(219
|
)
|
Foreign exchange
contracts
|
|
|
(1,784
|
)
|
|
|
1,782
|
|
|
Other (expense) income
|
|
|
(660
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,784
|
)
|
|
$
|
1,979
|
|
|
|
|
|
|
$
|
(660
|
)
|
|
$
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss)
|
|
Amount of Gain (Loss) Recognized
|
Derivatives not designated
|
|
Recognized in Income
|
|
in Income on Derivatives
|
as Hedging Instruments
|
|
on Derivatives
|
|
April 2, 2011
|
|
April 3, 2010
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Other (expense) income
|
|
$
|
(363
|
)
|
|
$
|
282
|
|
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 2, 2011 or April 3, 2010. 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.
22
The following table presents net sales and long-lived assets (excluding deferred taxes) by
geographical territory. No individual foreign countrys 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 2, 2011
|
|
April 3, 2010
|
United States
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
99,675
|
|
|
$
|
98,310
|
|
Long-lived assets
|
|
|
804,415
|
|
|
|
813,153
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
41,111
|
|
|
|
36,616
|
|
Long-lived assets
|
|
|
17,815
|
|
|
|
17,150
|
|
13. Commitments and Contingent Liabilities
We are involved in a number of claims and lawsuits considered normal in our business, including
product liability matters. While it is not possible to predict the outcome of legal actions, we
believe that any liability resulting from the pending claims and suits that would potentially
exceed existing accruals would not have a material, adverse effect on our financial position or on
our results of operations or cash flows for any period.
Product Liability
On October 20, 2008, the U.S. Food and Drug Administration (FDA) issued a public health notice
regarding complications associated with transvaginal placement of surgical mesh to treat pelvic
organ prolapse and stress urinary incontinence. Most of our female incontinence and prolapse
products use surgical mesh. The notification provides recommendations and encourages physicians to
seek specialized training in mesh procedures, advise their patients about the risks associated with
these procedures and be diligent in diagnosing and reporting complications.
During 2010, we experienced an increased level of lawsuits related to our products that use mesh.
We believe these suits were brought in connection with the two year anniversary of the public
health notification issued by the FDA and we plan to vigorously defend against these claims. We
have recorded an accrual for probable legal costs, settlements and judgments for mesh litigation.
Due to the early stages of the litigation and the lack of precedent for product liability cases
involving mesh, we do not have sufficient data to quantify the maximum potential range to litigate
or otherwise resolve these lawsuits, either individually or in the aggregate.
14. Subsequent Events
Pending Merger with Endo Pharmaceuticals Holdings, Inc.
On April 10, 2011, we entered into a definitive agreement with Endo Pharmaceuticals Holdings, Inc.
(Endo) under which a wholly-owned indirect subsidiary of Endo will merge with and into American
Medical Systems Holdings, Inc. and the outstanding common shares of American Medical Systems
Holdings, Inc. will be cancelled in exchange for $30 per share. The aggregate purchase price for
the merger is approximately $2.9 billion in cash, which includes the assumption and repayment of
$312 million of principal on our convertible debt. The transaction is subject to
approval of our stockholders and clearance by the relevant antitrust authorities, as well as other
customary conditions, and is expected to close in the third quarter of 2011.
Termination of Credit Facility
On April 12, 2011, AMS and each of our majority-owned domestic subsidiaries, terminated in whole
the Credit and Guaranty Agreement with CIT Healthcare LLC, as administrative agent, dated July 20,
2006. There were no outstanding borrowings under the Credit Facility at the time of termination
and no early termination penalties were incurred.
2011 Senior Secured Revolving Credit Facility
On April 15, 2011, we and our wholly owned subsidiary American Medical Systems, Inc., entered into
a Revolving Credit Facility with JPMorgan Chase Bank, N.A., as Administrative Agent, PNC Bank,
National Association, as Syndication Agent and U.S. Bank National Association, as Documentation
Agent (see
Notes to Consolidated
23
Financial Statements No. 9, Debt
). The Revolving Credit
Facility provides a $250 million five-year senior secured line of credit maturing on April 15,
2016. There are no borrowings outstanding under the Revolving Credit Facility.
Voluntary
recall of the control pump component of the AMS
800
®
Artificial Urinary Sphincter
On May 9,
2011, we initiated a voluntary recall of the control pump component
of the
AMS
800
®
Artificial Urinary Sphincter, a mens health incontinence
product. Based upon a review of our product test procedures, we are
unable to confirm that all control pumps have met our requirements.
We have not received any confirmed reports of device malfunction
attributable to this concern and we believe the likelihood of a
serious adverse health consequence is remote.
24
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Managements 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.
Pending Merger with Endo Pharmaceuticals Holdings, Inc.
On April 10, 2011, we entered into a definitive agreement with Endo Pharmaceuticals Holdings, Inc.
(Endo) under which a wholly-owned indirect subsidiary of Endo will merger with and into American
Medical Systems Holdings, Inc. and the outstanding common shares of American Medical Systems
Holdings, Inc. will be cancelled in exchange for $30 per share. The aggregate purchase price for
the merger is approximately $2.9 billion in cash, which includes the assumption and repayment of
$312 million of principal on our convertible debt. The transaction is subject to approval of our
stockholders and clearance by the relevant antitrust authorities, as well as other customary
conditions, and is expected to close in the third quarter of 2011.
Critical Accounting Policies and Estimates
Managements 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 1, 2011.
Overview
We are a world leader in developing and delivering innovative medical technology solutions to
physicians treating mens and womens pelvic health conditions, thereby recognized as a technology
leader in the markets we serve. We have built a business that delivers growth, fueled by a robust
pipeline of innovative products for significant, under-penetrated markets. 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 to reduce operating time and
trauma, economically benefit the overall healthcare system, and increase the value of our products
to physicians, patients, and payers. Our primary physician customers include urologists,
gynecologists, urogynecologists and colorectal surgeons.
Our net sales grew from $134.9 million in the first quarter of 2010 to $140.8 million in the first
quarter of 2011. In the first quarter of 2011, mens health contributed $67.4 million, or 48
percent of total net sales, BPH therapy contributed $28.1 million, or 20 percent of total net
sales, and womens health contributed $45.3 million, or 32 percent of total net sales.
We earned net income of $21.6 million in the first quarter of 2011, compared to $20.7 million
during the comparable period of 2010, and generated cash from operating activities of $33.2 in the
first quarter compared to $26.6 million in the comparable period of 2010. In February of 2010, we
sold out
Her Option
® product line for $20.5 million resulting in a pre-tax gain of $7.7 million
(see
Notes to Consolidated Financial Statements No. 8, Goodwill and Intangible Assets
).
With our continued focus on geographic expansion and the need to increase our manufacturing
capacity for the future, we have decided to expand outside the United States by establishing a
manufacturing facility in Athlone, Ireland. This will require an upfront investment and is expected
to result in operational and financial benefits in the future. Accordingly, we anticipate that we
will use an incremental $7.0 million in cash and incur incremental operating costs of approximately
$5.0 million in 2011. Our tax rate will increase by approximately one percentage point in 2011, as
many of these incremental costs have negative near-term tax implications. There are many benefits
that we expect to
25
receive from this initiative including expanding our presence outside the United States, increasing
our manufacturing capacity to assure continued supply of product as our company grows, reducing our
risk by decreasing the concentration of manufacturing at one site, and reducing our tax rate in
future years.
We maintain a website at
www.AmericanMedicalSystems.com.
We are not including the information
contained on our website as a part of, nor incorporating it by reference into, this 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 2, 2011 compared to the three month period ended April 3, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
(in thousands)
|
|
April 2, 2011
|
|
April 3, 2010
|
|
$ Change
|
|
% Change
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mens health
|
|
$
|
67,407
|
|
|
$
|
64,480
|
|
|
$
|
2,927
|
|
|
|
4.5
|
%
|
BPH therapy
|
|
|
28,054
|
|
|
|
25,911
|
|
|
|
2,143
|
|
|
|
8.3
|
%
|
Womens health
|
|
|
45,325
|
|
|
|
42,748
|
|
|
|
2,577
|
|
|
|
6.0
|
%
|
|
|
|
Sub-total
|
|
|
140,786
|
|
|
|
133,139
|
|
|
|
7,647
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uterine health(a)
|
|
|
|
|
|
|
1,787
|
|
|
|
(1,787
|
)
|
|
|
-100.0
|
%
|
|
|
|
Total
|
|
$
|
140,786
|
|
|
$
|
134,926
|
|
|
$
|
5,860
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
99,675
|
|
|
$
|
96,523
|
|
|
$
|
3,152
|
|
|
|
3.3
|
%
|
International
|
|
|
41,111
|
|
|
|
36,616
|
|
|
|
4,495
|
|
|
|
12.3
|
%
|
|
|
|
Sub-total
|
|
|
140,786
|
|
|
|
133,139
|
|
|
|
7,647
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States-Uterine health(a)
|
|
|
|
|
|
|
1,787
|
|
|
|
(1,787
|
)
|
|
|
-100.0
|
%
|
|
|
|
Total
|
|
$
|
140,786
|
|
|
$
|
134,926
|
|
|
$
|
5,860
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
Percent of net sales
|
|
April 2, 2011
|
|
April 3, 2010
|
|
|
|
|
Product Line
|
|
|
|
|
|
|
|
|
Mens health
|
|
|
47.9
|
%
|
|
|
47.8
|
%
|
BPH therapy
|
|
|
19.9
|
%
|
|
|
19.2
|
%
|
Womens health
|
|
|
32.2
|
%
|
|
|
31.7
|
%
|
|
|
|
Sub-total
|
|
|
100.0
|
%
|
|
|
98.7
|
%
|
Uterine health(a)
|
|
|
0.0
|
%
|
|
|
1.3
|
%
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Geography
|
|
|
|
|
|
|
|
|
United States
|
|
|
70.8
|
%
|
|
|
72.9
|
%
|
International
|
|
|
29.2
|
%
|
|
|
27.1
|
%
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
(a)
|
|
The uterine health product line,
Her Option
®
was sold in February, 2010. Revenues for 2010 consist
of end-customer revenue earned prior to the date of sale, in addition to revenue earned as part of the
product supply agreement with CooperSurgical, Inc., which continued through the fourth quarter of 2010.
|
26
The following table compares revenue, expense, and other (expense) income for the three months
ended April 2, 2011 and April 3, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
(in thousands)
|
|
April 2, 2011
|
|
April 3, 2010
|
|
$ Change
|
|
% Change
|
|
Net sales
|
|
$
|
140,786
|
|
|
$
|
134,926
|
|
|
$
|
5,860
|
|
|
|
4.3
|
%
|
Cost of sales
|
|
|
22,133
|
|
|
|
21,027
|
|
|
|
1,106
|
|
|
|
5.3
|
%
|
|
|
|
Gross profit
|
|
|
118,653
|
|
|
|
113,899
|
|
|
|
4,754
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
60,286
|
|
|
|
60,887
|
|
|
|
(601
|
)
|
|
|
-1.0
|
%
|
Research and development
|
|
|
14,418
|
|
|
|
13,509
|
|
|
|
909
|
|
|
|
6.7
|
%
|
Global manufacturing start-up costs
|
|
|
197
|
|
|
|
|
|
|
|
197
|
|
|
|
n/a
|
|
Amortization of intangibles
|
|
|
2,948
|
|
|
|
3,047
|
|
|
|
(99
|
)
|
|
|
-3.2
|
%
|
|
|
|
Total operating expenses
|
|
|
77,849
|
|
|
|
77,443
|
|
|
|
406
|
|
|
|
0.5
|
%
|
|
|
|
Operating income
|
|
|
40,804
|
|
|
|
36,456
|
|
|
|
4,348
|
|
|
|
11.9
|
%
|
Royalty income
|
|
|
82
|
|
|
|
308
|
|
|
|
(226
|
)
|
|
|
-73.4
|
%
|
Interest expense
|
|
|
(3,101
|
)
|
|
|
(3,954
|
)
|
|
|
(853
|
)
|
|
|
-21.6
|
%
|
Amortization of financing costs
|
|
|
(3,163
|
)
|
|
|
(3,693
|
)
|
|
|
(530
|
)
|
|
|
-14.4
|
%
|
Gain on sale of non-strategic assets
|
|
|
|
|
|
|
7,719
|
|
|
|
(7,719
|
)
|
|
|
n/a
|
|
Other (expense) income
|
|
|
(827
|
)
|
|
|
(516
|
)
|
|
|
311
|
|
|
|
60.3
|
%
|
|
|
|
Income before taxes
|
|
|
33,795
|
|
|
|
36,320
|
|
|
|
(2,525
|
)
|
|
|
-7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
12,234
|
|
|
|
15,662
|
|
|
|
(3,428
|
)
|
|
|
-21.9
|
%
|
|
|
|
Net income
|
|
$
|
21,561
|
|
|
$
|
20,658
|
|
|
$
|
903
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Net Sales
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
April 2, 2011
|
|
April 3, 2010
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
15.7
|
%
|
|
|
15.6
|
%
|
|
|
|
Gross profit
|
|
|
84.3
|
%
|
|
|
84.4
|
%
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
42.8
|
%
|
|
|
45.1
|
%
|
Research and development
|
|
|
10.2
|
%
|
|
|
10.0
|
%
|
Global manufacturing start-up costs
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
Amortization of intangibles
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
|
|
|
Total operating expenses
|
|
|
55.3
|
%
|
|
|
57.4
|
%
|
|
|
|
Operating income
|
|
|
29.0
|
%
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
Royalty income
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Interest expense
|
|
|
-2.2
|
%
|
|
|
-2.9
|
%
|
Amortization of financing costs
|
|
|
-2.2
|
%
|
|
|
-2.7
|
%
|
Gain on sale of non-strategic assets
|
|
|
0.0
|
%
|
|
|
5.7
|
%
|
Other (expense) income
|
|
|
-0.6
|
%
|
|
|
-0.4
|
%
|
|
|
|
Income before taxes
|
|
|
24.0
|
%
|
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
8.7
|
%
|
|
|
11.6
|
%
|
|
|
|
Net income
|
|
|
15.3
|
%
|
|
|
15.3
|
%
|
|
|
|
27
Comparison of the Three Months Ended April 2, 2011 to the Three Months Ended April 3, 2010
Net sales.
Net sales of $140.8 million in the first quarter of 2011 represented an increase of 5.7
percent compared to $133.1 million in the first quarter of 2010, excluding the impact of
Her
Option
®
. The weakening of the U.S. dollar in first quarter of 2011, as compared to the first
quarter of 2010, increased revenue by approximately $0.4 million. Growth in our business continues
to be driven by the success of innovative products, particularly our
GreenLight
XPS
and
the
MoXy
Liquid Cooled Fiber, our newest products launched during 2010 for the
treatment of BPH and the
Elevate
®
anterior and posterior pelvic floor repair products in womens
health, as well as the continued success of such products as the
AMS 800
®
Artificial
Urinary Sphincter in mens health.
Mens health products.
Net sales of mens health products increased 4.5 percent to $67.4 million
in the first quarter of 2011 compared to $64.5 million in the first quarter of 2010. Growth was led
by our continence products, in particular the
AMS 800
®
Artificial Urinary Sphincter
which achieved strong sales growth in the first quarter of 2011 compared to the first quarter of
2010. Our erectile restoration product line yielded modest growth in the first quarter of 2011
compared to the first quarter of 2010.
Net sales
for future quarters of 2011 will be reduced for the estimated impact
of the voluntary recall of the control pump component of the
AMS
800
®
Artificial Urinary Sphincter (see
Notes to Consolidated Financial
Statements No. 14, Subsequent Events
). We estimate this voluntary
recall may disrupt U.S. sales for approximately 120 days, and likely
less time in international markets, and as a result has the potential
to reduce sales in the range of $16.0 million to $20.0 million for the
remainder of fiscal year 2011. Given the limited alternatives
available for treating men with severe incontinence, we do not
anticipate significant market share loss due to this voluntary
recall.
BPH therapy products.
Net sales from BPH therapy products increased 8.3 percent to $28.1 million
in the first quarter of 2011 compared to $25.9 million in the same period in 2010. We recorded
strong sales of the
GreenLight
XPS
console, which was launched during the
second quarter of 2010, and
MoXy
Liquid Cooled Fiber, which was launched in the final
week of the third quarter of 2010.
Womens health products.
Net sales of our womens health products increased 6.0 percent to $45.3
million in the first quarter of 2011 compared to $42.7 million in the first quarter of 2010.
Growth was led by our
Elevate
®
anterior and posterior pelvic floor repair products. The female
continence product line contributed modest sales growth over the same period in 2010, driven by the
MiniArc
®
Single-Incision Sling.
Uterine health products.
We sold the
Her Option
®
Global Endometrial Ablation product line on
February 16, 2010 (see
Notes 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 prior to divestiture in addition to revenue of approximately $0.6 million
from the product supply agreement that was part of the divestiture agreement and which continued
through the fourth quarter of 2010. Accordingly, no further revenue from Uterine Health will be
realized following 2010.
Net sales by geography and foreign exchange effects.
Net sales in the United States increased 3.3
percent to $99.7 million in the first quarter of 2011 compared to $96.5 million in the first
quarter of 2010. This growth was led by our BPH therapy and male continence products. International
net sales increased 12.3 percent to $41.1 million in the first quarter of 2011 compared to $36.6
million in the first quarter of 2010, including the positive impact of 0.3 percentage points due to
foreign currency exchange rate changes, with the weakening of the U.S. dollar. International sales
growth was led by the
AMS 800
®
Artificial Urinary Sphincter and
Elevate
®
anterior and
posterior pelvic floor repair products. International sales represented 29.2 percent and 27.1
percent of our total net sales in the first quarter of 2011 and the first quarter of 2010,
respectively.
Gross profit.
Gross profit decreased slightly as a percentage of sales from 84.4 percent in the
first quarter of 2010 to 84.3 percent in the first quarter of 2011, mainly due to fluctuations in
product and geographic mix compared to the first quarter of 2010. Future gross profit will continue
to depend upon stable sales prices, product and geographic mix, production levels, labor costs, raw
material costs and our ability to manage overhead costs.
Selling, general and administrative
. Selling, general and administrative expenses as a percentage
of sales decreased by 2.3 percentage points to 42.8 percent in 2011 from 45.1 percent in 2010. The
decrease was primarily the result of lower selling expenses. In addition, we had higher marketing
related expenses in the first quarter of 2010 for certain product launches last year, in
particular, the
GreenLight
XPS
console. Our objective remains to leverage
selling, general and administrative costs as a percentage of sales.
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 expense as a percentage of revenue was 10.2 percent in the first
quarter of 2011, which is consistent with 10.0 percent in the same period of 2010. These ratios
are in line with our long-term goal of spending approximately ten percent of sales on research and
development.
28
Global manufacturing start-up costs.
Global manufacturing start-up costs related to establishing
our Ireland manufacturing facility were $0.2 million in the first quarter of 2011 and included
legal, personnel and facility costs. This facility will help us meet our manufacturing and
distribution needs as our business continues to expand globally. We expect total start-up costs
related to this initiative of approximately $5.0 million in 2011.
Amortization of intangibles.
Amortization of intangibles includes amortization expense on our
definite-lived intangible assets, consisting of patents, licenses and developed technology.
Amortization in the first quarter of 2011 reflects a decrease of $0.1 million compared to the same
period of 2010 primarily due to the sale of the
Her Option
®
product line in the first quarter of
2010, as intangible assets were disposed of in the transaction, thereby reducing on-going
amortization expense.
Royalty income.
Our royalty income is from licensing our intellectual property. We do not directly
influence sales of the products on which these royalties are based and cannot give any assurance as
to future income levels. Royalty income in the first quarter of 2011 decreased $0.2 million
compared to the same period last year due to the expiration of certain royalty contracts.
Interest expense.
Interest expense decreased by $0.9 million in the first quarter of 2011 from the
comparable period in 2010 mainly due to the impact of debt reductions made over the past year. In
2011, interest expense includes interest incurred on our 2036 Notes, which carry a fixed interest
rate of 3.25 percent, and the interest incurred on our 2041 Notes, which carry a fixed interest
rate of 4.00 percent. In 2010, we also incurred interest on our Credit Facility, which generally
carried a floating interest rate of LIBOR plus 2.25 percent. In December of 2010, we repaid the
remaining outstanding term loan balance. Including the impact of interest rate swaps, the weighted
average interest rate on the Credit Facility was 3.3 percent for the three months ended April 3,
2010 with average borrowings of $101.2 million. Average borrowings on our 2036 Notes were $62.0
million for the three months ended April 2, 2011 and April 3, 2010. Average borrowings on our 2041
Notes were $250.0 million for the three months ended April 2, 2011 and April 3, 2010.
Amortization of financing costs.
Amortization of financing costs in the first quarter of 2011 and
in the first quarter of 2010 was $3.2 million and $3.7 million, respectively, and was comprised of
the incremental non-cash interest cost of our 2036 Notes and 2041 Notes, and amortization of the
financing costs associated with debt issuance. The Credit Facility was fully repaid in the fourth
quarter of 2010 and all remaining financing costs were expensed at that time, resulting in no
amortization expense related to the Credit Facility in the first quarter of 2011.
Gain on sale of non-strategic assets
. During the first quarter of 2010, we sold the
Her 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 the
Her 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
. Other expense totaled $0.8 million in the first quarter of 2011 compared to $0.5
million in the first quarter of 2010. The primary cause of the change in other expense 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 36.2 percent and 43.1 percent for
the first quarter of 2011 and first quarter of 2010, respectively. The decrease in the effective
tax rate is primarily due to the sale of the
Her Option
®
product line in the first quarter of 2010,
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 decreased in
the current quarter compared to the first quarter of 2010 due to the reinstatement of the U.S.
federal research and development tax credit as of December 31, 2010.
Liquidity and Capital Resources
Cash, cash equivalents, and short-term investments were $110.0 million as of April 2, 2011,
compared to $77.8 million as of January 1, 2011. Short-term investments consist of highly liquid
money market funds and short term commercial paper that have not experienced any negative impact on
liquidity or decline in principal value.
Cash flows from operating activities.
Net cash provided by operating activities was $33.2 million
in the first quarter of 2011, versus $26.6 million provided during the comparable period of 2010,
which is an increase of $6.6 million. The increase in net cash provided by operating activities is
the result of increased profitability, which was achieved through improved leverage of operating
expenses on increased sales and a decrease in interest expense due to the impact of
29
debt prepayments we made on the Credit Facility during 2010. These increases in operating cash
flows were partially offset by a decrease in cash provided by accounts receivable collections, and
other changes in our operating assets and liabilities compared to the first quarter of 2010.
Cash flows from investing activities.
Cash used for investing activities was $28.6 million during
the first quarter of 2011, which was mainly due to the net purchase of short-term investments. Cash
provided by investing activities of $1.3 million in the first quarter of 2010 was primarily due to
$20.2 million of cash provided by the sale of the
Her Option
®
product line, offset by purchases of
short-term investments.
Cash flows from financing activities.
Cash provided by financing activities was $6.3 million
during the first quarter of 2011, compared to cash used of $36.2 million in the same period of
2010. The change is due primarily to cash used for prepayments on our Credit Facility during the
first quarter of 2010 of $45.7 million. Cash received from the issuance of common stock was $6.0
million and $9.4 million during the first quarter of 2011 and 2010, 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, and 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 such as a change
in control or other 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.
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.
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, and 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.
30
If a holder elects to convert its 2041 Note in connection with a fundamental change such as a
change in control or other 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.
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 Convertible 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 Convertible 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 Convertible Notes, the
impact is dilutive and the Convertible Notes will affect the number of common share equivalents
used in the diluted EPS calculation. The degree to which the Convertible 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
|
|
|
|
|
|
|
market price
|
|
computation 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
|
%
|
$
|
21.00
|
|
|
0.2 million
|
|
1.0 million
|
|
1.2 million
|
|
|
0.3
|
%
|
|
|
1.3
|
%
|
|
|
1.6
|
%
|
$
|
22.00
|
|
|
0.4 million
|
|
1.5 million
|
|
1.9 million
|
|
|
0.5
|
%
|
|
|
1.9
|
%
|
|
|
2.4
|
%
|
$
|
23.00
|
|
|
0.5 million
|
|
2.0 million
|
|
2.5 million
|
|
|
0.6
|
%
|
|
|
2.5
|
%
|
|
|
3.1
|
%
|
$
|
24.00
|
|
|
0.6 million
|
|
2.5 million
|
|
3.1 million
|
|
|
0.8
|
%
|
|
|
3.1
|
%
|
|
|
3.9
|
%
|
$
|
25.00
|
|
|
0.7 million
|
|
2.9 million
|
|
3.6 million
|
|
|
0.9
|
%
|
|
|
3.6
|
%
|
|
|
4.5
|
%
|
$
|
26.00
|
|
|
0.8 million
|
|
3.3 million
|
|
4.1 million
|
|
|
1.0
|
%
|
|
|
4.1
|
%
|
|
|
5.1
|
%
|
$
|
27.00
|
|
|
0.9 million
|
|
3.6 million
|
|
4.5 million
|
|
|
1.2
|
%
|
|
|
4.5
|
%
|
|
|
5.7
|
%
|
$
|
28.00
|
|
|
1.0 million
|
|
4.0 million
|
|
5.0 million
|
|
|
1.3
|
%
|
|
|
4.9
|
%
|
|
|
6.2
|
%
|
$
|
29.00
|
|
|
1.1 million
|
|
4.3 million
|
|
5.4 million
|
|
|
1.4
|
%
|
|
|
5.2
|
%
|
|
|
6.6
|
%
|
$
|
30.00
|
|
|
1.1 million
|
|
4.5 million
|
|
5.6 million
|
|
|
1.4
|
%
|
|
|
5.6
|
%
|
|
|
7.0
|
%
|
|
|
|
(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 77,185,102 outstanding shares as of April 2, 2011.
|
For the three months ended April 2, 2011, our Convertible Notes had a dilutive effect on our
earnings per share calculation and 806,223 shares were included in the calculation of diluted
earnings per share. For the three months ended April 3, 2010, 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.
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 six-year senior secured Credit Facility consisted of (i) term
loan debt and (ii) a revolving credit facility of up to $65.0 million for working capital needs,
including capital expenditures and permitted acquisitions. In 2010, we repaid the remaining
outstanding term loan balance of $125.3 million with cash provided by operations and the credit
facility was terminated effective April 12, 2011. There were no outstanding borrowings under the
Credit Facility at the time of termination and no early termination penalties were incurred.
31
As of April 2, 2011, 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)
|
|
3.00:1.00 (maximum)
|
|
1.64
|
Interest Coverage Ratio (2)
|
|
4.00:1.00 (minimum)
|
|
14.44
|
Fixed Charge Coverage Ratio (3)
|
|
1.50:1.00 (minimum)
|
|
2.62
|
Maximum Capital Expenditures (4)
|
|
$22.5 million
|
|
$1.8 million
|
|
|
|
(1)
|
|
Total outstanding debt to Consolidated Adjusted EBITDA for the trailing four quarters.
|
|
(2)
|
|
Ratio of Consolidated Adjusted EBITDA for the trailing four quarters to cash interest
expense for such period.
|
|
(3)
|
|
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.
|
|
(4)
|
|
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.
2011 Senior Secured Revolving Credit Facility:
On April 15, 2011, we and AMS, our wholly owned
subsidiary, entered into a credit facility (Revolving Credit Facility) with the lenders party
thereto, JPMorgan Chase Bank, N.A., as Administrative Agent (Administrative Agent), PNC Bank,
National Association, as Syndication Agent and U.S. Bank National Association, as Documentation
Agent. The Revolving Credit Facility provides a $250 million five-year senior secured line of
credit maturing on April 15, 2016 (Maturity Date). Principal amounts outstanding under the
Revolving Credit Facility are due and payable on the Maturity Date or may voluntarily be prepaid
without premium or penalty. Accrued interest is payable no later than quarterly. There are no
borrowings outstanding under the Revolving Credit Facility.
The Revolving Credit Facility contains standard affirmative and negative covenants and other
limitations regarding the Company, AMS, and in some cases, the subsidiaries of AMS. The covenants
limit: (a) the making of investments, 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 Revolving Credit Facility also contains customary events of default,
including, payment and covenant defaults and material inaccuracy of representation defaults. The
Revolving 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 Revolving Credit Facility.
The Revolving Credit Facility contains customary financial covenants for secured credit facilities,
consisting of maximum total debt leverage ratios and fixed charge coverage ratios.
The obligations under the Revolving Credit Facility may be accelerated at the discretion of the
Administrative Agent and/or the lenders upon the occurrence of various customary Events of Default
as set forth by the Revolving Credit Facility, including but not limited to, (i) failure to pay
amounts when due under the Revolving Credit Facility, (ii) failure to observe or perform covenants,
conditions or agreements under the Revolving Credit Facility, (iii) failure to make payments on
other material indebtedness, and (iv) upon a change in control. The change in control Event of
Default will be triggered if our pending merger with Endo Pharmaceuticals Holdings Inc. is
consummated.
32
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 with or furnish to the SEC from time to time. 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 or furnish to the SEC, at prescribed rates, at the SECs public
reference room at 100 F. Street, NE, Room 1580, Washington, DC 20549. You may obtain information
regarding the operation of the SECs 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 SECs website. The address
of this website is
http://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 website
www.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
Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements are based on managements 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:
successful completion of the proposed acquisition of American Medical Systems Holdings, Inc. by
Endo Pharmaceuticals Holdings, Inc., developing our presence in new markets and developing new
products or technologies; successfully competing against competitors; physician acceptance,
endorsement, and use of our products; clinical and regulatory matters; product liability claims;
potential product recalls; changes in and adoption of reimbursement rates; healthcare reform
legislation in the U.S.; patient acceptance of our products and therapies; or technological
obsolescence; the impact of worldwide economic conditions on our operations; reliance on single or
sole-sourced suppliers; loss or impairment of a principal manufacturing facility; factors impacting
the stock market and share price and its impact on the dilution of convertible securities; adequate
protection of our intellectual property rights; and currency and other economic risks inherent in
selling our products internationally.
33
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 1, 2011 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.
34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use derivatives to mitigate our exposure to volatility in foreign currency exchange rates. We
hedge only exposures in the ordinary course of business.
Currency
Our operations outside of the United States are maintained in their local currency. 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 2, 2011, revenues from sales to customers outside the
United States were 29.2 percent of total consolidated revenues. International accounts receivable,
inventory, cash and short-term investments, and accounts payable were 44.5 percent, 6.4 percent,
20.4 percent, and 24.8 percent of total consolidated accounts for each of these items as of April
2, 2011. 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. During the three months ended
April 2, 2011, we 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, denominated in Euros, British pounds, Canadian dollars, Australian dollars
and Swedish krona,. 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 after the impact of hedges of approximately $1.3 million
during the first quarter of 2011.
At April 2, 2011, our net investment in foreign subsidiaries translated into dollars using the
period end exchange rate was $185.6 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 $18.5 million.
Credit Risk
Credit risk on financial instruments arises from the potential for counterparties to default on
their obligations to us. 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 or special investment vehicles.
Insurance programs are with carriers that remain highly rated and we have no significant pending
claims. 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 experience any
adverse impact from credit risk in the future.
35
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 2, 2011.
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 2, 2011, that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
36
PART II. OTHER INFORMATION
ITEM 1A. 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 1, 2011, except for the following risk factor
related to our pending merger with Endo Pharmaceuticals Holdings, Inc.
Our pending merger with Endo Pharmaceuticals
Holdings, Inc. may not be completed and may result in significant disruptions to our business.
On April 10, 2011, we entered into a definitive agreement with Endo Pharmaceuticals Holdings,
Inc. (Endo) under which a wholly-owned indirect subsidiary of Endo will merge with and into
American Medical Systems Holdings, Inc. and the outstanding common shares of American Medical
Systems Holdings, Inc. will be cancelled in exchange for $30 per share. The aggregate purchase
price for the merger is approximately $2.9 billion in cash, which includes the assumption and
repayment of $312 million of principal on our convertible debt. The transaction is
subject to approval of our stockholders and clearance by the relevant antitrust authorities, as
well as other conditions described in the merger agreement. These conditions might not be
satisfied and the proposed merger might not be completed. In the event that the proposed merger is
not completed:
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Our relationships with our employees, customers and business partners may be
adversely effected or disrupted as a result of uncertainties with regard to our
business and prospects;
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We may be required to pay a termination fee of up to $90 million to Endo in specific
circumstances if the merger agreement is terminated;
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We will still be required to pay significant transaction costs related to proposed
merger, such as legal, accounting, and other fees; and
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The market price of shares of our common stock may decline to the extent
that the current market price of those shares reflects a market assumption that the
proposed merger will be completed.
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Any of these events could adversely affect our business, cash flows, and operating results.
In addition, regardless of whether the merger is completed or not, our current and prospective
employees may experience uncertainty about their future role with Endo until Endos strategies with
regard to us are announced or executed. This may adversely affect our ability to attract and
retain key management and employees. During the pendency of the merger, our managements attention
from our day-to-day business may be diverted as they focus on completing the merger.
37
ITEM 6. EXHIBITS
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Item
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No.
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Item
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Method of Filing
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2.1
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Agreement and Plan of
Merger, among Endo
Pharmaceuticals Holdings
Inc., NIKA Merger Sub, Inc.
and American Medical Systems
Holdings, Inc., dated as of
April 10, 2011.
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|
Incorporated by reference to
Exhibit 2.1 of the Companys
Form 8-K filed on April 10,
2011 (File No. 000-30733).
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10.1
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2011 Executive Variable
Incentive Awards Plan.
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Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed February 16,
2011 (File No. 000-30733).
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10.2
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American Medical Systems
Holdings, Inc. Retention
Bonus Plan, dated as of
April 10, 2011.
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Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed April 10, 2011
(File No. 000-30733).
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10.3
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Credit Agreement, dated as
of April 15, 2011, among
American Medical Systems,
Inc., as borrower, American
Medical Systems Holdings,
Inc., as guarantor, the
Lenders from time to time
party thereto, JPMorgan
Chase Bank, N.A., as
Administrative Agent, PNC
Bank, National Association,
as Syndication Agent, and
U.S. Bank National
Association, as
Documentation Agent.
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Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed April 18,
2011(File No. 000-30733).
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10.4
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Guaranty, dated as of April
15, 2011, by and among
certain Subsidiaries of
American Medical Systems,
Inc. (the Borrower),
listed therein, those
additional Subsidiaries of
Borrower which become
parties to this Guaranty by
executing a supplement
thereto, in favor of
JPMorgan Chase Bank, N.A. as
Administrative Agent for the
benefit of the Secured
Parties (as defined in the
Credit Agreement set forth
at Exhibit 10.3, above).
|
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Incorporated by reference to
Exhibit 10.2 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
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10.5
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Pledge and Security
Agreement, dated as of April
15, 2011, by and among
American Medical Systems
Holdings, Inc., American
Medical Systems, Inc. (the
Borrower) and certain
Subsidiaries of the Borrower
listed therein and JPMorgan
Chase Bank, N.A., in its
capacity as administrative
agent for itself and for the
Secured Parties (as defined
in the Credit Agreement set
forth at Exhibit 10.3,
above).
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Incorporated by reference to
Exhibit 10.3 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
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10.6
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Mortgage, Security
Agreement, Assignment of
Rents and Leases and Fixture
Financing Statement, dated
as of April 15, 2011,
executed by American Medical
Systems, Inc. to and for the
benefit of JPMorgan Chase
Bank, N.A., in its capacity
as administrative Agent for
itself and for the Secured
Parties (as defined in the
Credit Agreement set forth
at Exhibit 10.3, above).
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Incorporated by reference to
Exhibit 10.4 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
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31.1
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Certification by Chief
Executive Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Filed with this Quarterly
Report on Form 10-Q.
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38
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Item
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No.
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Item
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Method of Filing
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31.2
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Certification by Chief
Financial Officer pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Filed with this Quarterly
Report on Form 10-Q.
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32.1
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Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002.
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Filed with this Quarterly
Report on Form 10-Q.
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101.1
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Financial statements from
the Quarterly Report on Form
10-Q of the Company for the
quarter ended April 2, 2011,
formatted in eXtensible
Business Reporting Language
(XBRL): (i) the Consolidated
Statements of Operations,
(ii) the Consolidated
Balance Sheets, (iii) the
Consolidated Statements of
Cash Flows, and (iv) the
Notes to Consolidated
Financial Statements, tagged
as blocks of text.*
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Filed Electronically.
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*
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Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on
Exhibit 101 hereto are furnished and should not be deemed filed
under the Securities Exchange Act of 1934.
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39
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.
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AMERICAN MEDICAL SYSTEMS
HOLDINGS, INC
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May 12, 2011
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/s/ Anthony P. Bihl, III
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Date
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Anthony P. Bihl, III
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President and Chief Executive Officer
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May 12, 2011
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/s/ Mark A. Heggestad
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Date
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Mark A. Heggestad
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Executive Vice President and Chief Financial Officer
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40
AMERICAN MEDICAL SYSTEMS HOLDINGS, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Fiscal Quarter Ended April 2, 2011
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Item
|
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|
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No.
|
|
Item
|
|
Method of Filing
|
2.1
|
|
Agreement and Plan of
Merger, among Endo
Pharmaceuticals Holdings
Inc., NIKA Merger Sub, Inc.
and American Medical Systems
Holdings, Inc., dated as of
April 10, 2011.
|
|
Incorporated by reference to
Exhibit 2.1 of the Companys
Form 8-K filed on April 10,
2011 (File No. 000-30733).
|
|
|
|
|
|
10.1
|
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2011 Executive Variable
Incentive Awards Plan.
|
|
Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed February 16,
2011 (File No. 000-30733).
|
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|
|
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10.2
|
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American Medical Systems
Holdings, Inc. Retention
Bonus Plan, dated as of
April 10, 2011.
|
|
Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed April 10, 2011
(File No. 000-30733).
|
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|
|
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10.3
|
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Credit Agreement, dated as
of April 15, 2011, among
American Medical Systems,
Inc., as borrower, American
Medical Systems Holdings,
Inc., as guarantor, the
Lenders from time to time
party thereto, JPMorgan
Chase Bank, N.A., as
Administrative Agent, PNC
Bank, National Association,
as Syndication Agent, and
U.S. Bank National
Association, as
Documentation Agent.
|
|
Incorporated by reference to
Exhibit 10.1 of the Companys
Form 8-K filed April 18,
2011(File No. 000-30733).
|
|
|
|
|
|
10.4
|
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Guaranty, dated as of April
15, 2011, by and among
certain Subsidiaries of
American Medical Systems,
Inc. (the Borrower),
listed therein, those
additional Subsidiaries of
Borrower which become
parties to this Guaranty by
executing a supplement
thereto, in favor of
JPMorgan Chase Bank, N.A. as
Administrative Agent for the
benefit of the Secured
Parties (as defined in the
Credit Agreement set forth
at Exhibit 10.3, above).
|
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Incorporated by reference to
Exhibit 10.2 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
|
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10.5
|
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Pledge and Security
Agreement, dated as of April
15, 2011, by and among
American Medical Systems
Holdings, Inc., American
Medical Systems, Inc. (the
Borrower) and certain
Subsidiaries of the Borrower
listed therein and JPMorgan
Chase Bank, N.A., in its
capacity as administrative
agent for itself and for the
Secured Parties (as defined
in the Credit Agreement set
forth at Exhibit 10.3,
above).
|
|
Incorporated by reference to
Exhibit 10.3 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
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|
|
|
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10.6
|
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Mortgage, Security
Agreement, Assignment of
Rents and Leases and Fixture
Financing Statement, dated
as of April 15, 2011,
executed by American Medical
Systems, Inc. to and for the
benefit of JPMorgan Chase
Bank, N.A., in its capacity
as administrative Agent for
itself and for the Secured
Parties (as defined in the
Credit Agreement set forth
at Exhibit 10.3, above).
|
|
Incorporated by reference to
Exhibit 10.4 of the Companys
Form 8-K filed April 18, 2011
(File No. 000-30733).
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41
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|
|
|
|
Item
|
|
|
|
|
No.
|
|
Item
|
|
Method of Filing
|
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.
|
|
|
|
|
|
101.1
|
|
Financial statements from
the Quarterly Report on Form
10-Q of the Company for the
quarter ended April 2, 2011,
formatted in eXtensible
Business Reporting Language
(XBRL): (i) the Consolidated
Statements of Operations,
(ii) the Consolidated
Balance Sheets, (iii) the
Consolidated Statements of
Cash Flows, and (iv) the
Notes to Consolidated
Financial Statements, tagged
as blocks of text.*
|
|
Filed Electronically.
|
|
|
|
*
|
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on
Exhibit 101 hereto are furnished and should not be deemed filed
under the Securities Exchange Act of 1934.
|
42
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